Morning Report - Household formation and housing starts

Vital Statistics:

	Last	Change	Percent
S&P Futures	1867.8	3.5	0.19%
Eurostoxx Index	3157.6	7.9	0.25%
Oil (WTI)	100.3	0.8	0.83%
LIBOR	0.224	-0.001	-0.40%
US Dollar Index (DXY)	79.16	0.063	0.08%
10 Year Govt Bond Yield	2.61%	0.02%
Current Coupon Ginnie Mae TBA	106.1	-0.2
Current Coupon Fannie Mae TBA	105.2	-0.1
BankRate 30 Year Fixed Rate Mortgage	4.22

Markets are higher this morning on no real news. Bonds and MBS are down.

Mortgage Applications rose 5.3% last week. Purchases were up 8.9%, while refis were up 5%. Refis are now under half of all applications.

Productivity fell in the first quarter as cold weather hampered economic activity. Unit labor costs rose much higher than expected, by 4.2%. On a year-over-year basis, unit labor costs increased .9%. The drop in productivity could be a harbinger of more hiring - companies have squeezed about all they can out of current staff, and if demand picks up they will have to hire more people. 

The NAHB Leading Market Index shows that economic activity continues to expand slowly but surely. Builder sentiment continues to improve, especially in the energy states. Everyone is waiting for the job market to make a jump to the next level, which will release all of this pent-up demand. There is a tremendous amount of pent-up demand for housing, given the difference between household formation and housing starts. Household formation typically is depressed during recessions, and then rebounds as the economy recovers. If you look at the chart below of housing starts vs household formation, you can see how household formation is rebounding, yet housing starts are still at recessionary levels, 6 years on. Housing starts of 900k have been associated with the bottoms of recessions. They have been a fact of life since 2008. When you take into account normal obsolescence, you can see we have a shortage of housing already.

Finally, in the "you can't make this stuff up" category, the FHFA Chief Operating Officer is charged with a felony for threatening to kill ex FHFA Chairman Ed DeMarco. I guess someone REALLY wanted to see principal mods on Fannie and Freddie loans....