Homes Wednesday morning the MBA Mortgage Applications metric was released, and it was a noticeable uptick.

Actually,  the 4th largest in almost 10 years.

That made us a bit curious about what is presently going on in the US residential market, are homes trading again?

Total Existing Sales near GFC levels.

Supply is still at the lower end of the range in both absolute terms and monthly supply.

Could one possible reason for the 2 preceding charts simply be the cost?

2012 to now the cost has basically doubled.

Unfortunately, the median income is simply not keeping up with home prices, rental costs or mortgage payments. Incomes from 2020 are up just under 22% compared to Home prices moving 47% higher.

Looked at another way. As a percentage of median income on a monthly basis.

It is actually cheaper to own than rent presently.

Annualized that equates to 31.08% of yearly income to own and 32.9% of yearly income to rent.

So, if affordability continues to be an issue, what is left to increase supply and ultimately tame prices?

As many know it simply comes down to rates.

The chart below depicts the average spread between the 30 Year Mortgage National average and the 10yr TSY yield.

The White line is that spread, presently 242bps.
The Magenta line is the 50-week moving average, presently 278bps.
The Blue line is the yield on the 10yr US TSY.
The Green line in the bottom panel is the Bankrate.com US Home Mortgage 30 Year Fixed National Avg.

As the white line shows, it is possible for that spread to drift close to or slightly below the 200bps level, but even if it were to get there it would only generate 42bps of relief from present levels, or roughly a 6% 30yr mortgage.

So, if home sales and inventory are to increase it most likely will not happen until we get a meaningful move lower in the 10yr TSY.

And, after the Federal Reserve lowered the Fed Funds rate this week, the move in the 10yr TSY was not exactly inspiring.

Fed lower, 10yr higher. Not what the Housing markets needs to loosen up exactly.

Company Reporting

Even though we had a Federal Reserve meeting this week, it could be argued that the most impactful occurrence was a suggestion that the SEC should scale back company reporting from 3 to 6 months made by the president.

https://x.com/TruthTrumpPost/status/1967586020607541684

There are many potential impacts from such a change, over and above the impact that the president is aiming for, longer term focus and less burdensome oversight.

According to analysts at TD Cowen, there’s an estimated 60% probability that the U.S. Securities and Exchange Commission (SEC) will shift from quarterly to semiannual reporting.

If the SEC moves forward, the change could be implemented within 6 to 12 months, without needing Congressional approval.

We think there could be a host of other impacts to the markets, and that this will be a heavily debated topic as the possibility becomes more and more likely.

Potential points of discussion:

Appropriate cadence of news dissemination.

Just because the SEC might approve of such a rule does not necessarily mean the market will. There will certainly be some companies that will need to communicate more often than just twice a year, and if they do not the market may place a discount on the prior multiple which in turn would lead existing investors to question said companies’ choice of cadence.

Volatility.

This is probably the most obvious characteristic that will be impacted. Volatility will certainly be heighted during “quiet periods”, but it may well remain heightened because Implied is always high prior to earnings releases.

Below is a link discussing the above as well as one chart that we think sums up the case well.https://www.tastylive.com/news-insights/market-volatility-during-earnings-seasons

Company Communication.

Will companies communicate differently going forward? Will it simply be broadcast through traditional mediums like CNBC, Bloomberg, and FOX or will some choose to use X/ aka old Twitter to do so? Could sell side analysts take on a bigger role as some companies might feel it’s the path of least resistance to relay necessary information to investors.

Liquidity.

Will liquidity suffer or shrink because of less information flow? Will larger shareholders be less likely to participate in the market simply because of the lower levels of liquidity? Could prices appear to be “manipulated” because of the lack of that liquidity?


All the above questions could lead to potential paradigm shifts in the marketplace.

Sell side analysts could become more prominent simply because of the possibility that certain companies will choose them as their best venue for information dissemination. They will be the more convenient option.

What will happen to the option market for those dates that no longer hold the importance they held before with quarterly reporting vs semi annual reporting potentially?

We are sure there are plenty of implications we have not thought of but think this is a worthwhile conversation to be had before any rules actually change.

GDP Estimates

We are more than a month away from initial 3^rd Q GDP estimates, but its always interesting to see where the Fed models are tracking.

NY Fed model estimate. It has begun to trend slightly lower from 2.22 at the end of August to the most recent 2.08.

The Atlanta model is up at 3.3%

If we average them out the Q3 GDP should arrive somewhere around 2.69%.


CPI Reliability

We have pointed this out before, but feel this chart really gets to the point of before and after level of data collection for the CPI.

The quality of CPI inflation data continues to deteriorate: In August, 36% of CPI prices were estimated, up from 32% in July.

Have a great weekend!

Best,

Meraki trading team