Morning Report: Fed Day

Vital Statistics:

	Last	Change
S&P Futures	2137.0	7.0
Eurostoxx Index	342.9	2.0
Oil (WTI)	44.8	0.8
US dollar index	86.7	-0.2
10 Year Govt Bond Yield	1.69%
Current Coupon Fannie Mae TBA	103.3
Current Coupon Ginnie Mae TBA	104.2
30 Year Fixed Rate Mortgage	3.56

Stocks are up this morning after stocks rallied overnight on moves from the Bank of Japan. Bonds and MBS are flat.

The Japanese Central Bank is embarking on a new version of QE: attempting to hold the yield of the 10 year bond precisely at 0%. The BOJ holds something like 40% of all Japanese Government bonds, and between the other players that must hold Japanese government bonds (banks for capital and insurance companies) the central bank has essentially cornered the market in bonds, and can therefore set just about any price it wants. 

The FOMC decision will be out around 2:00 pm today. Bonds could get volatile around then so be careful if you have locks to deal with. The Fed Funds futures have a low 20% chance of a rate hike at today's meeting. Note that this meeting will introduce new economic forecasts and rate forecasts, so there will be a lot that can move markets. Janet Yellen will have a press conference at 2:30 PM EST following the decision. 

Mortgage applications fell 7.3% last week as purchases fell 7% and refis fell 8%. 

Housing starts and building permits fell last week due to lousy weather in the South. Housing starts came in at a 1.14 million annual rate. Single family starts rose while multi-fam (which is much more volatile than SFR) fell. 

KB Home and Lennar both reported earnings that beat estimates, although the orders numbers disappointed. Gross margins fell as land prices increased. Lennar reported weakness in some Texas markets due to the slowdown in the energy patch. 

Housing inventory fell for the fifth straight quarter, according to Trulia. Affordability continues to fall as the percentage of income to buy a home continues to rise. Starter homes now require 38.5% of the typical borrower's income, up from 36.8% in the third quarter last year. Historically, 36% has been a level where the GSEs begin to get concerned. Starter homes represent 23% of the available inventory, which is out of whack with the historical average of about 40%. The high end represents the majority of the inventory out there (which is where we are starting to see softness in pricing). We are starting to see increases in inventory in some of the West Coast markets where supply is the tightest, especially places like San Francisco and San Diego. 

Wells Fargo CEO Joe Stumpf went to Washington yesterday and got scolded by the usual suspects. Although the area affected was retail lending and not mortgages, I am sure the effects will be felt in mortgage banking as well. 

As banks get hammered and tied up in red tape, house flippers who need money fast are turning to crowdfunders. One flipper raised $1 million in 12 hours on crowdfunding sites RealtyShares, LendingHome, PeerStreet and Patch of Land. He is paying 14% for 2.5 year money. You are even seeing builders use this market as banks back away.