Morning Report: Existing Home Sales Fall

Posted on July 20, 2023 by Brent Nyitray

Vital Statistics

Stocks are lower this morning after disappointing numbers out of Netflix and Tesla. Bonds and MBS are down.

Bank earnings continue to come in. Truist reported numbers this morning. Mortgage banking origination rose 38% QOQ to $5.6B. They were down 53% on a year-over-year basis. Fifth Third reported originations rose 21% to $1.7B, but still fell 60% on a YOY basis. On the plus side, gain on sale increased to 1.71% compared to 1.21% in Q1 and 0.85% a year ago.

Existing Home Sales fell 3.3% in June, according to NAR. “The first half of the year was a downer for sure with sales lower by 23%,” said NAR Chief Economist Lawrence Yun. “Fewer Americans were on the move despite the usual life-changing circumstances. The pent-up demand will surely be realized soon, especially if mortgage rates and inventory move favorably. There are simply not enough homes for sale….The market can easily absorb a doubling of inventory….Home sales fell but home prices have held firm in most parts of the country,” Yun said. “The national median home price in June was slightly less than the record high of nearly $414,000 in June of last year. Limited supply is still leading to multiple-offer situations, with one-third of homes getting sold above the list price in the latest month.”

Days on market rose to 18 from 14 a year ago, while all-cash buyers accounted for 26% of sales. Investor activity increased to 18%. The first time homebuyer was 27%.

The Index of Leading Economic Indicators fell again in June, according to the Conference Board. “The US LEI fell again in June, fueled by gloomier consumer expectations, weaker new orders, an increased number of initial claims for unemployment, and a reduction in housing construction,” said Justyna Zabinska-La Monica, Senior Manager, Business Cycle Indicators, at The Conference Board. “The Leading Index has been in decline for fifteen months—the longest streak of consecutive decreases since 2007-08, during the runup to the Great Recession. Taken together, June’s data suggests economic activity will continue to decelerate in the months ahead. We forecast that the US economy is likely to be in recession from Q3 2023 to Q1 2024. Elevated prices, tighter monetary policy, harder-to-get credit, and reduced government spending are poised to dampen economic growth further.”

The components pulling down the LEI include the ISM New Orders Index, the inverted yield curve, and consumer sentiment. Consumer sentiment is a squishy indicator, which is often driven heavily by gasoline prices. The ISM New Orders Index maybe has more rigor but it is still one of these diffusion indices without a lot of quantitative meat on the bones. Ever since QE began the shape of the yield curve has been driven by central bank policy, so IMO the information contained in that has been limited at best. Maybe we get a recession, but with the strength of the labor market, I can’t imagine a deep one, if we get one at all.

Bernstein sees equities providing bond-like returns over the next decade. They plot the rolling 10 year return of equities going back almost 150 years. We “take a step back by 100 years or so to get some perspective on the prospect of likely future equity and bond returns over the next decade,” strategists Sarah McCarthy and Mark Diver wrote in a note. “US Equities have delivered 12% annualized total return over the last decade Not bad, but not that unusual,” they said. “While the 2000s were a largely lost decade for equities, the period from the mid-80s to late 90s had a consistent higher 10-year rolling return, in the region of 15%. The 50s and early 60s were similar.”

My gut feeling looking at that chart is that aside from special cases like the tech bubble, long-term interest rate trends are the driver. Long periods of low interest rates are a positive catalyst for stock returns, while rising rates are a negative.

It is easy to forget how long interest rate cycles are. Bonds were in a long term bull market starting during the Great Depression and lasting into the 1960s. Bonds began a secular bear market starting in the 1960s and ending in the early 1980s. The long secular bull market in bonds began in the early 80s and ended last year. Are we in for a 20 or 30 year bear market in bonds? If inflation is a permanent part of the landscape maybe we are.

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24 Responses

  3. lmsinca's avatar
    lmsinca, on July 21, 2023 at 8:39 pm said:

    I want to thank jnc and McWing for congratulating my daughter. It’s been a long road but her choices have paid off!

    Also jnc, I think most liberals know that these indictments of Trump make him stronger to the conservative right but I guess it’s about accountability and I have to agree with him facing the consequences of his actions. I personally think everyone should!

    It’s a crazy world right now!

    Also, I’m not here to debate, I doubt anyone cares about my opinion and when you guys assume you’re always right and on the opposite end of the “ignorant” rest of us, there’s really no point in debate. I lose before I ever get started and who really cares anyway.

