Morning Report: New home sales jump

Vital Statistics:

 LastChange
S&P futures4,1346.8
Oil (WTI)61.590.17
10 year government bond yield 1.54%
30 year fixed rate mortgage 3.15%

Stocks are higher as we round out the week. Bonds and MBS are up small.

New Home sales rose 21% MOM and 69% YOY to a seasonally-adjusted average of just over 1 million homes. The increases are exaggerated by bad weather in February and COVID lockdowns last year.

The MBA updated its forecasts for 2021, with total originations expected to fall 14% from a record $3.8 trillion in 2020 to a still-robust $3.28 trillion. This would be the third highest on record. Purchase originations are expected to increase to $1.78 trillion. Refis are expected to fall by a third.

Exiting home sales fell 3.7% from February to a seasonally-adjusted annual rate of 6.01 million units. The median home price rose a record 17.2% to $329,100. Inventory rose slightly to 1.07 million units, but is still down 28% on a YOY basis. Lack of inventory was the constraint on sales, and it represents about a 3 month supply. We are at record lows for inventory since NAR started tracking this data in 1982.

The typical 30 year mortgage rate rose 27 basis points in March to 3.08%, according to Freddie Mac’s survey. Higher prices and higher mortgage rates are definitely affecting affordability.

Joe Biden proposed raising the capital gains tax to 39.6% for Americans earnings $1 million or more. The money would go to fund childcare and community college and would be separate from the $1.5 trillion infrastructure plan. Meanwhile, Senate Republicans are working on a scaled down $600 billion infrastructure plan.

The Conference Board Index of Leading Economic Indicators rose 1.3% in March. “The U.S. LEI rose sharply in March, which more than offset February’s slightly negative revised figure,” said Ataman Ozyildirim, Senior Director of Economic Research at The Conference Board. “The improvement in the U.S. LEI, with all ten components contributing positively, suggests economic momentum is increasing in the near term. The widespread gains among the leading indicators are supported by an accelerating vaccination campaign, gradual lifting of mobility restrictions, as well as current and expected fiscal stimulus. The recent trend in the U.S. LEI is consistent with the economy picking up in the coming months, and The Conference Board now projects year-over-year growth could reach 6.0 percent in 2021.”

Homebuilder D.R. Horton reported that earnings per share increased 93% to $2.53 per share in the quarter ending March 31. Revenues rose 43%, and homes closed rose 36%. Backlog increased 85%. D.R. Horton’s focus in on homes in the $200k – $500k range, so it is really a barometer of the entry-level and move-up markets. Gross margins rose to 24.6%, so it is clear that the company is able to pass on increased input costs like lumber and labor.

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