Debt Ceiling Looms
Last week, investors hopped around financial instruments last week like caffeinated squirrels causing market volatility, while mortgage rates climbed Mount Everest. Meanwhile, the US government debates whether to ignore it's next credit card payment.
⭐️ Check This Out
- Your dream home's mortgage might turn into a nightmare with a 22% hike, if Uncle Sam forgets to pay his bills.
- Powell hints at giving us a break on interest rates, thanks to the drama in the banking sector.
- List your house in spring, because who wouldn't want to give you an extra 10%? Especially in May, the golden child of selling months.
- Office buildings are turning into ghost towns, and apparently, ghosts don't pay $1.2 trillion office debts or buy coffee.
- Builders are feeling the love in May despite the pesky supply chain, tight credit, and Fed's interest hikes. The mantra? Build baby, build!"
📊 Market Update
Last week was a bit of a rollercoaster in the finance world (deja vu, anyone?). You know all those banking blunders and that ongoing saga about the US debt ceiling? Well, as soon as things started to chill a bit, they all did a complete 180. But guess what didn’t get the memo? You probably guessed it...mortgage rates - they just kept climbing. They hit their highest since early March, you know, before all the banking drama kicked off.
April's retail sales numbers are up 0.4% from March. Not a massive leap, but hey, we’ll take any good news we can get; especially since they tweaked March's numbers for the better. Looking at the details, folks were keen on spending on the essentials, like food and drinks. But they held back a bit on splurging for the big stuff like furniture and appliances. Maybe they’re feeling that sting of inflation?
Sales of existing homes in April were down 3% from March and a whopping 23% lower than this time last year. The inventory levels, or how many homes are available for us to snap up, are just at a 2.9-month supply nationally. That's way below the 6-month supply we'd want for a balanced market. And that median price tag on homes? It was $388,800, a bit lower than a year ago and nowhere near that record high of $413,800 in June 2022.
Low Inventory Continues
Crazy enough, there's even fewer homes for sale now than before the pandemic in 2019, over 40% fewer to be exact. So, all you builders out there, this is your time to shine! The bigwigs at the National Association of Home Builders (NAHB) say we’re short of a cool 1.5 million homes. They're practically begging builders to speed things up, but builders seem to be taking the slow-and-steady-wins-the-race approach. Single-family housing starts in April only went up 2% from March, and building permits were up by just 3%.
Despite these hurdles, builder sentiment, which the NAHB checks out, hit its highest point since July. Builders know there's a huge demand for homes, but they're also a bit wary of some challenges like stricter rules for construction loans and high costs for land, labor, and materials.
The United States Debt Ceiling
The debt ceiling is essentially the maximum amount of money that the U.S. government is legally allowed to borrow. This money is used to pay for commitments that Congress has already made. Think of it like your personal credit limit, but on a significantly larger scale.
Now, when we talk about the United States defaulting on its debts, we're referring to a situation where the government can't or won't pay its bills. It's a bit like if you suddenly stopped making payments on your mortgage. Defaulting on debts could lead to all sorts of financial troubles, not only for the U.S. but also for the global economy. We'd likely see interest rates going up, the dollar losing value, the stock market taking a dive, and the potential for a major economic crisis.
💡 Did you know?
There was one unusual event in 1979 when the U.S. technically defaulted on Treasury bills due to a combination of administrative issues and a debate over the debt ceiling. However, it wasn't because the U.S. was out of money, more of an unfortunate mishap. Although brief, this event did cause a small but noticeable increase in interest rates.
🗓️ Economic Calendar
Tuesday
- New Home Sales - measures the change in percenatge of the new home sales.
Wednesday
- FOMC Meeting Minutes - a detailed record of the committee's policy-setting meeting held about three weeks earlier.
Thursday
- GDP - measures the annualized change in the inflation-adjusted value of all goods and services produced by the economy.
- Initial Jobless Claims - measures the number of individuals who filed for unemployment insurance for the first time during the past week.
Friday
- Core PCE Price Index - the less volatile measure of the PCE price index which excludes the more volatile and seasonal food and energy prices.