Morning Report: Housing starts rise

Posted on November 17, 2023 by Brent Nyitray

Vital Statistics:

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

Housing starts rose 1.9% MOM to a seasonally adjusted annual rate of 1.37 million. This was still down 4.2% on a YOY basis. Building Permits rose 1.1% MOM to 1.49 million. The mix of housing starts continues to shift from multi-family to single family. There is a glut of apartments under construction and multifamily commercial real estate is becoming an issue.

The National Association of Realtors reports that listings are increasing as mortgage rates fall. The rate “lock-in” effect, which basically says that people are unwilling to move when that means trading a 3.5% mortgage for a 8% mortgage, appears to be easing. Median listing prices are holding up, although it sounds like some of the Western markets which rocketed during the pandemic are seeing a lot of price cuts without homes moving.

NAR Chief Economist Lawrence Yun forecasts that existing home sales will rise 15% in 2024 as mortgage rates fall into the 6% – 7% range by the Spring Selling Season. Based on normal MBS spreads, a 4.4% 10-year should translate into a 6.4% mortgage rate. “The 10-year Treasury yield is at 4.4%, which historically means mortgage rates could be at 6.4%, but they are much higher,” said Yun. “The bond market is forcing the Fed to pivot.”

Ultimately the rate lock-in effect will dissipate as real life intrudes. “Pent-up sellers cannot wait any longer. People will begin to say, ‘life goes on,'” said Yun. “Listings will steadily show up, and new home sales will continue to do well. Existing home sales will rise by 15% next year.”

The Wall Street Journal has a piece this morning on how foreign demand for Treasuries has dissipated. Much of it has to do with foreigners selling Treasuries in order to prop up their own currencies (China in particular). However, there was an interesting note in the piece: China is swapping out its Treasuries for MBS.

“At the same time, China has diversified reserves away from Treasurys and has been investing in bonds backed by U.S. government agencies such as Freddie Mac that offer higher yields than Treasurys. China has bought a net $32 billion of those in the year through August, according to data from the Council on Foreign Relations. “

If this catches on, increased appetite for agency debt, along with a decline in bond market volatility could be the catalyst for decreasing MBS spreads, at long last.

Personal interest payments continue to rise. Hard to see how consumer spending can be sustained in the context of this, especially as the COVID payment suspensions go away.

Interestingly WalMart’s CEO warned of deflation on the earnings conference call yesterday. Haven’t heard that word bandied about in a while – deflation is generally a credit event, not a monetary one – but if retailers are cutting prices to move excess inventory that should be a good sign for inflation.

Filed under: Economy |

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16 Responses

  1. Brent Nyitray's avatar
    Brent Nyitray, on November 17, 2023 at 6:35 pm said:

    Sounds serious

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  2. Brent Nyitray's avatar
    Brent Nyitray, on November 19, 2023 at 5:53 pm said:

    This should be on repeat at the RNC and in the offices of every R politician.

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  5. Let the mutherfuker burn!'s avatar
    Let the mutherfuker burn!, on November 20, 2023 at 1:46 pm said:

    My guess is a military coup within the year. There is a 43 billion dollar IMF loan coming due soon.

    I suspect another play for the Falkland’s will come shortly after that.

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  6. jnc4p's avatar
    jnc4p, on November 21, 2023 at 2:58 pm said:

    This should be good to see litigated. If the allegations are true, this is one step removed from photoshopping a screen shot and presenting it as factual.

    “Media Matters and the Fake News Era Go to Court
    The X/Twitter lawsuit against David Brock’s media arm could become a referendum on the fake news era

    Matt Taibbi
    Nov 21, 2023
    …
    In this case, it might be. MMfA is accused of creating a news story, reporting on it, then propagandizing it to willing partners in the mainstream press. Again, the X allegations need to hold up in an adversarial process, but the company claims to have fully captured a dollhouse version of a generation’s larger media frauds, making this a fascinating case to watch. From the suit:

    Media Matters… exclusively followed a small subset of users consisting entirely of accounts in one of two categories: those known to produce extreme, fringe content, and accounts owned by X’s big-name advertisers. The end result was a feed precision-designed by Media Matters for a single purpose: to produce side-by-side ad/content placements that it could screenshot in an effort to alienate advertisers…

    Media Matters therefore resorted to endlessly scrolling and refreshing its unrepresentative, hand-selected feed … until it finally received pages containing the result it wanted: controversial content next to X’s largest advertisers’ paid posts.

    The described activity allegedly preceded the November 16 Media Matters article, “As Musk endorses antisemitic conspiracy theory, X has been placing ads for Apple, Bravo, IBM, Oracle, and Xfinity next to pro-Nazi content.” The piece, which now brandishes gloating editor’s notes pointing out that Apple and IBM have since paused ads on X, included a key screenshot seemingly designed to freak out advertisers:”

    https://www.racket.news/p/media-matters-and-the-fake-news-era

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