    The reason I posted my daughter’s accomplishments is perhaps some of you might get behind a new technology to fight climate issues, if any of you actually believe there are issues. She worked hard to go from working for the EPA on water contamination, to working in the oil industry and learning all she could about fluvial geology, rock formations, pockets of natural gas, oil and now hydrogen. She’s well positioned to make a difference in our energy independence, something we should all hope for!

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    • Let the mutherfuker burn!'s avatar
      Let the mutherfuker burn!, on July 21, 2023 at 9:13 pm said:

      She’s well positioned to make a difference in our energy independence, something we should all hope for!

      And something we had just a few short years ago, when we were a net exporter of energy products.

      Like

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    • ScottC's avatar
      ScottC, on July 21, 2023 at 9:36 pm said:

      lms:

      but I guess it’s about accountability

      That’s a bad guess. It has literally nothing to do with “accountability”.

      Like

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    • jnc4p's avatar
      jnc4p, on July 22, 2023 at 9:27 am said:

      “The reason I posted my daughter’s accomplishments is perhaps some of you might get behind a new technology to fight climate issues, if any of you actually believe there are issues. She worked hard to go from working for the EPA on water contamination, to working in the oil industry and learning all she could about fluvial geology, rock formations, pockets of natural gas, oil and now hydrogen. She’s well positioned to make a difference in our energy independence, something we should all hope for!”

      I’m fine with taking steps to address climate issues, but cost/benefit analysis applies there as well. One of my tests for whether or not someone is serious about climate issues and energy is their position on nuclear power.

      Also addressing climate change and obtaining energy independence are two different things. A lot of the components for the batteries for electric cars have to be sourced from other countries, usually under less than ideal circumstances.

      “Rich lode of EV metals could boost Taliban and its new Chinese partners

      The Pentagon dubbed Afghanistan ‘the Saudi Arabia of lithium.’ Now, it is American rivals that are angling to exploit those coveted reserves.”

      https://www.washingtonpost.com/world/interactive/2023/ev-lithium-afghanistan-taliban-china/

      Worth reading vis-a-vis this issue:

      “The Liberal Patriot
      The Democrats’ Agenda Has a Green Achilles’ Heel
      Voters Don’t Share Their Fervent Commitment to Renewables and EVs

      Ruy Teixeira
      Jul 20, 2023

      Last week, I featured some findings from The Liberal Patriot’s first 3,000 voter survey, one of five we intend to do in the coming year. One of these findings was about Americans’ views on energy/climate change strategy. We gave voters three options:

      We need a rapid green transition to end the use of fossil fuels and replace them with fully renewable energy sources;

      We need an “all-of-the above” strategy that provides abundant and cheap energy from multiple sources including oil and gas to renewables to advanced nuclear power; or

      We need to stop the push to replace domestic oil and gas production with unproven green energy projects that raise costs and undercut jobs

      The first position, emphasizing ending the use of fossil fuels and rapidly adopting renewables, most closely resembles the current Democratic approach—but was embraced by just 29 percent of voters. In contrast, the most popular position was the second, all-of-the above approach that emphasizes energy abundance and the use of fossil fuels and renewables and nuclear, favored by 46 percent of voters. Another quarter just wanted to stick with fossil fuels.”

      https://www.liberalpatriot.com/p/the-democrats-agenda-has-a-green

      “Also, I’m not here to debate, I doubt anyone cares about my opinion and when you guys assume you’re always right and on the opposite end of the “ignorant” rest of us, there’s really no point in debate.”

      I do care about your opinion, but I don’t think that that means it’s immune from being challenged. I do think that it’s important to be clear that challenging an idea being presented isn’t meant as a personal attack. I try to do that but I don’t always succeed. However, ultimately it’s up to you how you chose to participate or not in the forum.

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  4. jnc4p's avatar
    jnc4p, on July 22, 2023 at 9:40 am said:

    Scott, you may find this of interest:

    “”This opinion breaks open all sorts of different aspects of American life where race has been overused, and says, ‘No more.'”

    Transcript of Podcast with Adam Mortara, who argued Students for Fair Admissions vs Harvard University

    Wesley Yang
    Jul 22, 2023″

    https://wesleyyang.substack.com/p/this-opinion-breaks-open-all-sorts

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  5. Let the mutherfuker burn!'s avatar
    Let the mutherfuker burn!, on July 23, 2023 at 11:59 am said:

    I totally consult the NYT before I decide if I’m going to leave the house.

    They control all the institutions and they’re still miserable.

    Like

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  7. Let the mutherfuker burn!'s avatar
    Let the mutherfuker burn!, on July 23, 2023 at 11:33 pm said:

    This made me laugh.

    Like

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