Wall Street Breakfast: House In Order?

House in order?

Housing affordability is becoming a problem in the U.S. and is transforming the market in ways that could be difficult for homebuyers and homebuilders alike. Tuesday's economic calendar saw housing starts plunge by 11.3% month over month in August to 1.283M, marking the lowest level since June 2020. On a Y/Y basis, housing starts fell a further 14.8%, and well below the 1.435M units expected by economists.

Quote: "High mortgage rates are clearly taking a toll on builder confidence and consumer demand, as a growing number of buyers are electing to defer a home purchase until long-term rates move lower," Robert Dietz, chief economist of the National Association of Home Builders, said earlier this week. The statement came after homebuilder sentiment dropped for the second consecutive month and fell below the key break-even measure of 50.

The latest data may not only spell trouble for current housing dynamics, but future supply as well. Many are sitting on mortgages taken out during the beginning of the COVID pandemic, when rates were at 3% or under, and are not in a rush to exit their current properties. At the same time, builders are concerned about constructing new houses that buyers may not be able to afford, which has pushed many of them to the sidelines. Student loan repayments are also about to restart, which can be another big setback for millennials who are looking to break into the market.

What to watch: "As long as rates remain high, homeowners will be reluctant to sell. And that lack of homes for sale will keep prices high because it means buyers are duking it out for a limited supply of houses," wrote Chen Zhao, lead of Redfin's (RDFN) economics research. In fact, the median U.S. home sale price advanced 3% Y/Y to $420,846 in August, marking the largest annual increase since October, when mortgage rates surpassed 7% for the first time in two decades. Home purchases are also getting scrapped at the highest rate in nearly a year, with nearly 60K home-purchase agreements across the country canceled in August. (39 comments)

Fed decision

It's showtime for the Federal Open Market Committee, which will announce its latest policy decision at 2 PM ET. Nearly all economists expect rates to remain unchanged, but will take a closer look at economic projections, which will offer a view of how high the central bank may go and for how long. This week's WSB survey is still open, so if you haven't taken the poll yet, check out what subscribers think might lie ahead for the remainder of 2023 and 2024. Analysts are also weighing in on today's big event that'll feature a press conference from Fed Chair Jay Powell. Alan Longbon explores what to expect at the meeting and how to trade it, though Stratos Capital Partners feels the outcome will have a limited impact on markets. (49 comments)

IPO buzz

Grocery delivery firm Instacart (CART) closed up 12.3% in its market debut, ending the day with a valuation of about $11.5B. Instacart's rally comes close on the heels of Arm's (ARM) IPO, in which its shares jumped 25% in its first day of trading. The initial enthusiasm has since faded, with Arm declining in three consecutive sessions. SA analyst The Asian Investor believes traders are overpaying for Arm's revenue potential, a concern shared by Wall Street analysts. Nonetheless, Arm's debut was followed by Instacart and marketing automation firm Klaviyo boosting their respective IPO pricing ranges. Klaviyo has priced its IPO at $30 a share, at the top of its marketed range - in a similar fashion to Instacart - and will begin trading today. (41 comments)

Hiring blitz

Ahead of the holiday season, Amazon (AMZN) said it will hire 250K workers in full-time, part-time, and seasonal fulfillment center and transportation roles across the U.S. The e-commerce giant will also invest $1.3B this year toward pay hikes for customer fulfillment and transportation employees, representing a more than 50% increase over the last five years. U.S. retail sales are expected to be resilient this holiday season despite macroeconomic headwinds including inflation, resumption of student loan repayments and higher gas prices. While growth is expected, Deloitte sees holiday sales slowing to 3.5%-4.6%, from last year's 7.6% growth. (5 comments)

Today's Markets

In Asia, Japan -0.7%. Hong Kong -0.6%. China -0.5%. India -1.2%.
In Europe, at midday, London +0.8%. Paris +0.4%. Frankfurt +0.6%.
Futures at 7:00, Dow +0.2%. S&P +0.2%. Nasdaq +0.2%. Crude -0.9% to $89.66. Gold flat at $1,954.40. Bitcoin -0.4% to $27,071.
Ten-year Treasury Yield -2 bps to 4.34%.

Today's Economic Calendar

7:00 MBA Mortgage Applications
10:30 EIA Petroleum Inventories
2:00 PM FOMC Announcement
2:30 PM Chairman Press Conference

Companies reporting earnings today »

What else is happening...