Mortgage rates shot up last week after a hawkish Federal Reserve meeting, even though they didn’t raise rates. In addition, jobless claims data had another solid print, showing that the labor market hasn’t broken yet, which led to more selling of the 10-year yield. Mortgage rates did find some relief on Friday as bond yields headed lower. 

On housing inventory, new listings data saw a small decline last week, but active listings grew at a healthy clip. Purchase application data had another positive week, pulling off back-to-back positive prints.

Mortgage rates and the bond market

Last week was wild for the 10-year yield, as the key support line that I have been talking about for weeks broke after the Fed meeting, sending the 10-year yield to highs last seen in 2007. The 10-year yield fell on Friday, bringing some relief, but we got very close to yearly highs for mortgage rates. Mortgage rates started the week at 7.28%, got as high as 7.47%, and ended at 7.39%. The yearly high is 7.49%.

I have noticed for weeks now that the spreads between the 10-year yield and mortgage rates are better, so rates didn’t hit new highs last week, even with the 10-year yield breaking to new yearly highs.



The Fed sounded hawkish in their talk on Wednesday, but their rate hike cycle is over now, with the possibility of only one more rate hike if they think it’s warranted. The labor market isn’t as tight anymore, but jobless claims had another solid print and are near monthly lows. The four-week moving average for jobless claims is 217,000 — far from the key level of 323,000 level that I think would trigger a Fed pivot.

Weekly housing inventory data

Whenever mortgage rates rise, I fear that the weekly new listings data will decline more aggressively because homebuyers simply throw in the towel on listing their homes to sell because higher rates make it less attractive to sell and buy another home

Last week on CNBC, I talked about how I still believe that we will see some flat to positive year-over-year data because we have had to deal with higher rates for longer and we haven’t see new listings data take a meaningful fall lower. A lot of this has to do with this data line trending at the lowest levels ever. I explained my premise here in this interview on CNBC.

We have had some volatile weekly numbers in the new listings data recently, but even with the mortgage rate spike, the decline was orderly, as it has been all year. So, I am not worried about another leg lower in the data.

• Sept. 15: 61,852
• Sept. 23: 59,107

There is some positive news: weekly active listings grew 9,312. This is not at the levels that I think we should see with mortgage rates this high, which would be between 11,000-17,000 weekly, but it’s good enough, considering that we are almost done with September. I am a very pro-supply person because more supply brings balance. It’s been hard to grow the housing supply this year as home sales are stable compared to last year’s massive collapse in demand.

According to Altos Research:

• Weekly inventory change (Sept. 15–22): Inventory rose from  518,626 to 527,938
• Same week last year (Sept. 16-23): Inventory rose from 552,042 to 556,865
• The inventory bottom for 2022 was 240,194
• The inventory peak for 2023 so far is 527,938
• For context, active listings for this week in 2015 were 1,198,033

Historically, one-third of all homes have price cuts every year. Last week’s price cuts were lower than last year at the same time by 4%. This is happening with rates over 7%, too, and part of the reason is that housing inventory has been negative year over year since mid-June. Last year, inventory grew fast as the mortgage rate shock toward 7% created faster and higher price-cut data.

The housing market still has major affordability issues, and we are seeing a higher number of price cuts than in 2015-2017. Back then, we ran at 33%; in 2018 and 2019, it was 36%.

• 2021 28%
• 2022 41%
• 2023  37%

Purchase application data

Purchase application data was 2% higher last week, making the year-to-date count 17 positive prints, 18 negative prints, and one flat week. If we start from Nov. 9, 2022, it’s been 24 positive prints versus 18 negative prints and one flat week. The week-to-week data has gotten softer since mortgage rates have been trending above 7%. However, it’s not crashing like it was last year.

The week ahead: Housing and inflation data

We have another week of housing data ahead with new home sales, pending home sales, the S&P CoreLogic Case-Shiller home price index and the FHFA home price index. The pending home sales data should come in soft with the recent spike in mortgage rates. Also, we have the PCE inflation report, the main inflation data that the Federal Reserve tracks. As always, the Thursday jobless claims data is the key for this cycle and mortgage rates. 

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It's almost impossible to call market tops and market bottoms using basic technical analysis tools like price and volume. Don't get me wrong, that combination is my favorite during trend-following periods. But trying to spot bearish reversals is difficult when price action keeps riding higher and higher. The same is true in trying to spot bullish reversals when prices keep moving lower and lower. Maybe that seems unconventional to hard-core technicians, but I believe it's the reality. Too many folks say "when this line crosses that line, then this will happen". To me, that's following technical analysis and wearing blinders. Just my two cents.

I use technical price action to confirm what other signals are suggesting. We get plenty of signals on a regular basis - some short-term in nature, others long-term - if we're only willing to listen. While I've been bullish since June 2022, I do recognize short-term warning signals that tell us that risks of remaining long have increased substantially. In mid-July, I turned very cautious short-term and discussed those signals in a "Your Daily 5" episode that aired on July 19th. Let me pull up an S&P 500 chart, so you can see where U.S. equities stood when I fired this warning shot:

There were several reasons for the stock market bulls to hit quicksand. Tesla (TSLA), a Wall Street darling and a favorite stock of mine, suggested a possible 20% drop. That call aired the day of TSLA's top and TSLA fell closer to 30% in less than one month. These signals work and help us to manage risk! As I always say, they do NOT guarantee future price action, but they make us aware of increasing risk and that's how you invest more successfully. Since that July top, I've encouraged our EB members to tread very cautiously, whatever that means to each individual member. To some, it's being in cash. To others, it might simply mean to avoid leverage on the long side. But this cautious period is coming to an end.

