Morning Report: Percentage of young adults living at home highest since 1940

Vital Statistics:

	Last	Change
S&P Futures	2266.3	-0.3
Eurostoxx Index	360.2	-1.1
Oil (WTI)	52.2	0.1
US dollar index	93.0	-0.4
10 Year Govt Bond Yield	2.55%
Current Coupon Fannie Mae TBA	103
Current Coupon Ginnie Mae TBA	104
30 Year Fixed Rate Mortgage	4.29

Stocks are lower this morning on no real news. Bonds and MBS are up.

Mortgage Applications rose 2.5% last week as purchases rose 3% and refis rose 3%. Not sure how that is possible, but there it is. 

Existing home sales rose 0.7% in November to an annualized pace of 5.6 million. They are up 15.4% from a year ago and are the highest level since February 2007. The Northeast led the charge, with an 8% increase. The median home price was $234,900 which is up almost 7% YOY. Total housing inventory fell for the 18th straight month to 1.85 million, which represents a 4 month supply. The first time homebuyer accounted for 32% of sales. Historically that number has been closer to 40%. The combination of rising rates and prices continue to be a headwind for the first time homebuyer, however an improvement in the economy (and subsequent wage growth) will help offset that. 

The rapid home price appreciation we have seen in some markets mean that people who have been foreclosed upon may find themselves with a profit at the end. This has historically been an extremely rare event, and even today it only happens in the hottest housing markets like Seattle and Denver. 

Investor confidence continues to grow, as the Wells Fargo sentiment index rose for the third straight quarter and is at a 9 year high. Optimism over the 12 month economic outlook drove the increase, and 37% cite the election for that improvement. If Trump can get through some sort of corporate tax relief, then the forward earnings estimates on the S&P 500 are too low, compared to where they were before the election. That is part of what has been driving the markets. You take corporate tax rates from 35% to 20% or 25%, and the forward P/E multiple on the S&P drops even if pre-tax earnings don't improve.  

Talk about pent-up demand for housing: 40% of young adults (ages 18-34) were living with their parents in 2015, which is a 75 year high. "The number of adults under age 30 has increased by 5 million over the last decade, but the number of households for that age group grew by just 200,000 over the same period, according to the Harvard Joint Center for Housing Studies." Housing starts have basically kept pace with household formation, but are unprepared if these people suddenly decide to move out. You can see the relationship between housing starts and household formation below: That 5 million equates to almost 4 years of housing starts based on our current run rate. That will be the catalyst to take growth from 2% to 3% plus.