Good Tuesday AM,

We had some bond friendly news today but bonds are not responding to it. Today we learned that consumer confidence, FHFA Housing, and Chicago PMI all missed expectations. Still the 10-yr Treasury has popped to 1.30 and mortgage bonds are off 16bps. Despite the weaker data, yesterday we hit the tops of the trading channels and did not break through. When that happens, often times we find ourselves working back down the channel to lower prices (marginally higher rates). It is how the technicals drive trades and how with enough capital to invest, you can be successful playing the tops and bottoms of channels. That the ECB is out today also talking about scaling back bond purchases is not helping. Lots of news to come this week. Tomorrow is ADP and ISM, Thursday is unemployment claims and factory orders. Friday is the main event with the jobs report. There is a lot for the market to digest along with second guessing when the Fed will begin to taper its bond purchases. I don’t think we will see much change to the path of rates (over time I expect them to improve) but there will certainly be some volatility. 

A new report from Redfin shared that 30% of all U.S. home purchases in 2021 were cash transactions. That’s an increase from 2020, when 25.3% of home purchases were done on a cash basis.

And on the topic of affordability, this was a really good piece and lays out why any buyers who are on the sidelines should get into the game…

“Most central banks are expected to keep rates near record lows through next year, house price inflation is still expected to easily outstrip wage gains. Taken together with rising materials costs – and a lack of supply of affordable homes in many markets even before the pandemic drove many homeowners to search for more living space – home prices are nearly certain to rise further.”

Yes even with a bit more inventory, prices are expected to rise. Wages will likely remain stagnant (especially as more workers find their way back into the workforce with stimulus being over) If rates rise as well, affordability will be severely impacted.

(Reuters poll graphic on the global housing market outlook)

Please remain safe and healthy, make today great.