Market Update as of December 19, 2018

Existing Home Sales Surprise
Today existing home sales showed and unexpected increase, up 1.9% vs an expected 0.6% decline. Existing home sales make up 90% of all home sales, which makes their recent decline very troubling for the overall housing market. There’s no doubt that higher rates and constrained supply has hobbled the housing market. There are worries that this weakness may spill over into the rest of the economy and hurt growth. Most of these fears are likely residual shell shock from 2008, but that market had a number idiosyncrasies not present today. Traditionally, housing is a marker for household formation, which drives GDP. People buy houses to fill with stuff and services, so slowing housing can crimp GDP. However, another systematic melt down caused by a lack of 200k houses seems... unlikely.

Homebuilders Recoil 
Sentiment among U.S. homebuilders fell in December to the lowest level since 2015, missing all forecasts and signaling that the industry's struggles are intensifying amid elevated prices and higher borrowing costs. The National Association of Home Builders/Wells Fargo Housing Market Index dropped to 56 from 60 in the prior month amid broad-based declines across sales, expectations and buyer traffic, data released Monday showed. The median estimate in Bloomberg's survey had called for it to hold at 60. With November's eight-point decrease, it was the biggest two-month decline since October 2001. The waning optimism among builders underscores concern that housing — an industry that's sensitive to borrowing costs — is at risk of slipping into a more pronounced slowdown.

Bitcoin
Bitcoin staged a minor recovery on Monday, finally topping the $3,400 level after weeks of pain. The cryptocurrency has nosedived by more than 80 percent from the all-time high hit exactly a year ago. On December 17, 2017 bitcoin peaked just above $19,475, according to CoinMarketCap.com. It has struggled to come anywhere close to that level since. Monday's move was its best daily performance since the last week of November, according to industry data site CoinDesk. The cryptocurrency jumped 11 percent to a high of $3,437.57, but has dropped by more than 50 percent in the past three months. "As a relatively new concept, cryptoassets are still finding their feet in terms of value," said Mati Greenspan, senior market analyst at eToro. "It's important to remember that all assets, in every market, experience a process of price discovery, and that cryptos are no different.

Oil. Who Needs It?
This year the US became the largest producer of oil in the world and began exporting the black gold. Great. This doesn't necessarily give us as much control over prices as you would assume for a few reasons, those reasons center mainly around cost structure and production controls. However, the changing production landscape has put pressure on OPEC to be more organized and diligent in managing their production to keep prices high. However, cartels don’t always play nice. Geopolitical strife between Russia, US, Ukraine, Saudi Arabia, Iran and other players has resulted in less coordination in managing production. Countries are pumping as much as they want driving prices lower. Of course a slowdown in demand from China is also in play, but what has become clear in the last year, the power balance in the energy market is more dynamic and decentralized that it has been in a long time.

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Courtesy of Sotheby's International Realty's in-house Lender Simon Atik, 310.880.8414, Simon.Atik@grarate.com, Vice President of Mortgage Lending, Guaranteed Rate Affinity.

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