Sales of new homes plummeted in April by the most in nearly nine years, the result of high prices and a steep climb in mortgage rates.  Home ownership is becoming increasingly out of reach as a rapid run up in mortgage rates collides with record prices, primarily the result of the lack of inventory.  Mortgage rates have risen at the greatest pace in any four months since 1981 according to Bloomberg.

However is this about to change?  The data indicated there were 444,000 new homes for sale at the end of the month and is the most since 2008.  However nearly all had yet to be completed.

At current sales pace, it would take 9 months to exhaust the supply of new home.  That compares with 6.9 months in the prior month and 4.6 months one year ago.

The number homes sold in April and awaiting the start of construction—a measure of backlogs—rose slightly from a month earlier.

Few are suggesting housing will implode in a similar manner as 2008 but the data is suggesting a definitive cooling of this sector.

Commenting about yesterday’s market action the indices were bifurcated.  The NASDAQ fell about 2.5% as the mega size technology issues declined, the catalyst was SNAP’s revenue and profit warning that was greatly different than the outlook issued just one month ago.  The mega sized must owned social media companies declined anywhere from 7% to 30%.    The Dow was essentially unchanged.

The lack of liquidity in all markets is now becoming very noticeable and is beginning to make headlines.  The Federal Reserve warned this week that the lack of liquidity “threatens financial stability and those who ignore these warning to so at their own peril.”

Who is this warning directed to?  Levered hedge funds or the retail investor?

Unfortunately, liquidity is about become even more scarce.  For the last 10-12 years the Fed has injected about $120 billion per month directly into the financial system.  These injections ceased in March and in about a week the Fed will begin to reduce funds, prompting Fed officials to lament liquidity today in the credit markets is the worst that it ever has been outside of the Great Financial Crisis and early COVID.

No one knows the future and it is often stated the most obvious conclusions are those that are ignored.  However with this written, the anticipated reaction is continuing to occur with the most obvious example is the unrelenting advance of the Ruble.

FINRA data suggests about 65% of market participants do not use a financial professional.  Trades or positions are instituted utilizing platforms primarily via passive indexing.  Is a nascent change at hand given the most popular retirement mutual funds are down about 27% according to Bloomberg data, the result of the unrelenting decline in the mega size companies?

I firmly believe it is not what one does but rather why one does it.  What are the assumptions and what are the possible conclusions?  Today is entirely different than yesterday given the massive change in monetary policy and interest rates.

What will happen today?

NASDAQ and Dow futures are flat.  Today Russia will default, the result of the western democracies action.  Russia has the funds, but the US Treasury is prohibiting the disbursement of funds. How will history regard such action? The 10-year is off 2/32 to yield 1.75%.


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