August sales of newly constructed single-family homes failed to match the robust numbers from July but were significantly better than those a year earlier. The U.S. Census Bureau and Department of Housing and Urban Development said last month’s sales were at a seasonally adjusted annual rate of 675,000, the lowest since March and an 8.7 percent decline from July’s revised estimate (from 714,000) of 739,000 units. The August results were 5.8 percent higher than the 638,000-unit rate in August 2022. The August results did not meet the consensus estimates from either Econoday (699,000 annual units) or Trading Economics (700,000). Robert Dietz, chief economist for the National Association of Home Builders said of the report, “Builders continue to grapple with supply-side concerns in a market with poor levels of housing affordability. Higher interest rates (the average was over 7 percent) price out demand, as seen in August, but also increase the cost of financing for builder and developer loans, adding another hurdle for building.” On an unadjusted basis, there were 54,000 homes sold during the month, down from 61,000 in July. Over the first eight months of 2023, sales of new homes have totaled 474,000 compared to 466,000 at the same point last year. Sale prices have fallen slightly in the last 12 months. The median price in August was $430,300, $10,000 lower year-over-year. The average price has dropped from $530,800 to $514,000.

Home prices have resumed their upward climb despite mortgage rates that have doubled post-COVID. According to Craig J. Lazzara, Managing Director at S&P CoreLogic Case-Shiller Indices, the National Index for July hit an all-time high. That index, which covers all nine U.S. census divisions, rose 1.0 percent from the previous July, after posting zero change on an annual basis in June.  The 10-City Composite showed an increase of 0.9 percent after a 0.5 percent loss the previous month and the 20-City Composite was up 0.1 percent, improving from an annual loss of 1.2 percent. Chicago, Cleveland, and New York led the way for the third consecutive month reporting the highest year-over-year gains among the 20 cities in July. Chicago remained in the top spot with a 4.4 percent increase, with Cleveland (which has long vied with Detroit for the low spot in Case-Shiller’s numbers) was second, with a 4.0 percent annual gain.  New York held down the third spot with a 3.8 percent increase. Eight of 20 cities reported lower prices and 12 of 20 reported higher prices in the year ending July 2023 compared to prior annual numbers. Eighteen of the 20 cities accelerated at a higher rate than in June.   Lazzara said, “We have previously noted that home prices peaked in June 2022 and fell through January 2023, declining by 5.0 percent in those seven months.  The increase in prices that began in January has now erased the earlier decline, so that July represents a new all-time high for the National Composite.  Moreover, this recovery in home prices is broadly based.  As was the case last month, 10 of the 20 cities in our sample have reached all-time high levels.  In July, prices rose in all 20 cities after seasonal adjustment and in 19 of them before adjustment.

Credit ratings were cut on the highest number of commercial mortgage-backed securities in “recent memory” last week, according to strategists at Bank of America Corp.

Georgia United Credit Union is collaborating with the income-verification fintech Argyle to combat submissions of false documents and other crimes.

While individuals are piling into cash, for many portfolio managers the debate now is about how far to go in the other direction.

Sculptor said it prefers a deal with Rithm Capital Corp. even though the Weinstein-led bid is higher than the one from the once-obscure real estate investment trust.

Ronald Leonhardt Jr. pocketed a $7 million profit on the property.

The average lender was already very close to multi-decade highs for 30yr fixed mortgage rates last Thursday afternoon, but a modest recovery on Friday meant that there was a chance we could have avoided printing today’s headline this week.  Unfortunately, the bond market started the day in rough shape and continued to lose ground throughout.   At the time that most mortgage lenders released today’s initial rate offerings, last Thursday was still worse.  It wasn’t until several lenders released negative/upward revisions to rate sheets that we officially crossed above the multidecade ceiling. For the average lender, a top tier 30yr fixed rate is now over 7.5% for the first time in at least 22 years.  The average borrower (not “top tier”) is seeing rates that are even higher.  This assumes an adjustment for discount points.  Many loans are being quoted with points currently, and in those cases, the note rate would be a bit lower.  Frustratingly, there were no compelling new motivations for the bond market weakness.  Negative momentum has been more of a snowball than a calculated decision over the past few business days.  It may be hard for rates to muster much of a counterattack without a meaningful, negative shift in economic data.  

Sell Now and Wait For Something to Convince You to Buy

Bonds began the week with another move to long-term yield highs.  There was a wave of selling in the overnight session led by Europe and another when domestic traders ramped up for the day.  Neither were unequivocally the product of some data or news headline although there were a few scapegoats that could be mistaken for motivation.  The problem with said scapegoats is that–while they likely contributed–they were not nearly meaningful enough to justify the movement in question.  Conclusion: this sort of selling is broader and more sentiment-driven.  Traders are repricing “higher for longer” odds with the longer end of the yield curve.  Buyers are on strike until something convinces them to buy and that will be hard to do unless next week’s data is weak.  

Market Movement Recap

09:55 AM Sharply weaker overnight with more selling early and now a modest bounce.  10yr up 7.9bps at 4.515.  MBS down just over 3/8ths. 

01:16 PM Sideways to slightly stronger into PM hours for MBS, now down 11 ticks (.34).  10yr sideways near highs, up 8.7bps at 4.523.

02:47 PM Weakest levels of the day with 10s up 11bps at 4.546.  MBS are down 5/8ths but at least an eighth of that is attributable to illiquidity. 

04:08 PM little-changed from the last update.  MBS down half a point.  10yr up just under 11bps at 4.544.

We continue to anticipate a broadly sideways trend this week although that expectations is being put to the test in early trading.  Yields in the longer end of the curve hit more long-term highs this morning, and not in response to any especially compelling data or events. Weakness was generalized in the overnight session, and not much better in early domestic trading. 
European bond markets pushed the pace of weakness after the EU open.  This coincided with some economic data that was only slightly stronger than expected as well as some ECB comments that were arguably not too
One could argue that Fed comments on an utter commitment to the 2% inflation target added pressure, but it’s just as easy to argue that selling remained generalized at home as well.  This speaks to an ongoing process of capitulation and “repricing” that could continue to test the expected sideways vibes ahead of next week’s top tier data.