The News Came From Overseas

Futures have barely moved.

Japan reported second quarter growth overnight. It missed badly.

All of the growth came from net trade. Households added nothing. Business investment fell.

The yen has given back about half of this summer's intervention gains. No central bank raises rates on exports alone.

China moved its July data five hours later this morning. Output, retail sales and investment all came in short.

New home prices in its biggest cities stopped rising after four months of gains.

The ten year Treasury yield rose on Friday and is higher again.

The dollar is lower and crude has steadied.

The VIX is up sharply with the tape flat.

PayPal (PYPL) is in talks to sell itself to Stripe and Advent International. It closed above the offer it turned down last month.

Market Implication

Neither morning print is hard data. Both are surveys, and a survey reports mood before it reports volume. Whatever the tape decides about housing this morning, it decides without a single closed sale.

Who Sets The Mortgage Rate

The Federal Reserve has held its rate steady for five meetings. That has not helped one buyer.

Lenders do not price a home loan off the Fed. They price it off the ten year Treasury yield, then add a spread on top.

Last week the ten year Treasury note went to auction at its highest yield since 2007. The thirty year Treasury bond followed at its highest since 2001.

Treasury ran three coupon auctions in four days. Dealers were left holding more than usual.

The Spread Has Not Come In Either

A mortgage bond buyer carries a risk a Treasury buyer does not. The borrower can refinance early.

That risk has been priced wide since 2022. So the gap between a home loan and that yield sits well above its old average.

A buyer qualifies on a monthly payment. Builders cannot move a bond auction, so they move the payment instead.

Structural Setup

Two things stand between the Fed and a mortgage. Neither moves on a vote. Until the auctions ease or that spread comes in, a hold and a cut do the same nothing for a buyer.

Small Caps Went The Other Way

Friday split the tape. The S&P 500, the Dow and the Nasdaq all closed red. The Russell 2000 closed at a record.

Fourth straight up day. Third straight record close.

Small caps are the domestic, borrowing, rate sensitive end of the market. They rallied because traders gave up on a September rate rise.

This morning it reversed. The Nasdaq leads and the Russell 2000 is red.

Housing gets nothing from either tape.

Home loan demand crept back two weeks ago when rates stopped climbing. Stopped climbing is not the same as fell.

Home Depot (HD) reports tomorrow before the open. Lowe's (LOW) follows on Wednesday. One sells to the contractor, the other to the owner.

Sector Read

Watch the professional line at Home Depot against do it yourself at Lowe's. Professional work follows houses that changed hands. If the professional side holds while the owner side sinks, the freeze is in the wallet. If both sink, it is in the rate.

Nobody At The Fed Speaks Today

Last month's Fed meeting produced three dissents. All three wanted a rate rise. Three pushing the same way had not happened since 2016.

The minutes come out Wednesday afternoon.

Jackson Hole is still ten days off. So the week holds one policy document and nothing else.

The Treasury publishes foreign holdings at four this afternoon. The report covers June, so it is old.

It still answers the one question the long end cares about. Is anyone abroad still buying.

Watch Signal

Foreign demand and new issuance set the term premium between them. If June shows overseas buyers stepping back from long dated bonds, Wednesday's minutes stop mattering to a home loan. The dissenters argue about a rate no borrower pays.

There is another way to cut the cost of a house. Nobody logs it as a price cut.

The builder pays the lender a fee up front. The lender then drops the borrower's rate, either for good or for the first few years.

The buyer never sees that money move. The monthly payment falls. The contract price does not.

The sale closes at the sticker. The builder eats the gap inside cost of sales.

That gap reaches no house price index anywhere. It reaches gross margin.

Close to two thirds of builders were running some incentive in July. Buying the rate down is the one that never touches the price.

Toll Brothers (TOL) reports tomorrow after the close.

The Read

Weakness lands in a builder's cost line long before it lands in any price. Watch the spread between average selling price and gross margin at Toll Brothers tomorrow night. A flat price with a thinner margin means the buyer already won and nobody wrote it down.

Economic Data: NY Empire State Manufacturing Index for August, 8:30am ET. NAHB Housing Market Index for August, 10:00am ET. Treasury sells 3-month and 6-month bills, 11:30am ET. Treasury International Capital flows for June, 4:00pm ET.

Fed Speakers: None scheduled. FOMC minutes Wednesday, 2:00pm ET.

Earnings: H World Group (HTHT), Freightos (CRGO) before open | Fabrinet (FN), XP (XP), Flexsteel (FLXS), DocGo (DCGO) after close. BHP Group (BHP) publishes full year results after the US close.

Overnight: Nikkei 225 +0.7%, Shanghai Composite -0.01%, FTSE +0.32%, DAX -0.03%

Builder confidence prints at ten this morning.

It has sat below the neutral line for fifteen straight months.

A sixteenth reading tells nobody anything new.

Tomorrow does. Housing starts and building permits land before the open. Toll Brothers reports after the bell.

One number says what builders are willing to begin. The other says what they gave up to finish.

If both hold, builders can afford the giveaway. The freeze is only a waiting game.

If starts hold while margin slips, builders are buying their own volume. That bill comes due every quarter until borrowing costs fall.

Housing has spent more than a year waiting on the wrong meeting. Tomorrow night a builder shows what the waiting cost.