December’s existing home sales report came in slightly under expectations, hinting at a market searching for its footing. However, the sentiment among industry professionals is cautiously optimistic, believing December could mark a turning point with the potential for an upward trajectory.
Mortgage Bonds and Consumer Confidence: A Mixed Bag
Mortgage bonds and the 10-year Treasury had a turbulent start this morning. An unexpectedly high consumer confidence figure initially spurred bond prices, but a deeper analysis of the data has tempered the enthusiasm. The question arises: does the initial cheer in the headline truly reflect the economic undercurrent?
Dissecting Home Sales Data
Lawrence Yun of the National Association of Realtors suggests that we may have hit the nadir of the sales slump, with signs pointing to a revival bolstered by lower mortgage rates. The numbers tell a nuanced story: a 1% month-over-month drop to a 3.78 million annualized pace, down 6% from the previous year. Yet, the whispers of a spring recovery are in the air, backed by an increase in buyer activity and a median home price rise to $382,000.
Inventory and Market Dynamics
Inventory levels have contracted slightly to 1 million units, an 11% decrease month-over-month but a 4% increase year-over-year. This is a critical metric as we approach the high-activity spring months, with a limited pool of available homes potentially spurring faster sales and price appreciation.
Consumer Sentiment and Recession Risks
The University of Michigan’s consumer sentiment index rose to 78.8, a 9-point leap. While this uplift may seem promising, historical context tells us it could be a more successful recession indicator. Past patterns show consumer sentiment can peak just as a recession dawns, so caution is still warranted.
Inflation Expectations and Job Market Puzzles
Consumers’ inflation expectations have eased, aligning with the declining trends in recent months. Yet, the juxtaposition of low jobless claims with widespread job cuts across various sectors paints a perplexing picture of the job market.
Next week’s calendar is full, with updates on new home sales, pending home sales, and the Fed’s favored inflation measure, the PCE index. These releases will be pivotal in assessing whether the core rate of inflation aligns with market forecasts for a decline.
Market Movements: Technical Analysis
Today, MBS is down six basis points, a slight shift from the opening. The 10-year Treasury has improved since touching the 50-day moving average, now balancing within a 12-basis-point range that could influence pricing volatility. As we navigate these uncertain waters, we start the day floating, ready to adjust based on the market’s pulse.
While the market shows signs of stabilizing, the interplay between housing data, consumer confidence, and the broader economic indicators suggests a cautious approach. Investors and industry professionals alike are poised to respond to the ebb and flow of economic tides in the days ahead.
