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MBS Highway Daily Updates 12/21/2022

Updated: Dec 26, 2022

Current position: Carefully Floating


Existing Home Sales

Existing Home Sales, which measure closings on existing homes, showed that sales were down 7.7% in November at a 4.09M annualized pace, which was weaker than expectations looking for a 6% decline. On a year over year basis, sales are down 35%.


Inventory continued to move lower after peaking at 1.3M in August, as it does every time this year after the normal seasonal build, and declined for the fourth straight month to 1.14M. This is a decline of 6.6% from the previous report. This will continue to limit the downside in home prices and set up for a reacceleration in appreciation once hibernating buyers come back next year when rates fall further.


There is a 3.3 Months' supply of homes, which is tight, because 4.6 months is considered normal. But if you look at active listings, there are only 751,000, which means that 34% of the "inventory" in the Existing Home Sales report is under contract and not truly available. This speaks to demand, as a normal market has 25% of inventory under contract. When looking at the month's supply of available homes for sale, it's really 2.2 months.


Homes remained on the market on average for 24 days, up from 21 days, but they are still moving fast. 61% of homes were on the market for less than 30 days.


First Time Home Buyers have accounted for 28% of sales, which was unchanged from the previous report, but amazingly 2% higher than this time last year. Cash buyers accounted for 26% of sales, which was also unchanged, while investors purchased 14% of homes, which is down from 16% and means that one out of every seven homes is an investment property. Make sure to utilize the new Investment Property tool within MBS Highway. Foreclosures and short sales accounted for 2% of all transactions, which is basically unchanged from the report and last year.


NAR Chief Economist Lawrence Yun thinks that things are going to get better in the coming months. He said, "The market may be thawing since mortgage rates have fallen for five straight weeks. The average monthly mortgage payment is now almost $200 less than it was several weeks ago when interest rates reached their peak for this year (two months ago)." This is not reflected in the numbers yet, but is a good sign for the coming few months and should reflect higher sales.



Mortgage Applications

The MBA released their Mortgage Application data for last week, showing purchases were flat last week, and are down 36% year over year. Interest rates declined from 6.42% to 6.34%. Last year at this time, rates were roughly 3.25%, which means rates are around 3% higher today. Refinances rose 6% last week and are still down 85% year over year.


Realtor.com Rental Report

According to Realtor.com, rent growth slowed in November for the tenth month in a row. Rents are now up +3.4% year - over - year as of November, which is the slowest growth rate in 19 months. The increase has decelerated considerably from the peak in January, where they were up 17.4% year over year. This is not showing up in the CPI reports yet, but we should see deflation from this component in the coming months.


20 - year Bond Auction

Later this afternoon at 1:00 pm ET, there will be a 20 - year Bond Auction. This can impact the markets, depending on the level of demand and foreign participation, which has been weak.


Technical Analysis

Mortgage Bonds broke above their 25 - day Moving Average yesterday and are testing that level once again as support this morning. The 10 - year is a little lower , testing support at 3.65%, which is a Fibonacci level. There is a lot of room for yields to get worse if they are rejected, so we have to proceed with caution. Begin the day carefully floating.


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