Another bad reading for housing hit the tape today as the NAHB’s Housing Market Index measuring the confidence of US homebuilders experienced its second largest decline on record behind the drop in April 2020.  Homebuilder sentiment cratered 12 points month over month sending the index to the lowest level since May 2020 which is also one point below the late 2018 low.

Given the drop in the headline number, each of the individual components (present and future sales and sales traffic) similarly experienced historic declines month over month. Like the headline index, Present Sales and Traffic only experienced larger declines at the start of the pandemic.  The same goes for Future Sales, although there was also a slightly larger drop in December 1987 making this month’s drop the third largest on record.

Geographically, no area of the country has been safe from plummeting sentiment, but the Northeast has held up remarkably well.  Whereas the South and West saw double digit monthly declines that both were the second largest on record, the Northeast only fell five points to 57.  That is a reading just shy of the top quartile of readings unlike the other regions that are in the 52rd percentile at best (South).

The lower sentiment for homebuilders is of course a function of rising mortgage rates and the subsequent dampening demand as a result.  As for builder’s roles in existing homes, sentiment is also rolling over.  In addition to today’s release, last week saw the quarterly release of the NAHB’s Remodeling Market Index measuring builder’s sentiment regarding remodeling projects.  Unlike the Housing Market Index, this index remains historically elevated and down just a bit. In other words, remodeling demand has taken a hit but not to the same extent as projects to build a new home.

The most pronounced decline in remodeler sentiment has come from the projects carrying the highest costs ($50K or more) even though smaller project outlooks have also been falling for a few quarters now.

Backlogs have been unwinding as well even if they are historically elevated. A likely big reason for that has been a deceleration in new projects.  The index for Appointments for Proposals is much less elevated in the 48th percentile compared to 56th for the headline reading or 68th for Backlog of Remodeling Jobs.

While homebuilder sentiment experienced a historic plunge in the latest reading, homebuilder stocks have actually been on the move higher in today’s session.  That brings the total rally off of the June low above 20%, although that is only a dent in the larger decline since late last year. The S&P 1500 Homebuilders group is currently down 31.4% since the December 10th high. Without a coincident drop alongside sentiment, homebuilders continue to hold above their 50-DMA.

Homebuilders are at a bit of a crossroads at the moment as a further move higher would definitively break the past several months downtrend whereas a break back below its 50-DMA would mark a failed breakout similar to what happened earlier this spring.  If today is any indication, macro data hasn’t been a particularly strong catalyst for the industry, however, there is a huge slate of earnings in the month ahead.  Later this week on Thursday, DR Horton (DHI), NVR (NVR), and Tri Pointe Homes (TPH) are all scheduled to release quarterly results.  Of these, DHI has actually averaged some of the worst performance on Q2 earnings of any homebuilder.  The stock has averaged a 1.28% decline on its historical Q2 earnings reaction days and positive returns only a quarter of the time.  As for other notables, Q2 has tended to be the best quarter of the year for stock price performance of Century Communities (CCS), Installed Building Products (IBP), LGI Homes (LGIH), and NVR (NVR). Click here to learn more about Bespoke’s premium stock market research service.

After one of the sharpest YTD surges on record, US consumers have seen a bit of relief at the pump over the last month as gasoline prices, as tracked by AAA, have seen a sharp pullback.  The national average price of a gallon of gas currently stands at $4.52, which at any other point in history would have been astronomical, but compared to mid-June when the national average briefly topped $5, current prices seem downright cheap – at least on a relative basis!

The table below shows prices as of 7/18 each year going back to 2005 and where they stood on both a MTD and YTD basis.  At $4.52, the national average has never been higher at this time of year, and the only year it was above $4 per gallon on 7/18 was in 2008.  On a YTD basis, the average price is still up 37.6%, which is roughly double the average and median YTD gain at this point in the year, but 2021 (40.6%) and 2009 (52.6%) both saw larger YTD increases.  One notable aspect of this year so far is that despite the big increases on a YTD basis, this month’s 6.6% MTD decline actually ranks as the largest MTD decline in prices through 7/18.

While the moves this year have been much more extreme than normal, average gasoline prices are following their typical seasonal pattern.  Historically, prices tend to peak right around Memorial Day or into early June, and this year’s peak in prices was on June 13th.  Granted, this year’s peak (50%+) was much larger than the typical YTD increase leading up to the peak, but the magnitude of the decline in percentage terms has also been steeper than normal.  In order to get back down to a more normal YTD pattern, we’re going to need to see continued weakness in prices going forward.  But from a seasonal perspective (and barring any hurricanes), there is a tailwind for lower prices. Click here to learn more about Bespoke’s premium stock market research service.

