Morning Report - Home Prices still in historical range

Vital Statistics:

	Last	Change	Percent
S&P Futures	1637.3	0.6	0.04%
Eurostoxx Index	2737.1	-21.3	-0.77%
Oil (WTI)	107.9	-0.9	-0.83%
LIBOR	0.26	-0.002	-0.65%
US Dollar Index (DXY)	82	0.055	0.07%
10 Year Govt Bond Yield	2.76%	0.00%
Current Coupon Ginnie Mae TBA	104.1	0.3
Current Coupon Fannie Mae TBA	103.3	0.0
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.47

Markets are flat after disappointing income and spending data. Bonds and MBS are more or less flat. Expect a relatively dull day, trading wise as most of the Street will be on the L.I.E. by noon.

The BEA released July personal income and spending data this morning and it was below expectations. Both rose .1%, below expectations and below June data. Since consumption is 70% of the US economy, these numbers suggest that yesterday's 2.5% GDP estimate for 2Q was more of a fluke than a change in trend. 

Cash purchases accounted for 40% of all sales as volume increased to an estimated 5.5 million pace in July, according to RealtyTrac. The national median sales price was $174,500 in July, up 4% from June and up 6% from a year ago. Median income is estimated to be at $52,100 as of the end of June, putting the median house price to median income ratio at 3.35. Pre-bubble, this ratio tended to oscillate in a range of 3.15 - 3.35, before peaking at 4.48 during the bubble. Even with the increase in house prices over the past year, housing still remains fairly valued compared to historical norms and affordability is quite high due our (still) quite low interest rates.

Budget talks between the WH and Republicans seem to be going nowhere. The President wants to replace the sequester with more taxes, which is a non-starter for Republicans. The two sides seem far apart, but how much of this is just posturing for the various bases. If Republicans dig in their heels on de-funding obamacare and Obama digs in his heels for more taxes, then we could have a problem. 

Dr. Cowbell weighs in on the recent QE-withdrawal driven slump in the emerging markets. Unsurprisingly, he concludes that the problem is deregulation, which is surprising given that developed markets all over the world tightened regulation over the financial system half a decade ago. He goes on to discuss how the Asian Tigers rebounded so quickly from the crisis, which he attributes to a drop in their currencies. What is the difference between Japan's recovery from a deflated asset bubble and, say, Indonesia's? Hint: One followed his Keynsian prescription to the letter and the other had austerity imposed on it by the IMF.