Good Wednesday AM on this best day of the week,
If you can get through the top portion, there is some interesting insight below regarding inflation and the Biden Budget Blunder.
Bonds are catching a bit of a bounce this morning as expected. Yesterday we held a key support level and the probability is that we now work our way to the top of the range (in the very short term, as in through Thursday as all bets are off for Friday). The 10-yr back below 1.60 to 1.59% (still 100bps higher than just 9 months ago, yet rates are incredibly similar… hmmm). I believe not much will happen until Friday, which is when one of the most important news releases of the month will be released: the Non-farm Payroll report. Most likely not a report you want to float through, but let’s see how we look tomorrow. For now, I expect range bound trading.
The WSJ and some other news sources shared an interesting piece on why mortgage rates are where they are. It is technical but the take away is the Fed is controlling the yield curve (even the longer end) and therefore controlling rates… that is… until they no longer feel they need to.
Mortgage-backed securities and Treasuries have both been impacted by the massive intervention by the Federal Reserve through the actions of the NY Fed’s Desk. Not only is the Fed intervening by adding cash into the system through its QE operations, but it has recently started intervening in the Overnight Reverse Repurchase market, absorbing excess bank cash to keep that cash out of the markets. As Dick Lepre points out, “The Fed is essentially trying to mitigate the inflationary effects of QE. This points out that the Fed can control Treasury yields and, in effect, the amount of interest paid by Treasury to service the nation’s debt, which is not the same as controlling inflation.”
Some market demographics from Zillow that will matter more once inventory is available.
Millennials are having an impact on the market, and it’s not just buyers. A Zillow study found that about half of all buyers are under the age of 36 and about half of the sellers are under 41. The movement in the market by millennials is likely due to growth in their careers, higher income, and paying off student loans and other personal debts. According to this Pew Research study, 52% of adults aged 18-34 are now living with their parents due to economic factors and the Covid-19 pandemic. Those are numbers not seen since the Great Depression. According to this Pew research study, just 46% of millennials are married, compared to 83% of the Silent Generation that was married at their age. This dip in marriage rates reflects a larger societal shift, as the same study found that percentages dropped for successive generations — 67% of early Boomers, and 57% of Gen Xers.
Two interesting snippets confirming the insanity in the luxury market. The first from the ever-credible USA Today, the second from the Washington Post. My questions is where do we go from here? Is it sustainable?
- The luxury segment of the real estate landscape has seen listings increase and homes sell at a rapid clip. The demand is so great that even “white elephants”–high-end homes that sat on the market for months before the pandemic began–are selling quickly as their owners willingly splurge on remodeling projects to spruce them up. The motivation is the hot market for premium properties and an urge to make shabbier ones more alluring for buyers
- The five-bedroom, five-bathroom, 5,000-square-foot house in sought-after Chevy Chase Village was listed at $3,495,000 on April 16. After receiving seven offers, the sellers accepted a contract for $4,540,000 on April 19. The sale closed on May 3.
Please remain safe and healthy, make today great.