Besides the fact that gas prices hit record levels this year, what has made the period especially painful for consumers is how consistent the increase in prices has been.  The chart below shows the y/y change in prices going back to 2005.  The current level of 42.71% isn’t necessarily extreme in terms of its magnitude, but what stands out in the chart below is how long the y/y increase has stayed at elevated levels.  Back in March 2021, the year-over-year change for gas prices first crossed 30%, and it hasn’t looked back since.  When you start lapping 30% y/y increases, it really starts to add up!  Let’s hope that this recent dip really starts to have some legs.

Welcome to Bespoke Brunch Reads — a linkfest of the favorite things we read over the past week. The links are mostly market related, but there are some other interesting subjects covered as well. We hope you enjoy the food for thought as a supplement to the research we provide you during the week.

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Labor Markets

Here’s where Tesla’s recently laid-off talent is going by Fred Lambert (electrek)

Workers who have been laid off or otherwise departed Tesla recently has headed to other tech firms, with Rivian, Apple, and Lucid Motors among the biggest recruiters. [Link]

Netherlands Poised to Make Work-From-Home a Legal Right by Lucy Papachristou (WSJ)

Dutch legislation will force employers to consider remote work requests and provide a covered reason denying their request. [Link; paywall]

Food

Learning to Love an Induction Stove by Hannah Goldfield (NYer)

While gas remains a favored cooktop for chefs, home cooks are likely to reduce greenhouse gas emissions, protect their family’s air quality, and reduce cook time. [Link; soft paywall]

Rising prices curb consumers’ taste for chocolate by Maytaal Angel and Jessica DiNapoli (Reuters)

Sweet treats are an easy item to give up for many consumers, especially when high prices for chocolate mean choco-holics are paying out the nose for their fix. [Link]

In Portugal, Taking a Dive Into Sardines by Lily Puckett (NYT)

A look into the very old and very big business of fish canning, an industry dominated by women that is having a moment thanks to foodies’ search for intense and widely available flavors. [Link; soft paywall]

China

Chinese Homebuyers Across 22 Cities Refuse to Pay Mortgages (Bloomberg)

With apartment development timelines dragging out in part due to builders’ financial challenges, owners already on the hook for payments are starting to boycott their loans in protest. [Link; soft paywall]

China Is Stealing Taiwan’s Sand by Elisabeth Braw (FP)

Taiwanese islands close to the mainland regularly see thousands of dredgers and support vehicles trespass with the goal of removing sand for use in a huge range of applications from land reclamation to concrete or glass manufacturing. [Link]

Subscriptions

Instagram now lets creators publish feed posts just for their subscribers by Chris Welch (The Verge)

Content on Instagram can now be pushed exclusively to paid subscribers, following in the steps of Twitter and adding to a similar feature for Stories. [Link]

Netflix Changes Tack With Marketing Spree for $200 Million Film by Lucas Shaw (BNN Bloomberg)

Instead of just letting users discover a new movie, Netflix is actively marketing its new blockbuster (featuring Ryan Gosling) in a bid to re-start subscriber growth and maintain its position within the streaming wars. [Link]

BMW starts selling heated seat subscriptions for $18 a month by James Vincent (The Verge)

The German auto manufacturer is testing a feature that would allow users to pay full freight for heated seats up front or pay less in monthly installments…all to access a feature that comes built into the car but can be turned on or off with software. [Link]

Market Innovation

‘The market is just dead’: Investors steer clear of 20-year Treasuries by Kate Duguid and Colby Smith (FT)

Since being reintroduced in 2020, the 20y Treasury bond has found very little interest from investors as low liquidity and weak real money interest have made it attractive to nobody. [Link; paywall]

Lumber Futures Are Getting a Makeover by Ryan Dezember (WSJ)

In a bid to expand volumes, the CME is reducing the size of its lumber future by 75%, changed the delivery point, and broadened eligible species to allow for more participation on both sides of the contract. [Link; paywall]

Approval

Most Democrats Don’t Want Biden in 2024, New Poll Shows by Shane Goldmacher (NYT)

With President Biden deep underwater in broad polling, a majority of Democrats would prefer someone else in a primary challenge; that said, a failure to renominate a sitting President would be a major shocker in the longer-term history of the US two-party system. [Link; soft paywall]

Too Much of A Good Thing

A new ‘miracle’ weight-loss drug really works — raising huge questions by Hannah Kuchler (FT)

Last year the FDA approved a weight loss drug that led to patients losing 15% of their body weight on average. Its history and approval are controversial: patients will likely need to take it long term at a monthly list price of $1,350. [Link; paywall]

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