Morning Report: Housing starts disappoint

Posted on April 16, 2024 by Brent Nyitray

Vital Statistics:

Stocks are flattish this morning after yesterday’s bloodbath. Bonds and MBS are down again.

Housing starts came in at 1.32 million in March, which was way below expectations. The number was down 14% month-over-month and 4% year-over-year. Building permits fell 4% MOM and rose 1% YOY to 1.46 million. This will not help alleviate the affordability issue, which is as bad as it was in the 1980s.

I discussed home affordability and compared the last bouts of expensive housing in my latest Substack article. Check it out and please consider subscribing.

Builder sentiment was flat in March, according to the NAHB / Wells Fargo Housing Market Index. High mortgage rates continue to be a headwind for the builders as it is keeping buyers on the sideline, hoping for a decline in borrowing costs.

Note the big builders are helping to alleviate that issue by offering buydowns via their captive mortgage originators. Builders generally pencil in about $40,000 in upgrades for their properties – i.e. things like granite countertops, better appliances etc. For a typical loan, $40k is about 10 points, so you can buy down the rate a lot. Plus it keeps the sales price unchanged which means the comps remain high.

Industrial production rose 0.4% in March, according to the Fed. The latest numbers indicate the manufacturing sector is rebounding after slowing from December through February. On a year-over-year basis production was flat, and generally corresponds to the ISM data along with the Fed surveys.

Bank of America reported first quarter earnings that dropped 8.4% if you strip out a special FDIC charge that most banks took in Q1. Higher deposit costs negatively impacted net interest income. Provisions for credit losses increased 14% QOQ and 40% YOY.

Mortgage origination volume fell 13% compared to the fourth quarter and a year ago. HELOC origination fell as well.

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