Weekly Indicators for August 21 - 25 at Seeking Alpha

 

 - by New Deal democrat

While I was away on vacation, the high frequency data continued to pour in. And so my Weekly Indicators post for the week is up at Seeking Alpha.

There continue to be some very negative signs associated with interest rates, including important things like both purchase and refinancing mortgage applications, both of which are at or near 30 year lows. Not a good sign for housing, I would say!

Meanwhile consumer spending is showing at least one sign of a renewed increase, and producing is getting “less bad.”

As usual, clicking over and reading will bring you up to the virtual moment as to the shape of the economy, and reward me a little bit for my efforts.

Initial claims improve weekly, continue to suggest slow weaking

 

 - by New Deal democrat

[Reminder: I’m still traveling, so with no economic news, don’t expect a post tomorrow.]

Initial jobless claims declined to 230,000 last week. The more important 4 week average increased to 236,750. Continuing claims, with a one week lag, declined slightly to 1.702 million:

The YoY% change in the 4 week average, more important for forecasting purposes, increased to 11%, and measured monthly so far for August is up 10%::

This indicates some continued weakening in the jobs market, and at 10% on a monthly basis, renews a yellow caution flag. But to signal an oncoming recession requires 2 months in a row of a 12.5% YoY or higher increase in claims. While the current situation continues to suggest that the unemployment rate will increase perhaps 02% or even 0.3% in the coming months, there is no recession signal in this metric currently.

Unlike homeowners, home builders can alter their product and (much more flexibly) their price point

 

 - by News Deal democrat

Yesterday I noted that home builders, unlike existing homeowners trying to sell their existing house, have flexibility in the size and amenities of the house they will build, as well as the price they are willing to set, based on commodity costs and profit margins.

Today’s new home sales report for July confirmed that, as sales rose to 714,000 annualized, the highest level since February 2022 on a seasonally adjusted basis. As I have frequently pointed out, new home sales are the most leading of any housing metric, but they do have the drawback of being very noisy and heavily revised. Below I compare them (blue) with single family permits (red, right scale) which are much less noisy:

I suspect that level will not survive the increase in mortgage rates to over 7.25% in the past week, the highest rate inn over 20 years.

The report does not seasonally adjust prices, so the best way to look is YoY. Below I compare those (gold) with the YoY% change in sales (red):

The median price of new homes has declined -8.7% over the past 12 months, vs. existing homes, which as we saw yesterday, are actually *higher* YoY.

This dynamic cannot last beyond the short term. I suspect it will change as soon as commodity prices for home building materials (chiefly lumber) have unequivocally stopped declining, and homeowners feel a profit squeeze.

Existing homeowners are still trapped by their 3% mortgages

 

 - by New Deal democrat

Higher interest rates have created a bifurcation in the housing market. While builders can build smaller models and lower prices, existing homeowners can’t do the former and generally won’t to the latter.

As a result, homebuilders have been able to take advantage of the declining in commodity prices (like for lumber) to maintain volume at lower prices. Meanwhile existing home sellers have been unable or unwilling to sell their homes mortgaged at 3% in order to buy a home which will be mortgaged at 6% or 7%.

That pattern continued in July, as existing home sales declined to a 5 month low of 4.07 million on an annualized basis (the past 2 years of data are shown below):

Meanwhile the median price ofr an existing home is still up 1.6% YoY.

For all intents and purposes, many homeowners are trapped in their existing homes by the all-time low mortgage rates they were able to lock in early in the pandemic.

Tomorrow we will see if the more economically important new home sales continue their recent rebound, or whether the increase in mortgage rates back above 7%, and perhaps the waning of commodity deflation does some further damage.

S

Weekly Indicators for August 14 - 18 at Seeking Alpha

 

 - by New Deal democrat

[First of all, a reminder: I am on vacation for the next week, so don’t expect daily posts, especially if no significant economic data is released.]

My Weekly Indicators post is up at Seeking Alpha.

While collapsing commodity prices have buoyed the shorter term leading indicators, the renewed increase in interest rates has made the long leading indicators even more negative.

As usual, clicking over and reading will bring you right up to date, and reward me a little bit for my efforts.