This week we have seen the 10-year start to consolidate below 3%, as the 10-year touched it this week, but bounced off it quickly. The 10-year got as low as 2.77% but bounced off that level as well. There have been two voices in the market; one is that the Fed is way behind the curve on inflation and that we need Fed Funds rates at 3-4% ASAP. The other voice is pointing to raising rates causing a growth scare that could damage the economy. That makes every piece of data, especially the inflation data, very important. Still, best to be defensive as this plays out. The mortgage market has been very volatile and the moves that we are seeing are large and can happen very quickly.
Housing Starts for April came in a little under expectations at 1.724 mln, below expectations of 1.756 mln. Housing starts for March were revised lower, from 1.793 mln to 1.78 mln. This takes the MoM change to -0.2%, beating expectations of -2.1%. Building Permits came in at 1.819 mln, above the expectations of 1.814 mln, while March's numbers were revised from 1.873 mln to 1.870 mln. The MoM change is -3.2%, which is slightly higher than market expectations of -3.0%. Looking into the details, the overall number of backlogs has climbed to the highest since 1974.
Mortgage Applications fell 11.0% for the week ending May 13, which is the first time since the week of April 22. Purchases were down 11.9%, while refinances were down 9.5%. The average 30-year fixed rate is 5.49%. "The housing market is facing growing challenges," said NAHB Chief Economist Robert Dietz. "Building material costs are up 19% from a year ago, in less than three months mortgage rates have surged to a 12-year high and based on current affordability conditions, less than 50% of new and existing home sales are affordable for a typical family. Entry-level and first-time home buyers are especially bearing the brunt of this rapid rise in mortgage rates."
Retail Sales for April came in 0.9% MoM, meeting market expectations, but ex-auto sales beat market expectations coming in 0.6% instead of 0.4%. The control group also saw a nice jump and market beat, 1.0% instead of 0.5% which was the market was expecting. Annual revisions were positive, 1.7% from 0.8% for February, and 1.4% from 0.5% in March. The data suggests that consumers are still spending at a rapid pace, even as prices rise at the fastest pace in decades.
Empire State Manufacturing Index
New York Fed's Empire State Manufacturing index fell 36.2 points from last month's reading to -11.6 for May, which is the lowest level since May 2020 and missed the market expectations of 15.0. Looking at the internals, there were some large drops there as well. The new orders index plunged from 25.1 to -8.8, the shipments index fell from 34.5 to -15 and the unfilled orders index dropped 17.3 to 2.6. The prices paid index did fall from 86.4 to 73.7, which is still a pretty elevated level. This is a surprising miss.