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Morning Report: Consumer Confidence improves


Vital Statistics:

Stocks are higher this morning as earnings continue to come in. Bonds and MBS are down.

Consumer confidence improved in July, according to the Conference Board. “Consumer confidence rose in July 2023 to its highest level since July 2021, reflecting pops in both current conditions and expectations,” said Dana Peterson, Chief Economist at The Conference Board. “Headline confidence appears to have broken out of the sideways trend that prevailed for much of the last year. Greater confidence was evident across all age groups, and among both consumers earning incomes less than $50,000 and those making more than $100,000.”

The present situation index (meaning how things actually are at the moment) is approaching pre-pandemic levels, however the expectations index remains depressed.

Home prices rose 0.7% month-over-month and 2.8% year-over-year according to the FHFA House Price Index. “U.S. house prices increased moderately in May, continuing the trend of the last few months,” said
Dr. Nataliya Polkovnichenko, Supervisory Economist in FHFA’s Division of Research and Statistics. “However, house prices in some regions of the country remained below the levels seen one year ago.”

The deceleration in home price appreciation is massive compared to a year ago:

The Case-Shiller Index rose 0.7% MOM but fell 0.5% on a YOY basis. “The ongoing recovery in home prices is broadly based. Before seasonal adjustment, prices rose in all 20 cities in May (as they had also done in March and April). Seasonally adjusted data showed rising prices in 19 cities in May, repeating April’s performance. (The outlier is Phoenix, down 0.1% in both months.) On a trailing 12-month basis, the National Composite is 0.5% below its May 2022 level, with the 10- and 20-City Composites also negative on a year-over-year basis….Home prices in the U.S. began to fall after June 2022, and May’s data bolster the case that the final month of the decline was January 2023. Granted, the last four months’ price gains could be truncated by increases in mortgage rates or by general economic weakness. But the breadth and strength of May’s report are consistent with an optimistic view of future months.”

The report referred to the current situation as the “Revenge of the Rust Belt” with MSAs like Cleveland coming in as top performers, along with New York and Chicago. Meanwhile the high-flyers of the pandemic – the West Coast and the Mountain states are giving back some of their gains.

Freddie Mac’s latest outlook predicts that the second half of 2023 won’t bring much relief to mortgage originators as refi activity will remain virtually non-existent and high rates keep people from selling their homes. They note an interesting phenomenon, where existing home sales are falling while new home sales are increasing.

You can see the massive drop in new listings compared to the pre-pandemic years:

Freddie sees a recovery in originations in 2024 as people get used to the new normal of higher rates.

Tuesday: Case-Shiller House Prices

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