Morning Report: Existing Home Sales fall again

Vital Statistics:

	Last	Change	Percent
S&P Futures	2046.1	-4.2	-0.21%
Eurostoxx Index	3016.5	-45.5	-1.49%
Oil (WTI)	39.01	0.5	1.43%
LIBOR	0.642	0.002	0.38%
US Dollar Index (DXY)	95.03	-0.860	-0.90%
10 Year Govt Bond Yield	1.91%	0.02%
Current Coupon Ginnie Mae TBA	105.4
Current Coupon Fannie Mae TBA	104.5
BankRate 30 Year Fixed Rate Mortgage	3.71

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

Existing home sales fell 7.1% in February to an annualized pace of 5.08 million. Bad weather in the Northeast and the Midwest may have played a part. Sales are up 2.2% on a year-over-year basis. Lack of inventory and affordability remain the biggest issues. The median home price increased 4.4% to $210,800, and total inventory is about 4.4 month's worth. All cash transactions were 25% of sales and investor purchases ticked up to 19%. The share of first time homebuyers slipped to 30% as affordability problems and worries about the economy kept many younger buyers on the sidelines. 

Given the tight inventory, why aren't homebuilders aggressively adding supply? Finding affordable land plots and skilled labor appear to be the problem. It is amazing that 10 years after the housing bust, we are still 25% below the long-term average in housing starts. I adjusted housing starts by population, and the graph below gives you an ideal of how much we have underbuilt. We still just barely reached the low of the 81-82 recession, which was the nastiest since the Great Depression. What is going on? My guess is that the government is the problem, via zoning laws in some localities, and general Washingtonian regulatory funk tying up the credit markets. Correcting whatever problem is holding back housing is the difference between a tepid, meh economy of 2% growth, and a recovery where we see 3% growth and wage inflation. It would be nice if someone running for office noticed this and said something. Unfortunately, they only acceptable answer these days is that the financial sector isn't regulated and needs to be sat on more. 

Investor demand for paper isn't necessarily the issue either, as right now anyone who can fog a mirror can get an auto loan. It is the same old story: new entrants come into the market, take risks that the established players won't take, and a new market takes off. One thing that is different these days is technology. Lower credit borrowers will get a GPS installed on their car (no, not a nice navigation system, but a transmitter that tells the lender where the car is). Lenders also now have the ability to disable the car remotely. 

The Chicago Fed National Activity index reverted to negative territory last month to -.29 from a upward-revised .41. The 3 month moving average is negative, indicating the economy is growing slightly below trend.