Morning Report: New home sales fall

Vital Statistics:

 LastChange
S&P futures3,949-21.25
Oil (WTI)98.151.45
10 year government bond yield 2.73%
30 year fixed rate mortgage 5.64%

Stocks are lower this morning as we get a slew of important earnings and the Fed meeting begins. Bonds and MBS are up.

Home price appreciation appears to be decelerating, according to the FHFA House Price Index. Home prices rose 1.4% MOM in May, which was a decrease from the downward-revised 1.6% in April. On a YOY basis, home prices are still up some 18.3%.

Separately, the Case-Shiller Home Price Index rose almost 20% in May. Prices remained the strongest in the South and Southwest. Rising mortgage rates will make gains like this unsustainable soon enough.

Agency mortgage REIT AGNC Investment reported that the mortgage backed securities market (where lenders sell their loans) was difficult in the second quarter. Tangible book value per share fell about 13%.

“Financial markets remained under significant pressure in the second quarter as the Federal Reserve indicated a more aggressive path of monetary policy tightening,” said Peter Federico, the Company’s President and Chief Executive Officer. “The expectation of materially higher short-term rates drove significant interest rate volatility and increased the probability of a recession. This challenging monetary policy and macro-economic environment led to broad-based financial market weakness during the second quarter. Agency MBS were no exception, as the spread between Agency MBS and swap and Treasury rates widened meaningfully in April and again in June.

“Looking ahead, while the near-term outlook continues to be uncertain, the longer-term outlook for Agency MBS has improved substantially. At current valuation levels, Agency MBS are extremely attractive relative to historical levels. The Federal Reserve has begun to reduce its portfolio organically, but that runoff will occur at a slower pace than previously anticipated as a result of reduced prepayments. Finally, and perhaps most importantly, the net supply of Agency MBS is now expected to be meaningfully lower than prior expectations.

“These positive developments provide reason for optimism that this period of weakness in the Agency MBS market is nearing its end. The favorable returns associated with Agency MBS in this wider spread regime and an improving technical outlook for mortgage supply and demand should provide a supportive backdrop for Agency MBS investors. Moreover, in this compelling investment environment, we believe AGNC is well-positioned to generate strong risk-adjusted returns for our stockholders.”

What all this means is that AGNC was hit hard by weakness in the mortgage backed securities market. When the company says that “spreads widened” it means that the interest rate on mortgages rose faster than the yield on the 10-year. However, the relative valuation of mortgage backed securities is the best it has been in a while, which means that spreads should tighten as volatility wanes. This means that mortgage rates will probably move lower if the 10 year stays here. This is good for origination, though we probably won’t see a return of the rate / term refi business unless rates move materially lower.

New home sales fell 8% MOM and 17% YOY to a seasonally-adjusted annual rate of 590,000. This came in well below consensus. Homebuilding (and the real estate sector in general) continues to punch below its weight.

Consumers confidence continues to fall, according to the Conference Board. “Consumer confidence fell for a third consecutive month in July,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. “The decrease was driven primarily by a decline in the Present Situation Index—a sign growth has slowed at the start of Q3. The Expectations Index held relatively steady, but remained well below a reading of 80, suggesting recession risks persist. Concerns about inflation—rising gas and food prices, in particular—continued to weigh on consumers.”

23 Responses

    • I am always confounded by how many experience adults—people who have lived many decades—don’t understand incentives. How incentives can change. What people can be incentivized to do.

      People in public settings confirming the favored narratives of the wealthy elite cannot be trusted. And I don’t just mean kangaroo courts like the J6 committee …

      Speaking of which. We often note how things would be different if the shoe were on the other foot. Can you imagine the Republicans putting together a Republican-only committee (though including one Democrat—brave Joe Manchin, speaking truth about dangerous Joe Biden) and then interviewing all the witnesses in private and presenting selected testimony, heavily edited, for prime-time delivery on Tucker Carlson and Ben Shapiro. Just play the January 6th committee stuff as a Republican project against any Democrat (or, say, Fauci) and it’s hard to to see DC on fire as college professors and wealthy socialites drive around offering bricks to random black people in case they wanted to protest.

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      • exactly.

        always assume bad faith when dealing with the left.

        which is why i don’t care about the left’s january 6 pageant.

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        • I don’t always assume bad faith on the part of regular liberals and Democrats. Progressives it’s a little harder not to assume bad faith. And I mean run of the mill. People you might run into in real life.

