Good Wednesday AM on this best day of the week,
So, treasuries were actually behaving very well despite very, very strong durable goods until about 30 min ago (coinciding with the European close) And durable orders is something we’ve always watched carefully because it covers the big ticket items. These are the things that when people are really worried, that’s where they pull in their wallets. Today’s strength was a surprise for sure, but it is only one report.
Tomorrow is the bigger day with GDP and that will be what drives the market.
The consensus is 2%. A reading below that will be a won for the bond market. Somehow the Silicon Valley Bank implosion is supposedly going to add to GDP although I don’t know I understand or agree with that philosophy. Friday adds to the GDP volatility with some other top tier data, personal income, personal spending and PCE (the Fed’s real inflation metric). These four reports have the ability to push rates up or down .25 and will be the last of the important data before next Wednesday’s Fed decision. The 10yr note has backed up to 3.45% today which is a key Fibonacci level. Staying below 3.45 and that level, brings in a retest of the low 3.25. If you are going to float, you are likely floating into the Fed meeting. If you are going to lock and get out of the way, today is the day to do that.
Below is a great excerpt from the Washington Post which is on point and follows my thoughts on buying the dip..
It was reasonable to think last year that as the Federal Reserve aggressively raised interest rates in the coming months, buyer demand would continue to slow while homes for sale would continue to rise. The glut of inventory would be resolved if mortgage rates fell and buyers came back into the market: clear the inventory, improve affordability, help buyers get homes, everybody wins.
Here in April 2023, that’s not how it’s working out. There’s no longer the prospect of an inventory glut as homebuilders cut production and new weekly listings of existing homes remain 20% below levels of a year ago. Housing demand has exceeded supply even with mortgage rates rising above 6.5%.
So here’s what’s likely to happen if mortgage rates fall to somewhere in the range of 5% to 5.5%:
- Rather than lower their prices, homebuilders have been buying down mortgage rates for customers — in many cases offering rates in the range of 5% to 5.50%. So if market rates fall to that level, builders can forgo the buy-downs and just boost profit without doing anything to change affordability. We’d probably see production increases, but that additional supply wouldn’t arrive on the market until the second half of 2024, at best. That’s good in the long run, but not much help to anyone looking to buy in the next year.
- In the resale market, lower mortgage rates would boost demand, particularly from first-time buyers. Housing website Redfin noted last week that while median sale prices in its database are down 2.6% year-over-year, the monthly payment buyers committed to hit a new record high in the week ending April 16, and it’s up 11.6% year-over-year because of higher rates. For a 30-year mortgage, a decline in the rate to 5.5% would increase affordability by around 10%. But without a significant increase in supply, greater competition for each home would push prices higher, so a buyer’s monthly payment wouldn’t change significantly.
- It’s also possible lower costs would bring institutional buyers back into the home market. John Burns Research and Consulting noted last week that institutional investors bought 90% fewer homes in the first two months of 2023 than they did last year, yet even without their participation supplies are tight.
Not much else on the radar today other than Disney suing Governor DeSantis.
Please remain safe and stay healthy, make today great!