Consumers May Be Overextended and Delistings Explained

Stocks and Mortgage Bonds are both moving higher this morning, following a much weaker than expected Retail Sales report for January that showed consumers may be hitting a wall with spending.

Mortgage Bonds are now roughly 26bp above where they were before the CPI inflation report was released, so they have completely recouped those losses and then some. Helping Bonds recover was yesterday’s Producer Price Index report, which showed that a lot of the shared components that it has with PCE were negative, which portends that the Fed’s favorite measure of inflation released at the end of the month will be tame.

Additionally, President Trump had a press conference yesterday regarding reciprocal tariffs. They decided to punt on instituting them in order to do more research on their impact. This also helped Bonds to continue to move a bit higher late in the day.

Retail Sales

Retail Sales in January were very weak, falling 0.9%. The market was expected a 0.1% decline. There were some positive revisions to December, but this was a very soft reading and the biggest drop in about two years.

Core Retail Sales, which is most important, fell by 0.8%, much lower than estimates of a 0.3% rise and also the lowest reading in two years.

One might expect a decline post December holiday spending, but this was much worse than we have been seeing. Additionally, online sales fell about 2%, which is not impacted by CA fires or harsher January weather than we have seen the last few years.

This most likely shows that consumers may be reaching their limit spending on credit. Outstanding credit card debt has soared to new all time highs, reaching $1.2 trillion. After Covid, outstanding credit card debt fell because of the three stimulus checks. Since then, however, we have blew past the pre-Covid level and are now 41% higher.

Even if consumers are not at their actual credit limit, they may not be able to afford to spend anymore, especially with mid 20’s interest rates and the most people ever only able to make the minimum payment. If this trend continues, it may be an early sign that consumers will increasingly not be able to spend and that the economy may slow, which would be a good thing for mortgage rates.

Delistings Explained

There have been some stories in the housing market recently explaining that delistings are on the rise – or Realtors/sellers taking down their listing. If we look at a longer-term view of this, it happens at the end of every year. Typically, December is a slower time of year and it can be a smart move to delist a property and then re-list after the new year begins to restart the days on market count. Potential buyers question a home sitting and not being sold for a long period of time.

Again, delistings typically spike every year, but it was more pronounced in 2024. Likely reasons are that days on market were elevated because of higher rates and there are more homes for sale. Inventory has increased 25%, which naturally means there are going to be more delistings this year versus last year.

Technical Analysis

Mortgage Bonds have made a beautiful two-day recovery, breaking back above the 100.43 Fibonacci level, 25-day Moving Average, and 50-day Moving Average. Bonds will now have those levels as support, with the next level of resistance at the dual ceiling formed by the 100 and 200-day Moving Averages, which we almost tested earlier today. This will likely be a tough dual ceiling to crack, so we must be on guard for reversals lower.

The 10-year has broken beneath several floors of support, convincingly breaking beneath its 50-day Moving Average this morning. Yields now have more room to improve and move lower until reaching 4.40%, about 7bp beneath present levels.