Morning Report - Luxury building continues to perform well

Vital Statistics:

	Last	Change	Percent
S&P Futures	1908.5	-0.7	-0.04%
Eurostoxx Index	3241.4	-2.9	-0.09%
Oil (WTI)	103.9	-0.3	-0.25%
LIBOR	0.228	-0.002	-0.98%
US Dollar Index (DXY)	80.49	0.139	0.17%
10 Year Govt Bond Yield	2.47%	-0.05%
Current Coupon Ginnie Mae TBA	106.8	0.2
Current Coupon Fannie Mae TBA	105.9	0.2
BankRate 30 Year Fixed Rate Mortgage	4.18

Markets are flattish on no real news. Bonds continue their rally, with the 10-year bond trading at 2.47%. MBS are up as well.

Mortgage Applications fell 1.2% last week, as purchases fell 1.1% and refis fell 1.4%. The 10 year bond yield fell a basis point over the week. Refis were 52% of all loans, and ARMs are now 18.5% of the total dollar amount of loans (though only 8.4% of units, so these are mainly jumbos). 

Obama has nominated San Antonio Mayor Julian Castro to lead HUD. This is more or less a political appointment, as Castro is viewed as a rising star in the Democratic Party. His confirmation in the Senate should be smooth, and the nomination should not imply any major policy changes out of HUD.

Homebuilder Toll Brothers reported second quarter numbers this morning, and it looks like things are still going swimmingly on the luxury end of things. Revenues rose 53% as deliveries increased 67% in dollar terms and 36% in unit terms. Remember, Toll Brother bought Shapell Homes, so these aren't necessarily apples-to-apples comparisons. ASPs increased 22% (!) on a year-over-year basis to $706,000. Shapell's footprint is affluent Coastal California, so that accounts for some of the big jump in ASPs - most other builders are reporting increases in the 9% - 12% range. 

Toll CEO Douglas Yearley had this to say: "Demand over the past year has been solid, although relatively flat, compared to the strong growth we initially experienced beginning in 2011, coming off the bottom of this housing cycle. We note that last cycle's recovery, in the early 1990s, began with a period of rapid acceleration, followed by leveling, before further upward momentum. We believe that we are in a similar leveling period in the early stages of the housing recovery with significant pent-up demand building."

That said, the Fed is still worried about housing, as the sector continues to grow as expected. Unfortunately, the Fed doesn't have a lot of levers to deal with the underlying issues: low household formation and tight credit. Again, all real estate is local, and the problems are mainly in the Northeast, which is still dealing with a large shadow inventory of foreclosures. In areas where this has been dealt with already (California), there is a tremendous amount of building.