Domicile Decline

With 30-year mortgage rates up 1.2 percentage points Y-o-Y, it’s unsurprising that the May national median house price is down 3.1% Y-o-Y to $396,100. The drop was the largest percentage decline since 12/2011, and the fourth month in a row of Y-o-Y price declines. That hasn’t happened since 2012. May was also the 21st month in a row of Y-o-Y sales declines, but that streak should end later this year.

Reliable Recovery

Compared to 2019, TSA reports airline travel is back to its 2019 level and has been so since the start of 2023. As for hotel occupancy, it’s now equal to the 2000-2022 median, but slightly below the 2018 record. Gasoline consumption is running at about 95% of 2019 levels, and gross movie box office ticket revenues are close to the 2016-2019 median. The economy continues to steadily return to normal. 

Fed Funk

The Fed received a double-whammy last week. Not only was 23Q1 GDP upwardly revised from 1.3% to 2%, suggesting the economy was performing meaningfully better than believed, but inflation as measured by core-PCE rose 4.6% in May Y-o-Y, and has been flat for six months. Moreover, the Fed’s favorite measure of inflation, services minus energy and housing, rose 4.5%. The 2% target seems distant. The Fed raises 25bps on 7/26.

Bank Bust

Prior to the Silicon Valley Bank failure, interest rates on bonds issued by money center banks like JP Morgan were about 15bps lower than for bonds issued by large regional banks like Huntington Bankshares and M&T Bank. That gap has since widened substantially and is now about 135bps. This gap exists because investors fear the government might let a regional fail and because of the possibility of added regulatory burden.

Stock Story

Through 5-18-23, five companies have contributed slightly more than 80% of all S&P 500 gains YTD. The S&P 500 is a market weighted (share price times number of shares) stock index. Apple has provided 26.2%, Microsoft has added 21.8%, NVIDIA has contributed 14.2%, Alphabet another 10.6% and Meta has chipped in with 10.1%, totaling 82.9%.

Happy Housing

The price of an existing home declined 0.2% Y-o-Y in April. This was the first Y-o-Y price decline since early 2012. However, seasonally adjusted M-o-M prices rose 0.53%, and have now risen for three straight months, after falling for seven straight months. Home prices peaked in 6/22, bottomed out in 1/23, and have been rising ever since. Moreover, house prices are down just 2.4% from their 6/22 peak.

Mortgage Moves

91.8% of U.S. homeowners with a mortgage have an interest rate below 6%. That’s down from a record high of 92.9% in 22Q2. The tiny decline over the course of a year shows how “rate lock” has frozen existing homeowners in their tracks, and why existing inventory is so limited. In fact, 82.4% of mortgagees have a sub-5% rate, 62% have a sub-4% rate and 23.5% have a sub 3%-rate.

Hidden Hike

If inflation declines from 4% to 3%, as it’s expected to do over the next six months, and the Fed keeps the Fed funds rate at roughly 5.375%, as they are proposing, the real interest rate will rise from 1.375% today to 2.375% early next year. By simply holding rates steady as inflation falls the Fed will have effectively implemented four 25bps rate hikes! That’s hugely restrictive.

Newspaper Numbers

The Friday File: The newspaper platform with the most digital subscribers in the world is the New York Times at 9 million. Second is the Wall Street Journal at 3.2 million, followed by the Washington Post at 2.5 million. Gannett (owner of the USA Today, and other dallies) is fourth at 2.0 million, with Substack (an online platform for persons who publish subscription newsletters) in 5th spot at 1.0 million.

Freight Finance

Be it truckload, less-than-truckload, rail, parcel, etc., shipping activity and costs keep declining. Year-over-year total shipments are down 5.6%, expenditures are down 15.7%, freight rates are down 10.7%, and per mile truck rental costs are down 15.3%. For purposes of comparison, during 5/21, Y-o-Y shipment growth peaked at 36%, Y-o-Y expenditure growth peaked during 6/21 at 57%, and freight rate growth peaked during 11/21 at almost 40%.

University U-Turn

With race-based affirmative action now illegal, colleges who wish to maintain diversity have opportunities. They may wish to consider spending much more on outreach to underprivileged communities to boost already low application rates. They can also offer plans that give automatic acceptance to the top X% of all high school graduates. Colleges and universities could also introduce preferences for students from low-income households and do away with legacy/donor/athletic/staff/faculty admissions. 

Phenomenal Flag

The current US flag was designed by Bob Heft of Lancaster, Ohio in 1958 in anticipation of Alaska becoming the 49th state and Hawaii following soon after. He was amazingly a high school junior, and his teacher gave him a lousy B-. Two years, 21 letters and 18 phone calls later, President Eisenhower called inviting him to the White House for the official adoption of his design!

Coffee Cost

The Friday File: For a $3.25 cup of coffee, rent is $1.13, staff/wages are $0.81, tax is $0.49, profit is $0.32, paper products such as the cup and napkins cost $0.23, milk costs $0.13, and coffee also costs $0.13, or 4% of the total. So, if the cost of coffee beans falls by 50%, your morning cup of joe will fall by a nickel and cost $3.20.

Frequent Flier

The Friday File: Tom Stuker has flown more airline miles than anyone ever, 23 million. His busiest year was 2019 when he took 373 flights that covered 1.46 million miles and averaged eight hours per day on a plane. Had he purchased those miles it would have cost him $2.44 million. He only travels first class. In 1990 he bought a United lifetime pass, since discontinued, for $290,000.

Cinco Celebrations

The world’s largest Cinco de Mayo celebration is in Los Angeles. September 16 is Mexico’s Independence Day, while May 5 commemorates the Battle of Puebla. There are 36.6 million US residents that trace their heritage to Mexico, and while the inventor of the margarita is hotly debated, it was invented between 1936 and 1948. The U.S. is the top market in the world for tequila.