Morning Report - Waiting on the Fed, homeownership rate falls again

Vital Statistics:

	Last	Change	Percent
S&P Futures	1978.3	-1.8	-0.09%
Eurostoxx Index	3037.1	1.0	0.03%
Oil (WTI)	82.48	1.1	1.30%
LIBOR	0.233	-0.001	-0.21%
US Dollar Index (DXY)	85.37	-0.036	-0.04%
10 Year Govt Bond Yield	2.30%	0.00%
Current Coupon Ginnie Mae TBA	104.5	0.0
Current Coupon Fannie Mae TBA	103.5	0.1
BankRate 30 Year Fixed Rate Mortgage	3.95

Markets are flattish this morning as we await the Fed. Bonds and MBS are flat.

Mortgage Applications fell 6.6% last week as rates rose. Purchases fell 5% while refis fell 7.4%. The 30 year fixed rate mortgage rose to 4.13% from 4.1%. 

The market's reaction to today's FOMC statement may well hinge on two words: "considerable time" - meaning the market wants to hear that the Fed will keep rates abnormally low for a considerable time after unemployment hits the Fed's target. I doubt the Fed takes James Bullard's advice and maintains QE - they have already said they intend to end it at this meeting, and I don't think they want to risk their credibility. I also think they want to end QE in order to clear the decks for monetary policy normalization. 

The homeownership rate ticked down in the third quarter from 64.7% to 64.4%. Household formation was roughly flat. We are pretty much back at levels not seen since the Clinton Administration began its big push to increase home ownership early in its administration.What is going on? Tight credit and a weak labor market is keeping the Millennial generation renting instead of buying. Median asking rents continue to rise and are now around $756. The P&I payment on the median house versus at the current 30 year fixed rate with 20% down is $796. 

Ultimately, the number of 25-34 year olds is outpacing the growth in housing stock, as housing starts remain stubbornly around 1 million units per year. Median rents keep increasing due to tight housing supply - eventually the value proposition of buying versus renting becomes too big to ignore.