Morning Report: Existing Home Sales fall

Vital Statistics:

S&P futures3,993 36.25
Oil (WTI)78.68-3.02
10 year government bond yield 3.77%
30 year fixed rate mortgage 6.59%

Stocks are higher this morning on no real news. Bonds and MBS are flat.

Existing home sales fell for the ninth month in a row, according to the National Association of Realtors. Sales fell 5.9% MOM to a seasonally-adjusted annual rate of 4.43 million. This is down 28.4% from a year ago. Blame high prices and high mortgage rates, which are negatively affecting affordability.

“More potential homebuyers were squeezed out from qualifying for a mortgage in October as mortgage rates climbed higher,” said NAR Chief Economist Lawrence Yun. “The impact is greater in expensive areas of the country and in markets that witnessed significant home price gains in recent years.”

Yun is talking about California and some of the Western MSAs like Boise Idaho, which experienced rapid price appreciation since the pandemic began. Essentially, people in California sold homes and used the cash to purchase properties in places like Phoenix or Boise. These cash buyers drove up prices higher than could be supported by the local economy.

Now, these cash-rich buyers are disappearing as they cannot sell their homes at the prices they want in California, which means that prices in Boise are falling to what the local economy can support. If Tanner the Tech Bro wants to sell his Casper, Wyoming property, he is going to have to cut the price.

“Inventory levels are still tight, which is why some homes for sale are still receiving multiple offers,” Yun added. “In October, 24% of homes received over the asking price. Conversely, homes sitting on the market for more than 120 days saw prices reduced by an average of 15.8%.

The median price rose 6.6% YOY to $379,000, which is a 128 month winning streak, the longest on record. This is shutting out first time homebuyers, who only accounted for 26% of sales. This is a record low, and speaks to the affordability issue. Historically that number has been around 40%.

More recessionary indicators: The Conference Board’s Index of Leading Economic Indicators fell 0.8% in October, following a 0.5% decrease in September.

“The US LEI fell for an eighth consecutive month, suggesting the economy is possibly in a recession,” said Ataman Ozyildirim, Senior Director, Economics, at The Conference Board. “The downturn in the LEI reflects consumers’ worsening outlook amid high inflation and rising interest rates, as well as declining prospects for housing construction and manufacturing. The Conference Board forecasts real GDP growth will be 1.8 percent year-over-year in 2022, and a recession is likely to start around yearend and last through mid-2023.”

14 Responses

  1. My guess is the Republicans keep the committee and add more Democrats to it.


  2. Taibbi’s latest:

    “No, New York Times, You Don’t “Deserve Better” Than Donald Trump.
    Trump should spare us all and retire. But his antagonists’ lack of self-awareness keeps giving him oxygen

    Matt Taibbi”


  3. Another post from Taibbi, commenting on a Bloomberg piece.

    ““You Think We’re Bad? You Should See the Fed!” Bloomberg reported Thursday the nation’s four largest banks, JP Morgan, Citigroup, Bank of America and Wells Fargo are taking a $17 billion hit to their capital positions due to write-downs of large holdings of Fannie Mae, Freddie Mac and Ginnie Mae mortgage backed securities (MBS). Banks hold relatively liquid bonds, such as MBS and Treasury issues in their investment accounts, for purposes of liquidity management as well as for investing excess cash. Since Covid and the Fed’s massive quantitative easing program, bank reserves and deposits skyrocketed, creating a reservoir of cash, more than they could lend. Therefore, they bought more MBS and Treasuries than they normally would have. The banks’ voracious buying of MBS helped keep mortgage rates consumers saw over the last few years extraordinarily low. Unfortunately, the rapid increase in interest rates this year has decimated the market value of the bank’s securities holdings. The banks will not be buying MBS for the foreseeable future, which is one of the reasons mortgage rates are so high now. Speaking of huge buyers: none is huger than the Federal Reserve. It owns approximately $2.7 trillion MBS, dwarfing bank ownership. During the pandemic, the Fed was buying up to $120 billion (including reinvestment of principal) MBS a month for two years. The average price at which the Fed purchased MBS during that time was approximately 103. The Fed’s $2.7 trillion MBS portfolio is now priced approximately at 84. If the Fed had to write down their MBS portfolio the way the banks do, the hit would be a cool $513 billion. Does anybody know what happens when the Fed runs out of capital? We don’t, either.”

    Original Bloomberg piece:

    Brent, I didn’t know if you had already commented on this.


  4. This is among the many reasons people supported Trump.

    Still my all time favorite of his.


  5. Pretty exciting end to Patriots/Jets game in an otherwise tedious punt fest.


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