Mortgage rates exceeding 7% continue to punish the real estate sector via lighter construction levels, reduced transactions and a sharp contraction in prices for new homes. The pace of construction sank significantly last month, as both housing starts and building permits declined 14.7% and 4.3% month over month (m\/m), according to data from the Commerce Department. Starts came in at 1.321 million seasonally adjusted annualized units (SAAU), way below projections of 1.48 million and February\u2019s 1.549 million. The multi-family segment drove much of the weakness, slipping 20.8% while single-family dropped 12.4% m\/m. The Northeast, Midwest and Southern regions led the charge lower with m\/m declines of 36%, 23% and 17.8%. The West offset some of the weakness with a gain of 7.1%. Meanwhile, permits, which reflect plans for future construction, were weighed down by single-family, with the component\u2019s pace falling 5.7% m\/m while multi-family was unchanged during the period. Similar to permits, applications in the Northeast, Midwest and South declined 20.8%, 14.7% and 0.6%, while the West experienced a 5.1% increase.<\/p>\n\n\n\n Homebuilder Optimism Continues<\/strong><\/p>\n\n\n\n Even though March permits and starts were weak, contractors remain enthusiastic with homebuilder sentiment lingering slightly above the negative\/positive threshold of 50. April\u2019s homebuilder sentiment figure of 51 met the analyst consensus estimate and was unchanged from last month. The sub-indices of current single-family sales and traffic of prospective buyers rose from 56 and 34 to 57 and 35, respectively, m\/m. But the outlook for sales in the next six months slipped from 62 to 60. Builder motivation increased in three regions by the following amounts:<\/p>\n\n\n\n The South slightly offset the positive moves in the other regions. Sentiment dropped from 52 to 51.<\/p>\n\n\n\n Israel\u2019s rhetoric regarding Tehran\u2019s missile and drone attack on Saturday strengthened this morning when the country\u2019s leaders stated they had no choice but to retaliate. Israel\u2019s war cabinet today continued to discuss its possible reaction to the attack while some reports claim US officials believe that any retaliation will be limited. Despite that, Iran has stated that even small actions will provoke the country to unleash a \u201csevere, extensive and painful\u201d reaction. Investors appear to be assessing how much of Israel\u2019s actions are posturing, or seeking to make the country look strong, rather than a dramatic counterattack that could escalate the conflict. Indeed, oil prices have declined in early trading while bond yields have climbed, implying that the worst may very well be over.<\/p>\n\n\n\n This morning\u2019s earnings reports illustrate that demand for health care, including elective surgery, is robust, and separately, banks are benefiting from strong equity market performance and improved sentiment among business leaders. Consider the following earnings highlights:<\/p>\n\n\n\n Markets are weaker even as equity and bond bulls alike try to hold on amidst yesterday\u2019s painful debacle. Top of mind for stock traders is whether or not the S&P 500 Index can remain above the pivotal 5,000 level, as the benchmark is down 0.3% to 5,047. Meanwhile, the rate sensitive, small-cap Russell 2000 is taking the most pain with the basket down 1%. Against the backdrop, the Nasdaq Composite Index is near the flat line while the Dow Jones Industrial Average gains a modest 0.1%. Fixed-income instruments are getting pounded, as investors think the worst is over in the Middle East for now, contributing to incrementally less demand for risk-off investments and lower oil prices. The 2- and 10-year Treasury maturities are trading at 4.96% and 4.67%, 3 and 6 basis points (bps) loftier on the session. WTI crude is down 0.4%, or $0.35, to $85.26 per barrel. The dollar is benefiting from higher yields with the greenback\u2019s index up 10 bps to 106.29. The US currency is up relative to most of its major, developed market counterparts including the franc, pound sterling, yen, yuan and Aussie and Canadian dollar. It is down slightly against the euro though.<\/p>\n\n\n\n While tighter monetary policy has helped to slow price pressures, home values remain at all-time highs. A combination of an undersupplied market and many homeowners who are locked in at 2% to 4% mortgages has constrained inventory. These headwinds have led to sticky rents as well, with landlords managing margins against the backdrop of rising costs related to interest, labor, maintenance, materials, taxes and insurance. An important goal of economic policy is homeownership, but with affordability at its worst level in history, policymakers are in a pickle. Lower interest rates will bring demand back but will also propel prices. The key to an improved housing market remains supply, but builders won\u2019t build with mortgages above 7%. They will construct with mortgages at 6%, however, but prices will remain unfriendly, as bidders rush to pick up inventory. These concerns are not just relevant to Americans that would like to purchase a home, they\u2019re also a critical component of inflation\u2019s shelter segment, which makes up roughly 40% of the Consumer Price Index and continues to pose a head-scratching problem for the Fed, Congress and the White House. <\/p>\n\n\n\n![\"\"](\"\/campus\/wp-content\/uploads\/sites\/2\/2024\/04\/Picture2-8.png\")
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<\/figure>\n\n\n\nMiddle East Turmoil Appears to Escalate<\/strong><\/h2>\n\n\n\n
Consumers Flock to Health Care<\/strong><\/h2>\n\n\n\n
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Markets Struggle<\/strong><\/h2>\n\n\n\n
Housing Prices Remain a Huge Problem for 2%<\/strong><\/h2>\n\n\n\n