All Things in Moderation

Vital Statistics:

	Last	Change
S&P futures	4,374	-28.2
Oil (WTI)	103.32	6.59
10 year government bond yield		2.17%
30 year fixed rate mortgage		4.51%

Stocks are lower this morning as March options expire. Bonds and MBS are flat.

Existing home sales fell 7.2% MOM and 2.4% YOY to a seasonally adjusted annual pace of 6 million. Inventory improved ever so slightly to 870,000 units, and the median housing price increased 15% to $357,300.

“Housing affordability continues to be a major challenge, as buyers are getting a double whammy: rising mortgage rates and sustained price increases,” said Lawrence Yun, NAR’s chief economist. “Some who had previously qualified at a 3% mortgage rate are no longer able to buy at the 4% rate. Monthly payments have risen by 28% from one year ago – which interestingly is not a part of the consumer price index – and the market remains swift with multiple offers still being recorded on most properties”

Despite all the cheerleading in the press about yesterday’s housing starts number (highest since 2006!!!), the overall inventory problem is being driven by the fact we have underbuilt since 2012. Take a look at the chart below:

Chart: Housing starts:

The chart doesn’t really tell the whole story however since population has increased, and as population increases you need more housing. Here are housing starts divided by population:

Chart: Housing starts divided by population:

This chart gives a more accurate (IMO) picture of what is going on. We have underbuilt for probably a decade, and that explains why we have such an abject shortage of homes for sale.

Despite the increase in housing starts yesterday, builder applications are down 1% MOM and 4% YOY. “New home purchase activity slowed in February, as for-sale inventories remained tight and mortgage rates increased to their highest levels since 2019,” said Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting. “February is typically the start of the spring home buying season, but applications to purchase a new home were down on a monthly and annual basis.”

The economy may strengthen in the future, at least if you look at the latest Index of Leading Economic Indicators out of the Conference Board. The US LEI index rose slightly in February, following a decline in January. That said, they don’t reflect the Russian invasion of Ukraine either, which will probably act as a brake for economic growth as commodity prices spiral.

“The US LEI rose slightly in February, partially reversing January’s decline,” said Ataman Ozyildirim, Senior Director of Economic Research at The Conference Board. “However, the latest results do not reflect the full impact of the Russian invasion of Ukraine, which could lower the trajectory for the US LEI and signal slower-than-anticipated economic growth in the first half of the year. The global economic impact of the war on supply chains and soaring energy, food, and metals prices—coupled with rising interest rates, existing labor shortages, and high inflation—all pose headwinds to US economic growth. While the Omicron wave and its economic impact waned in recent months, the potential for new COVID-19 variants remains. Amid these risks, The Conference Board revised its growth projection for the US economy down to 3.0 percent year-over-year GDP growth in 2022— still well above the pre-pandemic growth rate, which averaged around 2 percent.”

Filed under: Economy |