Easter, what a wonderful time of year. Outside of Christmas when we got to open presents, Easter was the best, better than even Halloween in terms of candy. The chocolate Easter Eggs, Peeps, malted chocolate eggs, Marshmallow Bunnies, Cadbury Eggs and of course, The Mighty Chocolate Chocolate Easter Bunny. This large, solid chocolate extravaganza was always looked upon as the holy grail of Easter candy. Often times it took two to three days to fully finish the giant sugar bomb, leaving my brother and I bouncing off the walls. By the following Wednesday the sugar crash was brutal, but well worth the sacrifice of two days of a massive chocolate diet.
The ISM non-manufacturing report came out on Tuesday last week. The numbers were pretty good. Overall, a slight improvement in business activity from February 55.5 compared to last month at 55.1. Inside of the report the employment number increased dramatically from 48.5 to 54 indicating employers were able to fill open positions. New orders increased from 56 to 60 reflecting continued strength in the consumer spending. Of the 18 industries reporting, 17 increased in March. The only industry reporting a decline was agriculture which is not a surprise at this time of year. On the food service industry, the increase is the result of the vax mandates being dropped. More and more people are eating out again. Overall, many respondents indicated that hiring, supply chain and inflation are headwinds that are preventing even greater growth.
Mortgage applications continue into free fall territory as rates now top 5% for a 30-year mortgage. Typically, as rates rise, housing prices fall to offset the higher qualification requirements. Not so right now. Prices on existing as well as new construction are still sky high with multiple offers for anything that hits the market. There are two continuing demand factors that will likely hold prices high and supply low for some time. The first is that Millennials are finally moving from transitory housing such as rentals, settling into a permanent location. This generation took the longest since the greatest generation began purchasing housing. That generation was first delayed by the Great Depression, then by World War II. It was reported last week that for the first time, Millennials are buying more houses than any other generation. For over 10 years they have made up the largest number of workers in the market. In total numbers they are larger than the Baby Boomers. The impact that they are having in all facets of our society will continue for decades.
Another factor in the housing market is the number of cash buyers. Venture capital groups have raised significant funds to invest in residential real estate. This has not set well with competing buyers or local governments that are seeing a significant increase in single family rental units. The investment firms with cash appear to be causing a market imbalance where bidding pushes prices up, out of reach of those looking for an owner occupied option. The cash buyers are looking at long term returns from rental income so they are willing to pay a higher price. If rental returns are not what the investors were expecting, we could see a rash of listings in 18 months as the venture capital firms try to exit the market.
Consumer credit in February grew by the largest amount in one month since 2010, increasing by $41.8 Billion. Of the amount, $24 Billion was from non-revolving. Term debt on housing and durable goods purchases, impacted by both demand and price increases, was the real driver here. Revolving consumer debt increased by $18 Billion. The increase in revolving debt which now totals $1.1 Trillion is in the red zone, reaching the highest level in a decade. This single item has the largest probability of bringing on a recession in the next 18 months.
After a lag to determine if the high oil prices were going to hold up, the oil rig numbers rose dramatically this first week of April. The total rig numbers increased from 673 to 689, the largest weekly increase in over two years. This should help to soften the high gas prices somewhat. However, based on the demand from increased travel, prices are likely to remain high for some time.
Have a great week and a wonderful Easter.