Housing, Inflation, & Surprise Central Bank Moves

Another busy day of economic data; let’s talk about it. 💬

First up was existing home sales, which fell for the sixth straight month to the lowest level since May 2020. They fell 5.9% MoM and a whopping 20.2% YoY. 😬

The weakness more or less confirms yesterday’s data which showed new home sales fell 9.6% MoM and 8.1% YoY. Despite mortgage rates pulling back slightly, prices of new and existing homes remain elevated, pricing many out of the market. 🏘️

In other news, the Philadelphia Fed Index rose unexpectedly in August, as volatility in this data type continues. Given these are regional surveys, it’s been hard to get a clear read on manufacturing activity which had been showing signs of softening lately. 🏭

On the positive side, the report’s inflation component showed that the extreme input prices are beginning to moderate. 👍

Overseas we received Eurozone inflation numbers for July. The headline reading came in at 8.9% YoY, a new record, and its core reading came in at 5.1%. The ECB began its tightening cycle last month but still has a long way to go before inflation is back down towards its 2% long-run target.

Finally, in other central bank news, Norway hiked rates by another 50 bps. Meanwhile, Turkey surprised the world with a rate cut (from 14% to 13%) despite inflation nearing 80% in the country and other global banks continuing their tightening efforts. 😮

Overall, the battle against inflation continues around the globe. As we’ve discussed in this newsletter, many structural issues are at play here, which suggests the struggle between central banks and price stability will be long. 😫

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The Housing Market Horror Continues

We’ve written extensively about the U.S. housing market’s troubles over the last eighteen months. But we saw a visual created by Michael McDonough and shared by Cullen Roche that really highlights just how rough things have gotten for homebuyers. 😬

Below is a chart that looks to track an “average” home purchase over the last 20+ years. It calculates the monthly mortgage payment using median existing home prices, assuming a 20% down payment and average 30-year mortgage rates.

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A Divergence In Homebuilders

Today’s National Association of Home Builders/Wells Fargo Housing Market Index experienced its first negative reading in seven months. 🔻

The index dropped 5 points to 45 in September, with all three components declining. Current sales conditions slipped to 51, sales expectations in the next six months fell to 49, and buyer traffic dropped to 30.

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Powell Doesn’t Want Coal Again This Year

Looks like Powell wants to be put on Santa’s nice list before the end of 2023. ✅

After the decision came out this afternoon that rates wouldn’t change, Powell’s big kicker to traders and investors was the very dovish tone.

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Market Looks Past CPI Report

If it feels like the market is largely finished obsessing about inflation data, it’s because it essentially is. Unless there’s a significant pick up in the core inflation metrics the Fed is watching closely, the market seems set on rates staying steady at next week’s Federal Reserve meeting.

And August’s consumer price index (CPI) data did little to move the needle. 😴

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