Tuesday – January 31, 2023
UMBS up 9 on the day, so far. Down about .25 from high of the day The Employment Cost Index (ECI) is an economic report that was never on our radar as a top tier market mover in the past. Ever since Fed Chair Powell called out this report as a specific source of guidance on potential wage pressures, we’ve seen bigger and bigger reactions.
Employment Costs: 1.0 vs 1.1 f’cast, [1.2 prev]
Q4 wages/salaries: 1.0 vs 1.3 f’cast/prev
MBS instantly lost almost a quarter point at the same time that Treasuries lost ground. Markets have been dismissing Fed members talking about raising the policy rate above 5% and holding it there through all of 2023, and the big question for this week is – will that change? Expectations are already in place that the Fed will be hawkish, and that Fed Chair Jerome Powell’s press conference will reiterate the message that the Fed will stand strong in its quest for 2% inflation.
House prices fell 0.1% MOM and rose 8.2% YOY according to the FHFA House Price Index. The West Coast is experiencing the biggest slowdown, followed by the Mountain States. Some of these MSAs like Boise became completely disconnected from the local economy and prices will almost certainly contract to what the local economy can support.
Home prices fell 0.5% MOM according to the Case-Shiller Home Price Index. November 2022 marked the fifth consecutive month of declining home prices in the U.S. the National Composite Index fell -0.6% for the month, reflecting a -3.6% decline since the market peaked in June 2022. We saw comparable patterns in our 10- and 20-City Composites, both of which stand more than -5.0% below their June peaks. These declines, of course, came after very strong price increases in late 2021 and the first half of 2022. Despite its recent weakness, on a year-over-year basis the National Composite gained 7.7%, which is in the 74th percentile of historical performance levels.
Consumer confidence fell in January, according to the Conference Board. Consumers were less upbeat about the short-term outlook for jobs. They also expect business conditions to worsen in the near term. Despite that, consumers expect their incomes to remain relatively stable in the months ahead. Meanwhile, purchasing plans for autos and appliances held steady, but fewer consumers are planning to buy a home—new or existing. Consumers’ expectations for inflation ticked up slightly from 6.6 percent to 6.8 percent over the next 12 months, but inflation expectations are still down from its peak of 7.9 percent last seen in June.
The U.S. economy grew 2.9% in 22Q4, down slightly from 3.2% in 22Q3. In 2022, GDP grew 1%, a pleasant surprise given negative growth in 22H1. However, stripping out inventory changes, net trade, and government spending to get at the underlying sustainable growth trend, GDP grew an anemic 0.2% in 22Q4. The labor market remains surprisingly strong, but rate hikes will continue to make themselves increasingly felt as 2023 progresses.
Redfin put out a piece on how the housing market is beginning to recover. Condos and luxury properties are unpopular, but smaller properties that are well-maintained in good school districts are moving quickly. “Buyers are out there, but they’re making low offers and asking for concessions. They don’t seem ultra committed to homes like they used to. If they write an offer and they don’t get exactly what they want, they’re happy walking away.
For all of 2022, UWM transferred $98.8 billion of bulk MSRs, more than any other nonbank.