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Chart of the Day - mortgages
This week I am trying to think through what the impact could be with any meaningful change in the 10 year yield as a result of a hiccup in the debt ceiling debate or even a resolution

This naturally had me think about housing and the mortgage market, something I haven't focused on in my writing in some time. In the northern parts of the US, we are approaching the end of the real selling season now with summer about to begin

There has been some optimism as the NAHB realtor survey has ticked higher for a few months, leading some to think the housing market has bottomed. Housing leads new orders, which leads profits and employment

If housing has bottomed, that would be good for the entire economy and therefore for the markets as well. However, it isn't entirely clear that the NAHB number is telling the full story

The chart today looks at the 30 year mortgage rate, back above 7%, vs. the NAHB number (inverted). Not surprisingly there is a relationship here and the cost of a mortgage tends to lead which should make sense to all

When we approached that 7% mortgage last year, I recall the negative sentiment in the mkt. We can also see the realtor sentiment plummeted at that time. However, this time, the sentiment among mkt players & realtors is getting a lot better in spite of 7% mortgages

Should it? If we look at the new homes sales & existing homes sales, the reality does not match the sentiment. Existing home sales has moved lower the last 2 months & is near Covid lows

Yes new homes sales have ticked higher since last fall but the level of new home sales is only at pre-Covid levels. These were fine but not spectacular. Also, new homes are only about 10-12% of total sales

Inventory is still low. We see this in the data & I see it anecdotally as realtors are sending me multiple cards trying to get me to list my house

However, the spread of the 30 year mortgage to 10yr yields at 3.36% is all-time highs. This is a function of tight credit at banks & Fed QT, neither of which are stopping. Layer in that 10yr yields themselves are moving higher & it is hard to see mortgages move a lot lower

Housing requires a domino effect. Young families move from condo to house. Others buy a bigger house to meet growth. At some point you need retirees to sell & move out of state etc

However, people locked into 3-4% mortgages are NOT moving regardless of the demographic cycle. Buying a new house at double the mortgage rate is not an attractive option now. So perhaps sentiment has improved but activity will not

Housing is critically important to the economy & therefore the mkts. However, we need either higher incomes or lower mortgages to truly see a sustained benefit to housing. I am watching the 10yr & the spread to mortgages to see when this happens

Stay Vigilant
#markets #investing #economy #housing #stayvigilant

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