Good Monday AM,

Bonds are way up today (as are equities) and the 10yr is down to 3.65%. Both construction spending and ISM manufacturing came out weak, very weak, but this was not the catalyst for today’s moves. Thankfully, someone was able to corral the new UK Prime Minister and remind her that lowering taxes, which is inflationary, is not what the country/world needs. Her announcement of tax cuts sent asset classes off a cliff and wiped out 2T in value.  Reducing taxes would cause the Bank of England and other central banks to have to raise rates further and deepening the recession (I don’t want to be dramatic, but it will be a global problem). After the stern talking to, the UK government said it would retain the tax rate on high incomes. On the news, the pound edged higher after the announcement and was trading around the same level as before the original plan rocked markets. It was up 0.3% against the dollar and bought $1.12 in early trading. U.K. borrowing costs mostly fell, with the yield on the 10-year gilt slipping 0.16 percentage point to 3.99%. Crisis averted 😊

Here is where it gets sticky…

Do you believe in the historical charts or in the current data? The S&P 500 has moved higher in the one-year period following every midterm election since 1942, according to Dow Jones Market Data, gaining nearly 15% in post-midterm years since World War II. This time, tightening monetary policy and worries about an economic slowdown cloud the outlook. Investors expect corporate earnings to weaken as the business environment gets tougher into the year-end. And recent wild swings in government bonds and currencies are threatening to further destabilize financial markets.

And a little about housing, house payments, sales velocity and how it all comes back to…. (wait for it)…. Financing.

Key housing market takeaways for 400+ U.S. metro areas:

• The median home sale price was $369,250, up 7% year-over-year. Prices have climbed 1% since the beginning of the month, after 11 weeks of declines.
• Home sale prices in San Francisco fell 4% year-over-year. Neighboring Oakland, California, where prices fell 0.5% and New Orleans (-11%) were the only other metro areas that saw year-over-year median-sale-price declines.
• The median asking price of newly listed homes increased 10% year-over-year to $384,750.
• The monthly mortgage payment on the median asking price home climbed to a record high of $2,547 at the current 6.7% mortgage rate, up 50% from $1,698 a year earlier, when mortgage rates were 3.01% and up from a recent low of $2,210 during the four-week period ending August 14.
• Pending home sales were down 21% year-over-year, the largest decline since May 2020.
• New listings of homes for sale were down 14% from a year earlier.
• Active listings (the number of homes listed for sale at any point during the period) fell 0.8% from the prior four-week period. On a year-over-year basis, they rose 6%.
• Months of supply —a measure of the balance between supply and demand, calculated by dividing the number of active listings by closed sales— increased to 3.0 months, the highest level since July 2020.
• Some 35% of homes that went under contract had an accepted offer within the first two weeks on the market, little changed from the prior four-week period but down from 40% a year earlier.
• An estimated 24% of homes that went under contract had an accepted offer within one week of hitting the market, little changed from the prior four-week period but down from 28% a year earlier.
• Homes that sold were on the market for a median of 31 days, up a full week from 24 days a year earlier and the record low of 17 days set in May and early June.
• Roughly 32% of homes sold above list price, down from 46% a year earlier and the lowest level since February 2021.
• On average, a record high 7.6% of homes for sale each week had a price drop, up from 3.8% a year earlier.
• The average sale-to-list price ratio, which measures how close homes are selling to their asking prices, fell to 99.2% from 100.8% a year earlier. This was the lowest level since February 2021.

“It’s imperative for home sellers to react quickly and aggressively as the market turns,” said Senior VP of Real Estate Operations Jason Aleem. “This means adjusting your pricing immediately if you want to be competitive and attract offers from a smaller pool of qualified homebuyers. If your home isn’t the ‘belle of the ball’ in your neighborhood, you’re going to need to cut the price to sell it.” Leading indicators of homebuying activity:

• For the week ending September 29, 30-year mortgage rates rose to 6.7%, their highest level since July 2007.
• Fewer people searched for “homes for sale” on Google. Searches during the week ending September 24 were down 33% from a year earlier.
• The seasonally adjusted Redfin Homebuyer Demand Index —a measure of requests for home tours and other home-buying services from Redfin agents— was down 13% year over year and fell below the level at the same time in 2020.
• Touring activity as of September 25 was down 18% from the start of the year, compared to an 8% increase at the same time last year, according to home tour technology company ShowingTime.
• Mortgage purchase applications were down 0.4% week-over-week, seasonally adjusted, and were down 29% from a year earlier during the week ending September 23.

“It’s important to remember that much of the housing market data and neighborhood comparables being reported are based on home purchases that were agreed to a month or more ago when mortgage rates were a point and a half lower,” said Redfin Deputy Chief Economist Taylor Marr. “Sellers should anticipate that buyers are unwilling or unable to pay a price similar to what their neighbor’s home sold for a month ago, and buyers should connect with their lenders to find ways to mitigate the impact of rising rates. This could include paying upfront to lock in a rate, switching to an ARM and tightening your budget so you don’t end up with a monthly mortgage payment that’s a stretch to afford in the months to come.”

Please remain safe and stay healthy, make today great!