All Things in Moderation

Vital Statistics:

	Last	Change
S&P futures	4,052	-34.50
Oil (WTI)	76.91	-0.57
10 year government bond yield		3.89%
30 year fixed rate mortgage		6.52%

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

The upcoming week will be dominated by the FOMC minutes on Wednesday and PCE inflation on Friday. We will also get the second estimate for Q4 GDP and new home sales.

Stocks are somewhat soggy this morning after disappointing 2023 forecasts from bellwether retailers WalMart and Home Depot. Wage inflation with soft demand will combine to reduce earnings.

Rental inflation declined for the sixth straight month, according to CoreLogic. “U.S. single-family rental price growth closed out 2022 at about half of what it was one year ago,” said Molly Boesel, principal economist at CoreLogic. “However, while rent growth has been slowing, it still rose at more than double the pre-pandemic rate. Rental price gains began increasing near the end of 2020 and have risen by about an average of $300 in the past two years. Annual single-family rent growth is projected to slow throughout 2023, but it will likely not decline by enough to wipe out gains from the past two years.”

The slowdown is most pronounced in the higher priced properties, where the top quartile fell from 11.9% annual growth in 2021 to 5.1% in 2022. The bottom quartile saw rent increases of 9.2%. Orlando saw the biggest price increase at 10.8%, while Phoenix saw the lowest at 1.2%.

Rental inflation tends to lag home price inflation by about 21 months, so this phenomenon should take a while to play out. Note the Fed thinks that housing’s impact on the inflation numbers will fade by this summer.

Homebuilder LGI Homes reported fourth quarter numbers that missed Street expectations. Sales fell 39% and net income fell 69%. The cancellation rate rose to 24%, and backlog decreased 66% in units. “We enter 2023 with tempered optimism. Recent lead and sales trends have been very positive. In the first eight weeks of the year, our retail net orders pace has been 7.2 homes per active community, compared to 2.9 in the fourth quarter of 2022. However, mortgage rates are again rising and the Fed’s interest rate path is still uncertain. Therefore, our focus remains on what we control – driving leads through marketing, controlling input costs, starting affordable, move-in ready homes at a disciplined pace and maintaining our strong balance sheet while investing to support our future growth.”

Existing home sales fell 0.7% MOM to a seasonally-adjusted annual pace of 4 million units. This is down 37% compared to a year ago. “Home sales are bottoming out,” said NAR Chief Economist Lawrence Yun. “Prices vary depending on a market’s affordability, with lower-priced regions witnessing modest growth and more expensive regions experiencing declines. Home sales are bottoming out, prices vary depending on a market’s affordability, with lower-priced regions witnessing modest growth and more expensive regions experiencing declines.”

The median home price came in at $359,000 which is an increase of 1.3% compared to a year ago. Prices rose everywhere except the West.

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