Morning Report: Homeowners feel stuck

Vital Statistics:

S&P futures3,882-40.25
Oil (WTI)73.64-2.54
10 year government bond yield 3.54%
30 year fixed rate mortgage 6.24%

Stocks are lower as they continue their post-Fed sell-off. Bonds and MBS are down.

Retail sales fell 0.6% in November, which was lower than expectations. On a year-over-year basis they rose 6.5%. These numbers are not adjusted for inflation, so if you take into account the 7.1% CPI print from Tuesday, retail sales are more or less down on a year-over-year basis in real terms. Ex-vehicles and gasoline they fell 0.2%. Note October’s numbers were revised downward. This doesn’t bode well for this year’s holiday shopping season.

Industrial Production fell 0.2% in November, according to the Federal Reserve. Manufacturing output fell 0.6% and is up 1.2% compared to a year ago. Capacity Utilization ticked down 0.1% to 79.7%.

These two reports show the economy slowing. The Atlanta Fed’s GDP Now estimate now sees 2.8% growth in the fourth quarter, but that seems high given the other data out there.

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A lot of attention has been placed on the issue of home affordability and how it is impacting potential buyers. This is a fair point, but affordability is also an issue for sellers too, and this helps explain the dearth of home sales. According to one study, many people who would like to move consider themselves stuck.

High home prices are one issue – the home seller would presumably be looking in the same picked-over market that everyone else is in for a new home. Second higher mortgage rates are a problem. So many homeowners who would like to move will probably hunker down with their 3.5% mortgage and wait it out while homebuilding squares the circle.

I imagine this problem is most acute for downsizers – people who’s kids are grown and no longer need a 3,000 square foot house. The other side of the trade – the move up homebuyer – isn’t really there. The move-up homebuyer is a smaller group (less people are having families) and affordability constraints have been a double-whammy.

That said, I think the respondents are too pessimistic, at least on rates. When the study was conducted, the mortgage rate was between 7% and 7.5%. Over 2/3 of respondents though rates would be higher in 12 months. Since then, we have seen mortgage rates fall about a percentage point. As MBS spreads revert to the mean and the Fed wraps up its tightening cycle rates should stay the same or move lower.

18 Responses

  1. The shoe is on the other foot now.

    So much for free speech.


    • Did you see the video of Musk being stalked by what presumably is Antifa? The left shouldn’t be permitted to dox either.

      Of course it isn’t as grave of an affront as making fun of Rachel Levine or mentioning the lab leak theory. I’ll allow it.


      • He wasn’t being doxed. And the accounts suspended didn’t even go as far as the plane tracking one. If it was really about doxing, they could flag the offending post and suspend the account until it was removed, like they used to do.

        Still, the pure role reversal is amusing.

        What would be perfect would be if Musk reinstated the accounts and said that this was all a trolling exercise to show everyone how it felt to be on the other side of the arbitrary social media censorship issue.


    • I think a lot of the conversation misses the point. Which is–huge media sites with huge potential reach cannot be unlimited free speech zones, up to calls for violence, explicit instructions on bomb-making, doxxing people with the possibility of get tens or dozens or even hundreds of people working in concert to hurt the doxxed person, when that was not remotely possible back in the day.

      The problem is, Twitter and Facebook (and the people at them) tend to confuse hard and sticky questions of what speech is allowed, what isn’t, and how do you limit speech that can cause real harm and offers no benefit (to anyone, really) with just getting to censor what and who you don’t like.

      It’s a tough question. I cannot imagine any rationale for limiting “misinformation”, or censoring news stories because they “might” be Russian disinformation, or banning the accounts of people who just repost the TikToks of people and bring general attention to them, for example. People who post addresses or current locations and wink-wink/nudge-nudge it are in a different category. And will ultimately have to be treated like they are in a different category.


  2. And now for a word from our sponsors:

    “This DC party invite shows all the money to be made off the Ukraine war

    A Ukrainian Embassy reception, sponsored by America’s biggest weapons makers.

    By Jonathan Guyer”


    • I was listening to a film about inflation from the 1960s, and the one thing that made the biggest impression was their distinction between monetary and fiscal policy in peacetime versus wartime.

      It seemed such a quaint idea in our age of perma-war.


  3. Uh…

    Brent, what do you think of this?


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