Morning Report - Renting vs. Buying

Vital Statistics:

	Last	Change	Percent
S&P Futures	1788.5	6.4	0.36%
Eurostoxx Index	3033.9	5.7	0.19%
Oil (WTI)	96.81	0.2	0.18%
LIBOR	0.236	0.001	0.32%
US Dollar Index (DXY)	80.53	0.076	0.09%
10 Year Govt Bond Yield	2.74%	0.03%
Current Coupon Ginnie Mae TBA	105.6	-0.2
Current Coupon Fannie Mae TBA	104.4	-0.2
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.33

Stocks are up following last week's late selloff. Emerging Markets have been getting beaten due to a potential default of a major Chinese Bank's bond issue. That accounts for some of the reason for the risk-off trade (stocks fall, bonds rise). Bonds and MBS are down.

This week promises to be eventful with the FOMC meeting on Tuesday and Wednesday as well as 4Q GDP on Friday. We will also get Pending Home Sales and Case-Shiller as well. The markets are handicapping another $10 billion / month reduction in asset purchases out of the Fed. Finally, we will hear from a couple of homebuilders - D.R. Horton and PulteGroup, which should give us hopefully a peek into how the spring selling season is shaping up, which unofficially kicks off next week.

What has been going on in emerging markets? Well, first there is a high yield bond issue from Industrial and Commercial Bank of China. This was intended to raise money for a coal miner that collapsed in 2012 and absconded with the money. ICBC will make good on investor's money. Second, we have had a couple currencies hit the wall - specifically the Argentina Peso and the Turkish Lira. These may not have the makings of a crisis, but you never know. IMO, this will not affect the Fed's thinking regarding tapering unless they see credit begin to become constrained in the U.S. However it is causing a small (and probably short-lived) rally in the bond market. LO's, any buyers on the fence that were balking at these high rates? Tell them the market just let them back in. Take advantage of it.

Speaking of talking to your potential buyers, here is a good chart to show them - a comparison of renting vs. buying. I charted the median monthly rent versus the expected monthly mortgage payment for the median house (assuming 20% down and the 30 year conforming rate that existed at the time). In spite of the increase in house prices and interest rates, the rent vs. buy decision is still heavily skewed towards buying. This should be shown to every first-time homebuyer. Check it out:

So far, the government has not changed the tax treatment for short sales and debt forgiveness. On January 1, the temporary tax reprieve for short sales and principal mods lapsed and now these events are treated as ordinary income. There doesn't seem to be much momentum to change it. Although with the FHFA home price index within 10% of its peak, it makes you wonder how many people are left who bought at the tippy top of the market.