Chinese Economic Indicators, Inflation Slows, Inventory Still Tight

As we celebrate the Lunar New Year, let’s take a quick look at three indicators of China’s economy. In 2022 their GDP increased 3%. While this would be a huge number for the US, it’s the second lowest year of growth since 1976 when Mao Zedong died. China’s economy had been growing annually by 6-8% until covid hit. Since they lifted their ‘covid 0’ policy economists are predicting strong growth. China’s Population is now at 1.4B people and like India makes up approximately 18% of the global population. For the first time in 50 years China’s population is declining (thanks to population control policies). Certain cities like Shenzhen provide subsidies for couples who have a third child. Marvel movies are being released in Chinese theatres next month for the first time since 2019. This makes up about 10-20% of Marvel’s box office revenue which may be the harbinger that China is open for business again which could be a nice boost for the US and global economies.

Mortgage Rates – moved sideways this week as the price of Mortgage Backed Securities (MBS) traded in a very narrow range. The upward trend has been steadily approaching the 200-day moving average which hasn’t been crossed since Nov. 2021. Rates are up approximately 2.5% from this time last year.

Homes Sales on existing homes (not new construction) declined 1.5% in December to a 4.02M annualized pace. Year over year sales are down 34% Since peaking in August at 1.3M inventory continues to move lower and is down to 970K units, a 134% decline from the previous report. There is a posted supply of 2.9 months which is considered tight because 4.6 months is now considered normal. If you look more closely at the numbers, it doesn’t account for pending homes and approximately 29% of inventory is under contract which means that actual supply is closer to 2 months. Average days on market is now 26 days (increase of 2 days from previous report) and First Time Home Buyers accounted for 31% of sales.

New Construction – The National Association of Home Builders survey for January increased from December’s trough of 31 to 35 (50 represents a positive growth market, we were seeing the 80’s in late 2021/early 2022). Buyer traffic remains the lowest variable at 23. New Housing Starts declined 1.4% in December and are down 22% year over year. Single-family starts, which are the most important, increased 11.3% last month to a 909,000 annualized unit pace. Year over year they are down 25% which speaks to continued lack of supply in the single-family market.

Inflation – the Producer Price Index (PPI) declined by 0.5% in December and year over year inflation has slowed from 7.3% to 6.2%, a significant slowdown. The core rate, which strips out food and energy, rose 0.1% in December and declined from 6.2% to 5.5% annually. As inflation continues to decline Mortgage Rates will follow suit.

Mortgage Applications to purchase homes rose 25% last week and are down 35% year over year. Refinances rose 34% and are down 81% year over year.

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