Morning Report - Fed Day!

Vital Statistics:

	Last	Change	Percent
S&P Futures	1776.3	3.3	0.19%
Eurostoxx Index	2973.2	31.4	1.07%
Oil (WTI)	97.34	0.1	0.12%
LIBOR	0.245	0.001	0.31%
US Dollar Index (DXY)	80.14	0.082	0.10%
10 Year Govt Bond Yield	2.87%	0.03%
Current Coupon Ginnie Mae TBA	104.3	-0.3
Current Coupon Fannie Mae TBA	103.4	-0.2
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.45

Markets are up small on a good housing starts number. Bonds and MBS are down. 

Today is the last FOMC announcement under The Bernank. Starting next year we will have the "dream team" of Yellen and Fischer. The consensus seems to be no tapering, but only by a nose. I am more interested to see the forecast for 2014 GDP growth and whether it went up or down. The Fed has been revising down its estimates all year, but I am wondering if the stronger data we have been seeing lately will change the trend.

The bad news: Mortgage Applications hit the lowest level since 2001 last week as the MBA index dropped 5.5% to 374.60, the lowest level since 2001.

Here is the purchase index going back to 1991: We remain mired in this situation where cash buyers are almost half of all sales on purchase transactions and refis remain depressed. Will it turn around? Of course, once the first time homebuyer gets back on his or her feet.

The good news:  In the "been down so long everything looks up" category, housing starts leaped to the highest level since early 2008, with a print of almost 1.1 million units. While it is historically a very depressed number, (we averaged about 1.5 million units a year prior to the bubble years), it looks great compared to our average of 727k over the past 5 years. Housing construction has been the Achilles Heel of this recovery - it is a huge economic engine and employs a lot of people. The builders have been reporting massive gross margins, and I think will want to start ringing the register.

Lennar reported 4Q earnings this morning which beat analyst expectations. Homebuilding revenue was up 50%, and gross margins were an eye-popping 26.8% as average selling prices increased 18% year over year. Orders and backlog are up as well. The builders are undoubtedly going to take advantage of these numbers by boosting production, which will be good for the economy in general.

The WSJ has a write-up on the new LLPA hitting conforming buyers next year. FHFA has been hiking fees for years now, and the guarantee fee has been used as a cookie jar to pay for other spending. Jumbos lately have been offered at lower rates than conforming loans. This won't help to get the MBA applications index up.