Dow climbed 239, advancers slightly ahead of decliners & NAZ retreated 25. The MLP index bounced back 2+ to the 216s & the REIT index was off 1 to the 452s. Junk bond funds drifted lower & Treasuries continued to be sold, raising yields. Oil tumbled 3+ to 86 & gold fell 8 ti 1789 (more on both below).
AMJ (Alerian MLP Index tracking fund)
![Live 24 hours gold chart [Kitco Inc.]](https://www.kitco.com/images/live/gold.gif?0.2180338269244485)
New US home construction plunged in Jul for the 3rd consecutive
month, evidence that rising interest rates & steep prices for
construction materials are starting to cool the red-hot housing market. Housing starts dropped 9.6% last month to an annual rate of 1.4M units, the lowest level since Feb 2021, according to new
Commerce Dept data. The forecast was for a pace of 1.54M units. Applications
to build – which measures future construction – slowed to an annual
rate of 1.7Mn units, which is also the lowest since Sep. Single-family
housing starts, which account for the biggest share of homebuilding,
tumbled 10.1% in Jul to a rate of 916K units, the lowest since Jun
2020. Still, the decline was not broad-based across the country: Single-family homebuilding decreased in the Midwest & the South, but
actually increased in the West & Northeast. The data comes one day after the National Association of Home
Builders/Wells Fargo Housing Market Index, which measures the pulse of
the single-family housing market, fell for the 8th consecutive month
to 49, marking the worst stretch for the housing market since the 2008
financial crisis. Any reading above 50 is considered positive; the
gauge has not entered negative territory since a brief – but steep –
drop in May 2020. The index has fallen considerably from just one year ago when it
stood at 80. It peaked at a 35-year high of 90 in Nov 2020, buoyed
by record-low interest rates at the same time that American homebuyers –
flush with cash & eager for more space during the pandemic – started
flocking to the suburbs. "Tighter monetary policy from the Federal Reserve and persistently elevated construction costs have brought on a housing recession," NAHB chief economist Robert Dietz said. The interest rate-sensitive housing market has started to cool noticeably in recent months as the Federal Reserve
moves to tighten policy at the fastest pace in 3 decades. Policymakers already approved a 75-basis-point rate increase in both
Jun & Jul.
Housing starts tumble in July to new 17-month low
Rising costs & falling confidence in the US economy are fast becoming a toxic cocktail for the housing market. As a result, a growing number of buyers are backing out of deals they've made with homebuilders & sellers of existing homes. Homebuilder cancellation rates have more than doubled since Apr, according to surveys by John Burns Real Estate Consulting. In Jul, 17.6% of builder contracts fell thru, compared with 8% in Apr & 7.5% in Jul 2021. Texas and the broader Southwest are seeing the biggest jumps in builder cancellations, at 27% & 25%, respectively. Many Americans migrated to the Southwest during the early days of the Covid pandemic. Cancellations are also higher than the national average in Northern California & the Northwest, at 23% & 19%, respectively. The reasons for the cancellations are 2fold: Some buyers are no longer qualifying for their mortgages at today's higher rates & therefore can't close on the homes once completed. (Mortgages for new home contracts are often calculated before the home is built.) And, some buyers are simply walking away of their own accord, concerned about inflation & the potential for home values to drop. This can mean giving up pricey deposits, but state laws vary widely on the requirement for builders to refund cash deposits. “California buyers can pretty much walk from the closing table and get a refund,” said Jody Kahn, senior VP of research at JBREC. “Also, builders have a lot of flexibility on what they require for cash deposits and they can choose to be more or less lenient in refunding.” The story is much the same with contracts on existing homes. Nationwide, about 63Kof those agreements fell thru in Jul (about 16% of homes that went under contract that month). Cancellations were 12.5% in Jul 2021. “The majority of the time the sellers are losing more than the buyers when the cancellations occur,” said Heather Kruayai, a Redfin agent. “The buyers are cancelling within their due diligence period & are able to retain the binder deposit. The sellers are therefore losing time on the market as they have to change the status of their listing from active to contingent accepting backups.”
Homebuyers are backing out of more deals as recession fears linger
Former Congressional Budget Office Director Douglas Holtz-Eakin ripped
Dems' Inflation Reduction Act for having "zero impact" on the
inflation outlook & said the White House should be "very concerned"
about the state of the US economy.
DOUG HOLTZ-EAKIN: That's going to have zero impact on the inflation outlook. And by the way, they've already spent money that offsets that. They passed the $300 billion deficit finance CHIPS and Science Act. They passed an up to $600 billion increase in veterans benefits in the PACT Act. They have continued to do what Congress does: spend and borrow. And this bill will have zero impact on the inflation outlook. If I was in the White House, I'd be very concerned. We have labor force participation rate that hasn't gotten back to the February 2020 level before the pandemic. So there are about 3.5 million workers, fewer than otherwise would be. Productivity growth has been negative for two quarters, and so it's workers and productivity that deliver increases in output, increases in the standard of living. So I'd be all-in focused on those things that increase long-run supply side growth, and that would be low taxes on the return to saving investment in innovation, incentives to work, a light touch regulatory burden. And then this administration is doing none of those things. And so I'd be very concerned that even if inflation has peaked and the Fed can conquer it, that what comes out the other side is an economy that's just not going to deliver for the American people.
Former CBO director rips Democrats' bill for having 'zero impact' on the inflation outlook
US oil futures declined to settle at their lowest price since Jan. Mostly soft global
economic data so far week has weighed on demand expectations for refined
products amid elevated recession fears. That sent oil prices down
thru the psychological $90-a-barrel level yesterday. Details about a
potential deal to revive the Iran nuclear deal, meanwhile, triggered a
drop to new multi-month lows in oil futures. Sep WTI crude fell $2.88 (3.2%) to settle at $86.53 a barrel. Prices based on the front-month contract ended the
session at their lowest since late Jan
U.S. oil futures mark their lowest finish since January
Gold prices softened for a 2nd day, with the most-active futures contract for the yellow metal marking another settlement at the lowest level in more than a week, as the $ held onto the bulk of its recent gains. Dec gold futures fell $8 (0.5%) to settle at $1789 per ounce after losing 1% yesterday. Prices based on the most-active contract ended at their lowest since Aug 5. Gold prices have softened this week, with the yellow metal holding below the key $1800 per ounce level for a second session, leaving it on track to snap its longest streak of weekly gains since Dec. The ICE US Dollar Index, a gauge of the $'s strength against a basket of rivals, was down 0.1%, but still up nearly 0.8% for the week so far, while the 10-year Treasury yield gained 4 basis points to 2.827%. Among economic data released today, construction on new US homes fell a seasonally adjusted 9.6% in Jul to 1.45M, the lowest level since early 2021 US industrial production rose 0.6% in Jul, with the gain coming in above expectations for a 0.3% increase.
Gold prices log back-to-back losses, hold below $1,800 an ounce
Dow Jones Industrials
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