Implications: Another rearview mirror report on the US housing market confirming we headed into the Coronavirus Contraction from a position of strength. Yes, new home sales fell 4.4% in February, but that was entirely due to a large upward revision to January, which now sits at a post-recession high. New homes sold at a 765,000 annual rate in February, which, except for January, was the fastest pace since 2007. Expect sales to weaken during the next few months as potential buyers stay home in the name of public safety. On top of this, recent financial market distortions caused mortgage rates to spike roughly 50 basis points at the peak in March, decreasing affordability. That said, ongoing Fed purchases of mortgage backed securities have begun to counteract this. Builders are also being affected by the Coronavirus, with "social distancing" and outright shutdowns causing reductions in work crews, and supply chains being disrupted. As a result, the inventory of new homes available for sale is likely to remain stagnant until things get back to normal. That said, look for a rebound in both sales and new construction in the second half of the year. In other news this morning, the Richmond Fed index, a measure of mid-Atlantic manufacturing sentiment, rose unexpectedly to +2 in March from -2 in February. However, this is in sharp contrast to other recent manufacturing reports from New York and Philadelphia, which showed a sharp decline in activity due to the Coronavirus already making its way into the data.
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