Morning Report - Building Permits highest in 8 years

Vital Statistics:

	Last	Change	Percent
S&P Futures	2072.2	-3.4	-0.16%
Eurostoxx Index	3431.0	-7.1	-0.21%
Oil (WTI)	59.61	0.1	0.15%
LIBOR	0.286	0.000	0.07%
US Dollar Index (DXY)	95.08	0.232	0.24%
10 Year Govt Bond Yield	2.34%	-0.02%
Current Coupon Ginnie Mae TBA	101	0.0
Current Coupon Fannie Mae TBA	99.48	0.1
BankRate 30 Year Fixed Rate Mortgage	4.09

Markets are lower this morning as the rhetoric between Greece and the EU gets heated. Bonds and MBS are up.

Housing starts dropped 11.1% in May to 1.036 million. April was revised higher from 1.135 to 1.165 million. Building permits rose 12% however to 1.275 million. Housing starts have been very volatile, so it makes more sense to look at the trend, which is generally up. You can see that April's reading was exceptionally good, so a pullback in May is not all that surprising. The good building permits number (highest in 8 years) provides some basis for confidence in the housing recovery. Permits went way up in the Northeast.

Is the private label market coming back, at long last? Issuance of mortgage backed securities have increased to $32 billion this year from $18 billion last year. Much of this new paper is tied to rentals or distressed mortgages from the bubble years. To put the $32 billion into perspective, the private label market was $1 trillion before the crash. As far as new origination goes, pretty much only high quality jumbos are getting securitized, and even that is difficult as the banks prefer to portfolio these loans. We are still a long way from having any sort of robust non-conforming securitization market, but we are headed that way. 

The FOMC meeting starts today, and tomorrow we will get the statement, along with the updated projections and a press conference from Janet Yellen. The Street is still thinking the first hike comes in September. 

Homebuilders Standard Pacific and Ryland announced a merger of equals yesterday, which will create the 4th largest homebuilder in the US behind D.R. Horton, Lennar, and Pulte. Standard Pacific and Ryland have been discussing the deal for years and they think the timing is right for a push out to the East Coast. Part of the rationale for the deal was to diversify Standard Pacific's footprint from the red-hot California market, which is showing signs of overheating.