This week on Inside the Economy, we explore the housing market, immigration, and the Treasury market. Mortgage rates have been hovering around 7%. Has the heightened level of interest rates negatively impacted existing home sales? New construction of single-family homes stands at over 900,000; how does that compare to multifamily construction? In other news, U.S. immigration trends for green card holders and temporary visa recipients have remained steady or slightly increased, but has immigration among other foreign nationals declined, possibly due to recent policy shifts? Meanwhile, the 30-year yield has begun to creep down from its peak in May. Could Treasuries still be considered a safe haven for both domestic and foreign investment? Tune in to learn more!
Key Takeaways:
- Head CPI Inflation at 2.4% (YOY)
- 30-year Mortgage rate at 6.81%
- Existing Home Sales at $4M in May
Full Transcript:
Welcome to another edition of Inside the Economy!
I’m Larry Howes.
I want to talk about the housing market. What’s going on with the consumers and if there were a theme. Today’s presentation is market resilience. The US Financial markets, the housing markets, the bond markets, the stock market, everything have been remarkably resilient in light of a lot of events going on around the world. Events domestically, good and bad, depending upon which part of the media you pay attention to.
Quick peek at the numbers. Very little change in CPI, very little. A lot of the vaunted, oh, we’re going to get inflation back, it’s going back to four, so on and so forth based on tariffs and what’s going on has not transpired. It’s very likely to not come into the market at all.
I’ve mentioned before that a lot of these tariff issues and negotiations will be over by the end of June. There’s been a couple of diversions, so maybe middle of July, but it’s not going to take much longer. It’s not going to have an impact whether the Federal Reserve lowers rates or not.
There’s almost no chance that the Federal Reserve is going to cut rates certainly until September and today with what’s going on in Iran and a few other places. Price of oil, that is debatable too. We may not see a rate cut this year unless something changes. Unemployment 4%, initial job claims going nowhere and all the rates are down. Mortgages down, long bond, medium bond down.
Rates aren’t really changing. The only thing that’s up a little tiny bit is oil. Due to some problems in the Middle east. It was 74 on Friday. It was mid 73 when I looked about 15 minutes ago. A lot of you remember that I was very interested in this excess savings that came along during COVID There was some money given to some people. It went into savings, spending went down, savings numbers went up. It was a big bubble.
Well, it’s very good news that there wasn’t a lot of pent up consumer demand or other things that would accelerate. People just spending that money. The blue is the money. There’s still $500 billion of that money in the system not being spent in savings or whatever it is you want to call it. Consumers are not going berserk and not creating bubbles or excess anything at this point. It’s a very good sign.
Existing home sales, they have stabilized. I know they’re not what they were. They are adjusting to a new market. Previously we had much lower rates. We had basically free money. We had Stimulus in the markets. We had a lot of things now that that was all cleaned out. Some of that doing COVID, some of that during as the rates corrected. That’s been stable for about almost three years now. This market is not going to disappear and it is accommodating mortgage rates that are…. well, they’re going to stay in the sixes, likely stay in the sixes for a while.
Housing starts. Single families are fine. That’s the blue multi families, especially in places like Denver and other cities that still have to accommodate the low income. Yes. But also the affordable, which is a little higher than low income, which is a big deal in Denver. And that market is doing pretty well. There are several very large projects that are coming online this summer that are going to be out for the next couple of years.
The stock markets, the Dow the S&P 500, well, they have recovered from their little problem here a little while ago. And I don’t mean to make light of it other than I am making light of it. And I’ve heard more comments about, gee, why hasn’t the S&P 500 given me a new record yet? That’s kind of where we are.
The US equity market is very strong. It’s not exploding in growth. It’s staying where it is based on the earnings of the companies in the S&P 500 and some of the opportunities elsewhere. There are places of, oh, we’re over funded, we’re overpriced, whatever it is, quick little correction, it bounced right back, which it has.
