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Vital Statistics:
Stocks are lower as bonds continue to be for sale. Bonds and MBS are down. We have 5 Fed speakers today, so it will be interesting to see if they address the carnage in the bond market.
Housing starts rose 7% MOM to a seasonally annual adjusted rate of 1.36 million. This is down 7.2% compared to a year ago. Building Permits fell 4.4% MOM and 7.2% YOY to a seasonally adjusted annual rate of 1.54 million.
Mortgage Applications fell 6.9% last week as purchases fell 6% and refis fell 10%. Note that last week was short due to the Columbus Day Holiday. “Applications decreased to their lowest level since 1995, as the 30-year fixed mortgage rate increased for the sixth consecutive week to 7.70 percent – the highest level since November 2000,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Both purchase and refinance applications declined, driven by larger drops for conventional applications. Purchase applications were 21 percent lower than the same week last year, as homebuying activity continues to pull back given reduced purchasing power from higher rates and the ongoing lack of available inventory. The ARM share was 9.3 percent, the highest share in 11 months, as some borrowers look for alternative ways to lower their monthly payments. Refinance activity was at its lowest level since early 2023. There is very limited refinance incentive with mortgage rates at multi-decade highs.”
A homebuyer must earn at least $115,000 to afford the median home, according to Redfin. This is up 15% compared to a year ago. Wage growth has been around 5% over the past year, so the affordability issue is brutal. The typical mortgage payment is $2,866 which is an all-time high.
“In a homebuyer’s ideal world, rising mortgage rates would push demand and home prices down enough to make up for high interest payments. But that’s not what’s happening now: Although new listings are ticking up slightly, inventory is still near record lows as homeowners hang onto their low mortgage rates–and that’s propping up prices,” said Redfin Economics Research Lead Chen Zhao. “Buyers–particularly first-timers–who are committed to getting into a home now should think outside the box. Consider a condo or townhouse, which are less expensive than a single-family home, and/or consider moving to a more affordable part of the country, or a more affordable suburb.”
Philly Fed President Patrick Harker is ready to stop the interest rate hikes. “This is a time where we just sit for a little bit. It may be for an extended period; it may not. But let’s see how things evolve over the next few months.” On the subject of rate cuts, he said: “We’re not there yet, but we believe in lags,” he said. “So if we get into the range of, I don’t know, let’s call it 2.5%, [and] we’re continuing to move down, then something like that would at least have me considering whether or not it’s time for rates to start coming down.”
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