If you want to see what was discussed on July 19th and why I felt the stock market was in short-term trouble, check out the Your Daily 5 recording on YouTube!

I absolutely LOVE when my signals take the opposite view of the masses. And now that everyone believes we're resuming the prior bear market, my signals are saying HOGWASH. Could we continue to proceed lower? Sure. There are never any guarantees with the stock market. But I see signs that suggest shorting is a VERY HIGH RISK strategy, with those risks growing every day. I'm discussing one major reason why in our FREE EB Digest newsletter that will be published early Monday morning, before the stock market opens. If you're not already an EB Digest subscriber, it's 100% free with no credit card required. Simply CLICK HERE and enter your name and email address. I'll discuss Reason #1 to turn bullish tomorrow morning. And I'll also focus on other reasons to be thinking bullish thoughts when I publish the EB Digest on Wednesday and Friday. Don't wait until it's too late. Check them out NOW!

Happy trading!

Tom

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Natalię Dowzicky, “How Florida Beat California to High-Speed Rail,” Reason, September 20, 2023.

Excerpt:

Not only is Brightline the first privately funded intercity rail line in the U.S., but it’s also the fastest train in the country outside of the northeast corridor. Topping out at 125 mph in Florida, it will travel from Miami to Orlando in about three hours. For comparison, the Amtrak in the area takes about six and a half hours to complete that same trip.

Mike Reininger, CEO of Brightline, told Reason that passenger rail makes commercial sense under specific conditions, such as the case in Florida, where it connects two populous, tourist-friendly cities that are about 250 miles apart. At that distance, Reininger says, “It is too far to drive and too short to fly. You can approximate the time of flying significantly, improve the time of driving, and you can offer it at a price point that makes it an economic proposition.”

Not surprisingly, though, Brightline has become a subsidy sucker.

Romina Boccia, “Social Security Benefits are Growing Too Fast,” Cato at Liberty, September 21, 2023.

Excerpt:

When a Social Security‐​eligible worker’s benefits are first calculated, this worker’s past wages are indexed to bring them to the same level as today’s earnings. This is called wage indexing and is based on the growth in average wages in the economy. When the Social Security Administration (SSA) first indexes a worker’s lifetime covered earnings, it does so using the SSA’s Average Wage Index (AWI). The AWI includes all wages that are subject to federal income tax, including wages in excess of the taxable Social Security maximum payroll tax threshold.

Wage indexing gives retirees a benefit amount that reflects the increase in the standard of living over their working careers—even if they didn’t earn commensurate wages. It’s like giving workers retroactive credit for improvements in the economy, including for wage improvements among the highest income earners.

Definitely worth reading carefully.

Christopher Wilcox, “Truck This: Why I’m Leaving the Long-Haul Industry,” American Institute for Economic Research, September 21, 2023.

Excerpt:

More recently, environmental regulations requiring manufacturers to reduce emissions gave us the diesel particulate filter (DPF), an exhaust treatment system that replaces a standard muffler. While there is no current federal mandate requiring a DPF, the filters are required by the 2008 California Statewide Truck and Bus Rule, which has incentivized many nationwide fleets to adopt them. The problem with DPFs is the filter system clogs. A lot.

When DPFs go down, trucks roll to a stop. Truckers report having to have a DPF serviced as often as every 5,000 miles, which means lots of lost productivity and stranded cargo. I’ve had four breakdowns over the past two years, and three were due to my DPF. A tow truck driver I spoke to on one of those occasions told me half of his business comes from malfunctioning DPFs. Repairs are a specialized affair, and replacements can cost up to $2,000. When my truck isn’t moving, I’m not earning. And these regulators have required that my truck stand still far too often.

Of course California is in the forefront of regulation.

Fiona Harrigan, “Biden Administration Announces New Measures to Get Migrants to Work,” Reason, September 21 2023.

Excerpt:

Yesterday, the Biden administration announced new actions to help get recent immigrants to work, including offering almost half a million Venezuelans a status that will let them live and work in the U.S. legally for the next 18 months. The new measures come at a critical time, as labor shortages persist and cities struggle to provide for newcomers.

Certain Venezuelan migrants are eligible for temporary protected status (TPS), a designation offered to migrants who can’t safely return to their home countries due to armed conflict, environmental disaster, or another temporary safety hazard. Venezuela was first designated for TPS in 2021 due to a severe political and economic crisis perpetuated by Nicolás Maduro’s regime. Under that designation, Venezuelans who came to the U.S. before March 2021 qualified for protection; now, the status will apply to Venezuelans who arrived before the end of July this year. There are currently 16 countries designated for TPS.

If I understand the program correctly, it sounds good: let them work instead of forcing taxpayers to subsidize their living expenses. It’s win-win-win for immigrants, employers and consumers, and taxpayers.

James Herndon, “Keep the Washington Consensus,” Law & Liberty, September 21, 2023.

Excerpt:

Despite those deliberate omissions, synergies still allowed the Consensus to exceed the sum of its parts. Opening up foreign direct investment eased privatization. Privatization enabled balanced budgets. Balanced budgets limited inflation, which encouraged foreign direct investment. The common denominators were respect and restraint: leaders had to trust that firms and citizens knew better than the bureaucrats how best to allocate their own labor and resources. That’s why the Consensus’ first beneficiary was always likely to be the poor. After all, funding for primary education and basic healthcare does far more to reduce poverty than subsidies for diesel fuel and national airlines.

In short, Williamson promoted policies that enabled sustainable growth in developing countries with respect for their autonomy and an emphasis on raising prospects for the least fortunate. The Left never forgave him.

It’s the nicest treatment of the Washington Consensus that I’ve read. Lots of good nuggets.

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