Morning Report: Construction boom in 2018?

Vital Statistics:

	Last	Change
S&P Futures	2738.0	-4.5
Eurostoxx Index	398.3	1.0
Oil (WTI)	61.6	0.2
US dollar index	85.9	0.0
10 Year Govt Bond Yield	2.47%
Current Coupon Fannie Mae TBA	102.375
Current Coupon Ginnie Mae TBA	103.25
30 Year Fixed Rate Mortgage	3.91

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

Should be a relatively quiet week, data-wise. The only potential market moving report will be inflation data on Friday. We will have a lot of Fed-Speak this week however. 

The National Association of Realtors thinks we could be in for a construction boom in 2018. Much of the action will be in non-residential, mainly office building, lodging and logistics. Residential is a mixed bag - we have had a boom in apartment construction, but single family is still weak. The biggest problem for construction is labor, and many construction workers are aging out of the workforce. In 2017, a net 190,000 construction workers entered the job market, which is lower than the three year average of 284,000. This means construction firms are going to need to raise wages. One thing is for sure: if we do in fact see a construction boom in 2018, the Fed's 2018 estimate of 2.5% growth is going to be too low. It also means the Fed will probably raise rates a little faster than expected. 

The Fed Funds futures are currently pricing in a 61% chance of a 25 basis point hike in March. Despite the weak payroll number on Friday, the futures upped their probability of a hike. 

One market-based measure of inflation - the TIPS spread - broke 2% for the first time in 9 months. TIPS (Or Treasury Inflation Protected Securities) increase the principal amount of the note by the annual consumer price inflation number, so they act as a hedge (at least in theory) against inflation. The 2% break-even yield is important as that is the Fed's inflation target. 

Republicans and Democrats are still far apart on a spending deal to keep the government open. Democrats want something done on DACA, while Trump wants funds allocated to a southern border wall. We are still far enough out that much of what we are seeing may just be posturing, but there is a possibility we could be looking at a government shutdown. Loan officers who need 4506-T tax transcripts should keep this in mind. The deadline is January 19. 

Delinquencies rose in November, according to Black Knight Financial Service's November Mortgage Monitor. You generally see an increase in November due to seasonality, but this year also includes the effects from the hurricanes in Texas and Florida. The report also checked in on negative equity. We still have homes more than 15% below their peaks in the areas hit hardest by the housing bubble (inland CA, Las Vegas, Florida, parts of the Northeast). The map below shows the current state of affairs: