Morning Report: New home sales fall

Vital Statistics:

 LastChange
S&P futures4,135-5.50
Oil (WTI)91.87-0.67
10 year government bond yield 3.07%
30 year fixed rate mortgage 5.68%

Stocks are lower this morning as the sell-off continues based on fear of the Fed. Bonds and MBS are down.

New home sales came in at 511,000 in July, which was weaker than expected. This is down 13% MOM and 30% YOY. It is astounding that building is so weak during a shortage. Yes, rates matter but historically the current rate environment is still quite low.

The second quarter of 2022 was brutal for mortgage bankers, with companies losing about 5 basis points on average (or about $82 per loan). Given that the second and third quarters are usually the most profitable for the industry, this is an issue. This was the first second quarter loss since 2008. The industry is in the famine part of the cycle.

Multifamily construction hit a record high in the second quarter, as apartment builders react to soaring rental prices. The biggest driver of rising home prices has been a lack of supply. Rising rents are a function of rising home prices, so this should put at least some downward pressure on rising home prices.

96% of these units were built for rent. This share fell to 47% during the condo-building boom of 2005.

Rising rates are beginning to be felt in the economy, at least according to the S&P Composite flash PMI. Respondents reported softening demand and slowing price increases. This is also easing the labor issue as firms scale back hiring plans.

Since monetary policy generally affects the economy with a 6- 9 month lag, we are only beginning to feel the impact of rising rates. The big increases over the past few months will start to impact late Q4 numbers.

Interestingly, the Atlanta Fed GDP Now Index shows a rebound in expected growth for Q3, after two negative prints in Q1 and Q2. According to this chart at least, that looks optimistic.

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