Home Inventory Data Can Be Misleading

Stocks are higher and Mortgage Bonds are slightly lower to start the day.

Chinese 10-year Yields hit their lowest level on record, falling to 1.6%. There is speculation that this could have an impact on US 10-year yields, pressuring them lower. While that would be welcome, a deep historical look shows that there is not a clear correlation. Back in 2021 to 2023, the Chinese 10-year yield dropped, while the US 10-year yield rose significantly. We will continue to monitor the relationship and report back if it begins to have an impact.

Inventory is Tighter Than it Seems

A CNBC article by Diana Olick is getting some attention – It was titled The Housing Market is heading into 2025 with a worrying supply trend.

The media is once again trying to put fear into consumers regarding the housing market. After years of misinformation and calling for a housing bubble for a long time, they are still sticking to their story.

The article references that supply is up 12.1% year over year and that more than half the homes were sitting on the market for more than 60 days.

According to Redfin, inventory levels are up 12.1% in November on a year over year basis. While inventory is higher than last year, perspective is needed. Comparing the current level of inventory to pre-pandemic levels, we have 32% less listings…which is very tight. Additionally, inventory is already starting to decline, like we seasonally see during this time of year.

Within the article, they interviewed Realtors, who brought up some good points. They cited that the homes that are sitting on the market more than 60 days are either not in good shape, overpriced, or both, which skews the days on market. They also said that homes that are priced correctly and in good shape are moving in 3 – 5 days. Because of this, even though inventory is higher year over year, it still feels very tight, and is much lower than pre-pandemic norms.

Looking at new construction, we know that Housing Starts have been falling and are not even close to the household formations we are seeing. With population growth and inventory that is going to remain tight, it should be very supportive of home price appreciation, especially if rates begin to fall.

US Credit Card Defaults Hit Highest Level since Great Financial Crisis

According to the latest data from BankRegData, defaults on US credit card loans have hit the highest level since the 2008 financial crisis

Credit card lenders wrote-off $46bn in seriously delinquent loan balances in the first nine months of 2024, up 50% from the same period in the year prior and the highest level in 14 years. A write off of seriously delinquent credit card debt means that the lender decides it is unlikely a borrower will make good on their debts and it’s unrecoverable.

This is a sign that consumers, especially lower income ones, are feeling the impact of the cumulative inflation we have seen and are defaulting on their debt at the highest rate since the Great Financial Crisis.

If this trend continues, this points to a potential slowdown in the economy, lower inflation, and hopefully lower mortgage rates.

News Next Week

Tuesday: JOLTS, ISM Services, 10-year Auction

Wednesday: Mortgage Applications, ADP Employment Report, Fed Minutes, 30-year Auction

Thursday: Initial Jobless Claims

Friday: BLS Jobs Report

Technical Analysis

Mortgage Bonds are testing an important support level at 100.43. Currently, Bonds are dipping just beneath it, but it has not been a confirmed break of support. It will be important for this level to hold, as the next stop is roughly 25bp beneath present levels at 100.17.

The 10-year is once again testing overhead resistance at 4.588%, which has held the last few trading sessions. If this level is broken, the next ceiling is at 4.636%.

There is not much news today and the markets are relatively quiet with many on vacation and taking a long weekend with the New Year. On days like today, with lower volume, there can be increased volatility.