All Things in Moderation

Vital Statistics:

	Last	Change
S&P futures	4,280	0.8
Oil (WTI)	73.25	0.32
10 year government bond yield		1.5%
30 year fixed rate mortgage		3.20%

Stocks are taking a breather this morning after hitting record levels. Bonds and MBS are flat.

Home prices rose 15.7% in April, according to the FHFA House Price Index. On a month-over-month basis, prices rose 1.8%. In some MSAs like Boise, prices are up 28%. Austin is up 23%. Note that in April of 2020, the entire US was in lockdown, and there were very few transactions. This will exaggerate the year-over-year price increases. The supply / demand imbalance will hopefully get some relief as lumber prices fall, and the foreclosure / eviction moratoriums expire. Until then, it is slim pickings if you are a buyer.

The Case-Shiller Home Price Index reported similar gains to FHFA, rising 2.1% MOM and 14% YOY. Craig J. Lazzara, Managing Director and Global Head of Index Investment Strategy at S&P had this to say about the pace of home price growth:

“We have previously suggested that the strength in the U.S. housing market is being driven in part by reaction to the COVID pandemic, as potential buyers move from urban apartments to suburban homes. April’s data continue to be consistent with this hypothesis. This demand surge may simply represent an acceleration of purchases that would have occurred anyway over the next several years. Alternatively, there may have been a secular change in locational preferences, leading to a permanent shift in the demand curve for housing. More time and data will be required to analyze this question.”

The change in housing preferences is an interesting idea, however Occam’s Razor says that we have underbuilt for years, and have not kept pace with population growth and obsolescence. That said, COVID probably did affect preferences at the margin, but even before the pandemic we had a supply problem. If anything, COVID just exacerbated it.

The number of loans in forbearance fell another 2 basis points last week to 3.91%, according to the MBA. Re-entries accounted for 6.2% of those in forbearance, so it looks like some borrowers are not really launching yet.

Despite the seemingly never-ending foreclosure moratoriums, the government did make a few tweaks to its policy. Foreclosure proceedings are permitted to begin if (a) the home is abandoned, (b) the borrower has not responded to any messages for 90 days, (c) the borrower has been evaluated for a modification and none are viable or (d) the borrower was 120 days down before March 2020.

Consumer confidence increased in June, according to the Conference Board. “Consumer confidence increased in June and is currently at its highest level since the onset of the pandemic’s first surge in March 2020,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. “Consumers’ assessment of current conditions improved again, suggesting economic growth has strengthened further in Q2. Consumers’ short-term optimism rebounded, buoyed by expectations that business conditions and their own financial prospects will continue improving in the months ahead. While short-term inflation expectations increased, this had little impact on consumers’ confidence or purchasing intentions. In fact, the proportion of consumers planning to purchase homes, automobiles, and major appliances all rose—a sign that consumer spending will continue to support economic growth in the short-term. Vacation intentions also rose, reflecting a continued increase in spending on services.”

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