Morning Report: New home sales flat

Vital Statistics:


Last Change
S&P futures 3259 20.25
Oil (WTI) 53.38 0.22
10 year government bond yield 1.62%
30 year fixed rate mortgage 3.71%


Stocks are up this morning as the tape exhibits a risk-on feel. Bonds and MBS are down small.


The FOMC meeting begins today. No changes in rates are expected, but market participants will be watching for changes in the interest on overnight reserves and changes in the Fed’s balance sheet.


Durable goods orders rose 2.4%, which was better than expected although the volatile transportation sector accounted for the growth. Ex-transportation they fell 0.1%. Capital expenditures continue to disappoint, falling 0.9%.


Home prices rose 0.5% MOM and 2.6% YOY according to the Case-Shiller home price index.


New home sales were roughly flat with November, but are up 23% on a year-over-year basis. For the year, new home sales came in at 681,000, up 10% from 2018. As you can see from the chart below, we are back towards historical norms, but given the increase in population, that isn’t enough.


new home sales


Homebuilder D.R. Horton reported Q1 earnings that impressed the Street, with earnings up 53% and revenues up 14%. Orders were up 19% in units and 22% in dollar volume. The cancellation rate fell to 20% from 24%. The stock was up 2% in what was otherwise a putrid tape.


Black Rock’s bond strategist sees bond yields falling another 10 – 15 basis points, as uncertainty over coronavirus and the election seeps into the market. If the virus gets materially worse, and travel and business becomes curtailed, then we could be looking at 1.3% on the 10 year.


The CFPB has issued a statement on how it intends to police abusive behavior by lenders. The Bureau has decided that the definition of abusive behavior is too vague, and that uncertainty is having a negative effect on consumers by driving overly-cautious behavior in lenders. The money quote:

First, consistent with the priority it accords to the prevention of harm, the Bureau intends to focus on citing conduct as abusive in supervision or challenging conduct as abusive in enforcement if the Bureau concludes that the harms to consumers from the conduct outweigh its benefits to consumers. Second, the Bureau will generally avoid challenging conduct as abusive that relies on all or nearly all of the same facts that the Bureau alleges are unfair or deceptive. Where the Bureau nevertheless decides to include an alleged abusiveness violation, the Bureau intends to plead such claims in a manner designed to clearly demonstrate the nexus between the cited facts and the Bureau’s legal analysis of the claim. In its supervision activity, the Bureau similarly intends to provide more clarity as to the specific factual basis for determining that a covered person has violated the abusiveness standard. Third, the Bureau generally does not intend to seek certain types of monetary relief for abusiveness violations where the covered person was making a good-faith effort to comply with the abusiveness standard.

The MBA has more analysis of the change here.

6 Responses

  1. Report on POTUS this morning that Cali needs 4 million new residential units to take the pressure off their 250% of natnl ave pricing, but that it cannot be done because of state law and local regulation.

    State law is restrictive on environmental concerns including earthquake, mudslide, and water shortage as the big bogeys, and local ordinances are restrictive because of NIMBY and fear of reduced values for existing homeowners.

    If we assume that the state concerns on big stuff are legit, it seems to me that Cali must stop growing yesterday. Overcoming local NIMBY is a tedious one-at-a-time process that would not be that promising of results, IMHO.

    However, if the earthquake stuff can be engineered around more cheaply, or if Cali starts desalination in a big way, that could provide them some long term relief.

    Right now, they keep moving to Austin. Nice people, but truly aggressive drivers.

    Liked by 1 person

    • Another regulatory aspect for California is open-space requirements. Certainly limiting density makes developments more pleasant but it does limit units and lowers ROI for builders. Also, mandated low-income housing that comes with every development also lowers ROI. Lowered ROI means less building.

      Also, CA’s 4 million unit requirement is 3 year’s worth of housing starts. Just to meet CAs, needs let alone everyone else.


      • Isn’t part of limiting density the water shortage issue? SoCal especially just has no more water. LA County sucks everything dry. I think Lulu could tell some stories here.

        San Diego is actually building big time desalination plants.

        Albuquerque has stopped growing because of water and Phoenix is running dry, as well. Austin has carrying capacity for maybe another million in the metro. But the west ain’t like the east. On the farm I grew up on in Monmouth County NJ our well was at 18′ and never dry. Closest ground water in the Austin area is 200′ and virtually undrinkable, the sweet Trinity Sand is at 800′ and receding. The carrying capacity here is based on river water, not ground water. And Austin is being fought by the farmers downstream, the way the citrus farms fought and lost to Los Angeles 85 years ago.

        I think without massive desalination Cali should actually cap out like Albuquerque.

        Liked by 1 person

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