Peter Boockvar

The S&P CoreLogic US home price index for December rose 5.8% y/o/y which is the 9th month in a row of y/o/y moderation. Looking at m/o/m and home prices are down for a 6th straight month and by .35% in December. Home price gains continue to be driven by those in the sunbelt with Miami, Tampa, Atlanta, Charlotte and Dallas leading the way. On the flip side, San Francisco, Seattle, Portland, San Diego and LA were the laggards with the first two seeing y/o/y declines. 

Bottom line, there is this very interesting dynamic of the need to have home prices fall in order to mitigate the doubling in mortgage rates with regards to making it more affordable for a first time buyer. The dynamic is that inventories of existing homes are still so low that it is preventing home prices from falling faster than they are. The net result could just very well be a continued slowing in overall transaction activity and the continued moderation in all economic activities associated with someone moving. Again, according to the NAHB the housing sector all in contributes 15-18% of GDP and this sector is obviously in contraction. 

Add the Chicago and Richmond manufacturing indices to the list of February regional surveys showing contraction, again. The Chicago index fell deeper below 50 at 43.6 from 44.3 in January and below the estimate of 45.5. The Richmond index fell to -16 from -11. The estimate was -5. That’s the weakest since 2009 not including covid. This comes ahead of tomorrow’s national ISM where the estimate is for the 4th straight month of below 50 prints. 

The February Conference Board’s consumer confidence index fell to 102.9 from 106 and that was below the estimate of 108.5. For perspective, this was 132.6 in February 2020. The components though were mixed as the Present Situation rose for a 3rd month, by 1.7 pts but Expectations fell 6.3 its to the lowest since last July. One yr inflation expectations moderated to 6.3% from 6.7%. That’s the least since April 2021 but is still above the 20 yr average leading into covid of 5%. 

There was a big discrepancy between the current situation with the labor market and the 6 month outlook for employment. The answers to the current jobs questions got better with those saying jobs were Plentiful rising 4 pts to the highest since April 2022. This just as we hear that many companies, particularly small and medium sized ones, are looking to limit hiring. Also, those that said jobs are Hard to Get fell to the lowest since April 2022. THIS ALL SAID, and following what ZipRecruiter said, expectations for ‘more jobs’ in the coming 6 months fell to the lowest since June 2016. Also disappointing, those expecting an ‘Increase’ in income fell 4 pts to the weakest since 2011 not including covid, though the Fed will be happy with that unfortunately. 

Also weak were spending intentions as the dour mood bled into these answers. Those that plan on buying a car within 6 months fell to the lowest since November 2021 just as Delta started to flare. Previous to that, go back to 2010 the last time it was this weak. Those that plan to buy a home fell to 5, matching the lowest since July 2022 when mortgage rates first got above 6%. Spending intentions on a major appliance also dropped to the lowest since July last year. Also, plans on taking a vacation declined by 5.6 pts to the weakest since June 2022. 

The Conference Board highlighted that the decline in confidence “reflected large drops in confidence for households aged 35 to 54 and for households  earning $35,000 or more.” 

Bottom line, that expectations figure was really disappointing with the declines in employment, income and in spending intentions. There is nothing ‘strong’ about the consumer that I hear from some and instead are clearly growing more nervous about the state of things.