All Things in Moderation

Vital Statistics:

Stocks are lower this morning on no real news. Bonds and MBS are down.

Consumer sentiment rose in February, according to the University of Michigan Consumer Sentiment Survey. The strong jobs report last week probably contributed, however gasoline prices are a factor too. Unfortunately for those who want the Fed out of the way, inflationary expectations increased, rising to 4.2% from 3.9% in January. Longer-term inflationary expectations were steady at 2.9%. To put the current numbers into perspective, we are about 22% below the historical average since 1978.

Mortgage credit availability contracted slightly in January, according to the MBA. “Mortgage credit availability was essentially unchanged in January and remained close to its lowest level since 2013,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Similar to December 2022, the availability of credit has been driven lower by declining originations and shrinking industry capacity as lenders have streamlined their operations to cope with lower volumes. Additionally, as mortgage rates declined over the past month, the share of adjustable-rate mortgages has fallen – consistent with a slight pullback in ARM offerings in this month’s results. However, there has been a revival in mortgage application activity over the past month and our forecast is for rates to continue to decline and housing activity – including home sales and new home construction – to gradually pick up as we approach the spring homebuying season. These developments could potentially change the credit availability landscape in the months ahead.”

Rental growth grew only 2% in January, according to Redfin. This was the slowest increase in 20 months. “We’re watching closely to see whether rents start falling year over year. That would be a welcome relief for renters  because it hasn’t happened since the onset of the pandemic,” said Redfin Chief Economist Daryl Fairweather. “If rents do start falling on a year-over-year basis, it will mean that renters have more room to negotiate. It may also prompt more landlords to sell their properties because they’re no longer getting a good return on their investment.”

There is a seasonal aspect to rental growth, which you can see in the chart above. Rents tend to bottom in January-February and then accelerate as the Spring Selling Season begins. It happened in 2020 and 2021, but not 2022. Historically, rents have lagged home price growth by 21 months, so we should probably see another pickup into the spring.

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