| Last | Change | Percent | |
| S&P Futures | 1866.7 | 2.9 | 0.16% |
| Eurostoxx Index | 3084.8 | 11.0 | 0.36% |
| Oil (WTI) | 100.3 | 0.5 | 0.55% |
| LIBOR | 0.234 | -0.001 | -0.43% |
| US Dollar Index (DXY) | 79.43 | 0.019 | 0.02% |
| 10 Year Govt Bond Yield | 2.69% | 0.02% | |
| Current Coupon Ginnie Mae TBA | 105.4 | -0.1 | |
| Current Coupon Fannie Mae TBA | 104.3 | -0.1 | |
| RPX Composite Real Estate Index | 200.7 | -0.2 | |
| BankRate 30 Year Fixed Rate Mortgage | 4.31 |
Markets are up small on no real news. Bonds and MBS are flat. Mortgage Applications fell 1.2% last week. Later on today we will get the FOMC rate decision. Expect to see another 10 billion reduction in asset purchases and a change in the language regarding the threshold for raising rates. The Fed is expected to de-emphasize a single number (6.5% unemployment) and move to a more holistic threshold. Right now, the futures are forecasting that the first rate hike will be in Q4 next year. Watch to see if that forecast changes after the meeting
Housing starts came in about as expected at 907k. January was revised upward from 808k to 909k. We are still running at pretty much depressed levels. Weather undoubtedly played a part, as starts in the Northeast fell pretty dramatically. Building Permits increased to just over 1 million, but most of the growth was multi-fam, not single fam.
KB Home reported better-than-expected first quarter numbers. Revenues rose 11%,while orders grew 18% and backlog increased 21%. Deliveries were down about 3% in units, and average selling prices rose 12%. Part of the increase in ASPs is due to a strategic change in KB's business so you might not be able to draw many conclusions from that number. Gross margins continue to expand, and their 17.7% margins are the highest since 2006. No comments about traffic in the PR, maybe they will address the Spring selling season at the 11:30 EST conference call.
In a development that could impact rates here, a big Chinese developer has gone belly up and cannot repay $600 million in loans. We have known for some time that China has an epic real estate bubble and that it may finally be bursting. We are seeing a big drop off in commercial building sales, and that combined with a a historic investment rate topping 20% spells trouble. House price to income ratios in China are over 11. In Shanghai and Beijing that number is 23. To put that number in perspective, in Japan's bubble in the 80s, the ratio for Tokyo apartments topped out at 15 times income. In the US, it got to about 5x. Fast growing economies have these episodes (we did in the 1930s, Japan did in the 1990s, and China is having theirs now).
What will be the spillover when it bursts? The biggest one will be economic - a burgeoning Chinese middle class had been a big component of global demand growth, and that will undoubtedly get depressed. This could be the catalyst that bursts the Canadian real estate bubble, as Chinese money is behind a lot of that as well. The biggest question will be what effect it has on rates in the US. Will Chinese investors dump Treasuries and MBS (remember, in crises, you sell what you can, not necessarily what you want to) or will there be a massive flight to safety which means rates go lower? My gut tells me that rates go lower because commodity price inflation is about to get slammed and China will attempt to export its way out of the predicament. This means even lower inflation in the US. That is something that will worry the Fed.
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