          The political elite … yeah, I don’t think you can go wrong assuming bad faith. And I think that goes for much of the political right (although a lot of them got stripped off the right when presented the choice of being “conservative” or remaining in their elitist cliques). Still on the right I trust Clarence Thomas and that’s about it.

          I will 100% vote for Desantis in a contest between him and anybody but I’m still not going to assume good faith. But I will assume a degree of competence clearly absent amongst the Democrats. So there’s that.

          Which is far too much preamble to say: it is impossible for me to assume anything but bad faith regarding all the actors in the January 6th extravaganza. It reeks of manipulation and political cynicism and elitist arrogance.

          I know Cheney voted like 99% with the Republicans before January 6th but I don’t care. I realize lefties who like her because she ALSO HATES BAD ORANGE MAN are in love and think she’s speaking truth to power but all I see is an elitist prick pursuing something that is 100% a vanity project for wealthy, elitist pricks that is all about manipulating the peasants while also making it clear the peasants need to know their place and understand that they, our Glorious Rulers, are royalty and thus Their Holy Palace is inviolable.

          Which is to say I find the entire display both entirely in bad faith but also gross. And also a demonstration how for some politicians (and more than just this group) clearly see themselves as the most important people on the planet, and any threat to them much more important and significant that any threat you peasants might be facing.

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        • Liz Cheney should remember that the left loved John McCain until he committed the unpardonable sin of running against Barack Obama.

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  1. This made me laugh.

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    • Can someone identify what crime exactly Trump is suspected of committing?

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      • Mean tweets

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      • They’re supposedly investigating him for seditious conspiracy.

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        • Conspiracy to do what?

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        • There were alternate electors that did nothing but apparently that, to a Progressive, is BEYOND THE PALE AND PRIMA FACIA Seditious Conspiracy.

          https://www.washingtonpost.com/national-security/2022/07/26/trump-justice-investigation-january-6/

          I keep saying that Trump will be indicted and then tried and convicted. The conviction will occur after he’s nominated but before the general election.

          It’s going to be awesome to watch!

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        • This is the text of the law regarding seditious conspiracy:

          If two or more persons in any State or Territory, or in any place subject to the jurisdiction of the United States, conspire to overthrow, put down, or to destroy by force the Government of the United States, or to levy war against them, or to oppose by force the authority thereof, or by force to prevent, hinder, or delay the execution of any law of the United States, or by force to seize, take, or possess any property of the United States contrary to the authority thereof, they shall each be fined under this title or imprisoned not more than twenty years, or both.

          Note that every clause refers to the use of “force” in pursuit of the objectionable ends. Even if Pence had done what Trump desired and refused to count electors from certain states, that would not have been an exercise of “force”.

          If applying whacky and indefensible legal theories when exercising authority over a government process represents “sedition”, then most of the justices on the Supreme Court over the last 60 years belong(ed) in jail. Trump’s theories about electoral authority have absolutely nothing on the legal absurdities that promulgated, for just two easy examples, Roe and Obergefell.

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        • Remember, words are now defined as violence.

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        • And they think that will solve the problem of Trump instead of escalating it.

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        • thucydes (?) warned about prosecuting your political rivals after winning election.

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        • Yep. The quote that Taibbi referenced.

          Thucydides

          https://en.wikipedia.org/wiki/Thucydides

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        • Remember, words are now defined as violence.

          so is silence. checkmate tRUMPer

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        • Not doing what I want you to is violence. Words, silence, if you are being disobedient to my will: that’s violence.

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      • As far as I can tell: planning the January 6th riots with the proud boys and oathkeepers which he’d then somehow use to overturn the election. I guess.

        I know he wasn’t planning to make my groceries 40% more expensive though.

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        • KW:

          As far as I can tell: planning the January 6th riots with the proud boys and oathkeepers which he’d then somehow use to overturn the election. I guess.

          If that is what they were accusing him of, it would at least have the benefit of arguably containing the necessary element of force. But from what I can tell, they are focusing on his legal theory that certain electors were illegitimate, and his attempts to get Pence not to count them. Neither his attempt to convince Pence not to count them, nor the act of not counting them (had it happened) involves force. So it seems to me the idea that this would qualify as seditious conspiracy is as unfounded and whacky as they say Trump’s elector theory was.

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