Current position: Locking Bias
Stocks are higher and Mortgage Bonds are both lower to start the day. The BoJ (Bank of Japan) surprised markets by doubling the 10-year JGB yield cap to 0.5% from 0.25%, causing their yields to move higher, near the highest level in nearly eight years. This is also sending global yields higher, as the global economy is interconnected, and as other Bond markets become more attractive in terms of yield, the US Treasury market becomes less so. This was a big surprise. Not one of the 47 BoJ-watchers polled by Bloomberg saw this move coming.
NAHB Housing Market Index Boockvar
The NAHB home builder survey for December fell another 2 points to 31. The estimate was for a slight rise of 1 point. While present conditions fell, future expectations were higher. Traffic remained at a very low level of 20.
NAHB said, "The silver lining in this HMI report is that it is the smallest drop in the index in the past six months, indicating that we are possibly nearing the bottom of the cycle for builder sentiment," said NAHB Chief Economist Robert Dietz. "Mortgage rates are down from above 7% in recent weeks to about 6.3% today, and for the first time since April, builders registered an increase in future sales expectations."
Present conditions - fell 3 points to 36
Future outlook rose 4 pts to 35
Prospective Buyers Traffic remained at 20
Housing Starts and Permits
Housing Starts in November were down 0.5% to a 1.427M unit annualized pace. Starts are down 16% year over year. Single - family starts, which are most important, were down 4% last month at an 828k unit pace. They are now down 32% year over year.
Housing Permits, which are the future supply, were down 11% last month at a 1.342M unit pace and are down 22% year over year. Single family was down 7% last month to 841k units and down 30% year over year.
Bottom line - There is a big difference between housing the economic driver and housing the investment. Clearly, activity is in a recession, but the low supply environment will continue to be supportive of prices and will limit the downside. This is a stark contrast to the housing crash, when demand was lower and builders were putting up a record number of homes.
CoreLogic Single - Family Rent Report
CoreLogic reported that rental price gains decelerated in October to + 8.8% from last year, which is a slower pace of increase from the + 10.2% in September. It is still more than double the average rental year over year increase pre covid of roughly 4%, but this deceleration will help inflation move lower once it catches up in the numbers, which we think will happen in the first quarter of 2023.
Technical Analysis
Mortgage Bonds broke beneath the triple floor of support earlier today, but have managed to get back above the 100.758 Fibonacci level. Bonds are now testing the 100 - day Moving Average. The 10 - year has broken out to the upside and has room to move higher until the 50 - day Moving Average at 3.83%. We don't think it will get there, but there is room for things to get worse until we get to Friday, when the Fed's favorite PCE inflation report will likely be Bond friendly. We have been floating for a month and have enjoyed nice gains, but want to have a locking bias today as things can get worse before potentially getting better on Friday.
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