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Vital Statistics:
Stocks are lower this morning as investors fret about China. Bonds and MBS are flat.
Housing starts rose 4% MOM to a seasonally adjusted annual rate of 1.45 million units. This is up 6% on a YOY basis. Single family starts were up about 9.5% on a YOY basis while multi-fam was flat. Building Permits were flat MOM and down 13% on a YOY basis.
The homebuilders have been on a tear this year, outperforming the S&P 500 by 23% year-to-date. Below is a chart of the homebuilder ETF (XHB) versus the S&P:
New Home purchase applications rose 35.5% compared to a year ago, according to the MBA. “Applications for purchase loans on newly constructed homes remained strong in July, up 36 percent annually, as new homes continued to account for a growing share of homes available for sale,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “The FHA share of purchase applications was 24.2 percent, the highest share since May 2020, and has increased in four of the last five months. FHA purchase loans are a popular option for many first-time homebuyers and this increasing trend in the FHA share is indicative of more first-time buyers looking to new homes as an option, given the lack of for-sale inventory among existing homes and challenging affordability conditions.”
The spurt in new home purchases is being driven by the lock-in effect where people who might be inclined to sell stay put because they hate the idea of trading their 3.5% mortgage rate for a 7% rate.
Mortgage applications fell 0.8% last week as purchases fell 0.2% and refis fell 1%. “Treasury rates were elevated again last week following mixed data on inflation and more indication of resiliency in the economy, which may pose a challenge to the Federal Reserve’s efforts to lower inflation. The 30-year fixed mortgage rate increased for the third straight week, reaching 7.16 percent, matching October 2022’s rate and the highest rate since 2001,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Overall applications decreased because of these higher rates, as both purchase and refinance applications ended the week at their lowest levels since February 2023. Government purchase applications provided a bright spot, increasing 2.4 percent over the week, driven by increases in both FHA and VA purchase categories. The ARM share of applications rose slightly to 7 percent, the highest since April 2023, as borrowers look for relief from higher fixed rates.”
More news that indicates how bad things are getting in China. The government is asking mutual funds to avoid selling stock in order to support the market. This is similar to Japan’s “price keeping operations” that it followed in the 1990s to support the stock market. The government has already said it will stop reporting the youth unemployment rate because the number is so bad. Here is an eye-opening video about the reality of being young in China.
Industrial production rose 1% MOM, while manufacturing production rose 0.5%. Both numbers were above Street expectations. Capacity Utilization inched up to 79.3%.
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