Morning Report: Housing is still highly affordable

Vital Statistics:

	Last	Change
S&P Futures	2686.3	10.6
Eurostoxx Index	389.2	-0.4
Oil (WTI)	60.1	0.2
US dollar index	86.0	-0.3
10 Year Govt Bond Yield	2.44%
Current Coupon Fannie Mae TBA	102.375
Current Coupon Ginnie Mae TBA	103.25
30 Year Fixed Rate Mortgage	3.92

Stocks are higher to start the year. Bonds and MBS are down.

We will get the FOMC minutes this Wednesday and also the jobs report on Friday. Both have the potential to be market-moving. Other than that, we will get the ISM reports and construction spending. 

Home prices continue to increase at a torrid pace, as the CoreLogic House Price Indicator has had its fourth straight month of 6% annual increases. 

Given the size of the rebound in the home price indices, we are seeing all sorts of questions about affordability. In the latest issue of the Scotsman Guide, I discuss home prices and affordability questions. The article was written last fall before it looked like we would get any action on tax reform. The mortgage interest deduction will now become irrelevant for most homeowners, but that doesn't necessarily mean that housing has become less affordable - at least not at the median home price and median income. Regardless, the biggest driver of housing affordability is the mortgage rate, not the house price. Affordability was the worst in the early 80s, when mortgage rates were double digits. The chart below looks at the mortgage payment as a percent of income over time. Note that the mortgage interest deduction moves the curve downward in a more or less linear fashion, and does not make much of a difference in terms of relative affordability.