And the fact that there’s some additional problems going on in the Middle East. Ordinarily, there’s a lot of people who remember this market would be down 20% historically. It was positive territory. Fifteen minutes ago, Mr. Trump made some comments a little while ago that I thought were kind of dramatic at the point when the first time I heard it, he said, well, I think he was talking about Walmart saying, well, they can just eat the tariffs.
Well, there are some truth to that and a lot of it’s based on this. This is from the BEA Bureau of Economic Analysis. Retailers have lots of room to absorb tariffs. There’s a lot of profits, there’s a lot of margin in them. And interestingly enough, there’s a very large percentage of those that are categorized as retailers. Gas stations, gas stations haven’t been giving gasoline away even though oil has been pretty low. They’ve sort of changed how they market.
So their margins have been pretty good all over the country. There’s a lot of retailers out there that are doing just fine, whether there’s tariffs or not, fair amount of exposure in the media about illegal aliens, migrants.
Quick reminder, you look at these lines, this is basically the legal people, the people that are here on a special visit, like scientists or some students, those numbers are just fine. That little spike right there is the last administration admitting a lot of people in big hurry, a couple of million people in. And what’s going on right now is how you clean out that system with all these people that were never really accommodated by the system in the first place.
The immigration system is doing fine. It continues to do fine. Temporary work visas being issued. Little hole there is where COVID was. Obviously they’re doing fine. The work permits, all of that stuff, student permits, green card, permanent visa issuance coming out, the system is doing then that’s 400,000 a year. That’s pretty much what they’ve always done. That system is moving along just fine.
And there’s been a lot of conversation about, oh, the dollar is losing its value in the marketplace. It’s losing its importance in the marketplace. It’s losing its reserve currency status. I’m not sure where that came from. It’s wrong. There’s nothing more important in this economy, global economy, right now, than the dollar and access to the marketplaces that are dollar denominated.
As far as, oh, the long, the 30 year treasury, oh, it’s really lost its value. Nobody’s buying them anymore. Completely false. The yields have risen a little tiny bit and the yields have dropped more after what’s going on in the Middle east right now.
Remember, when the yields and the bond go down, that means the price has gone up. People are buying more of it. That’s what’s known as, oh, they want haven status, they want safe haven status. So they buy the long treasury. As a matter of fact, everybody else in the world knows that too. The foreign treasury holdings and most of this is the long bond are now at 9 trillion.
There’s nothing more important to the institutional market out in the world than treasuries. And they’re buying the longer the better, whatever they can get their hands on. And they’re not the only ones. It’s not just foreign governments and foreign institutions.
This is individuals here in the US this commercial money markets. It’s about $7 trillion. It’s not like these people are anticipating when there’s a buy in the stock market or they’re waiting to buy a car or anything like that. This money has moved into the money market and it’s stayed there and slowly grown over time. It’s a lot of money. There’s a lot of money in this system, a lot of money in the banks. There’s not a lot of fear. It’s simply adding to the resilience of the marketplace, which is where we have today.
And finally, for the argument saying, oh well, escalating conflict, you know, that’s going to continue to bring the value of the dollar down. I don’t know what they mean by that, but most of the people that talk about the value of the dollar really have no idea what they’re talking about. The dollar has been too strong for too long.
When you’re an exporter, you don’t want to have a strong currency. You want to have a weak currency so your stuff is cheaper. American products have been very expensive because the dollar has been very strong. And I think this administration has done a fair amount of productive moves in the marketplace to bring the value of the dollar down. And dollar based assets, well, you have a little problem in Iran and beep dollar goes back up because everybody’s buying what they can get their hands on. We talked about that.
Well, okay, that’s what happens. That’s what it is. That’s what goes on. And actually the dollar needs to continue to go down for the foreseeable future. That’s probably enough. We have a very resilient, very positive market. It’s not going to get huge new growth numbers, but we’re certainly preserving the growth that we’ve had and have restored in the last, let’s call it a year. That’s very good. As the world adjusts itself and the politics adjust themselves, the underlying economy is doing very well. Good news for a pretty hot day here in Denver.
Well, have any questions, send them along to info@shjwealthadvisors.com and I’m happy to deal with it!
