Morning Report: Zillow gets slammed after changing its business model

Vital Statistics:

			Last	Change
S&P futures			2672	14
Eurostoxx index			378.3	-0.91
Oil (WTI)			66.56	-0.84
10 Year Government Bond Yield				2.87%
30 Year fixed rate mortgage				4.44%

Stocks are higher despite coordinated strike in Syria over the weekend. Bonds and MBS are down. 

Watch the oil markets. North Sea Brent crude is rising on tensions in the Middle East, but West Texas Intermediate (which is the main oil used in the US) is shrugging off the news. Bullish bets on Brent oil have hit record highs. 

The 2 year hit 2.4%, the highest level since 2008. The flattening of the US yield curve continues. 

There isn't much in the way of market-moving data this week, although we will get a lot of Fed-speak. Probably the biggest one will be housing starts tomorrow. 

Retail sales rose 0.6% in March, which was better than the Street 0.4% consensus. The control group increased by 0.4%, a touch below the 0.5% consensus estimate. Gasoline sales were up on higher prices. Revisions were lower, however. 

Business activity in New York State decelerated last month according to the Empire State Manufacturing Survey. New Orders and Production slowed down somewhat, but employment remained firm and the workweek increased. Future sentiment declined to the lowest level in 2 years.

The NAHB / Wells Fargo Housing Market Index slipped last month, but builder sentiment remains strong. 

Wells Fargo faces $1 billion in fines due to force-placed auto insurance and improper charges for lock extensions. The big banks have all reported strong earnings, and the tax law changes are certainly helping. 

Zillow shares fell 9% on news they plan to get into the house flipping business. "We're entering that market and think we have huge advantages because we have access to the huge audience of sellers and buyers," Zillow CEO Spencer Rascoff said on CNBC's "Squawk Alley." "After testing for a year in a marketplace model, we're ready to be an investor in our own marketplace." Investors are understandably skeptical, as the multiple for a fintech company is much higher than one for a property company, and it puts Zillow in direct competition with the realtors who utilize the site. Investors are not wild about changing focus from an ad model with high margins and low balance sheet usage to one that is low margin and uses a lot of balance sheet. Another issue: will people trust Z-scores if the company has a financial interest in the value of real estate in a particular area?

Want to know how acute the housing shortage is in California? From 2000 - 2015, the state built 3.4 million too few homes to keep up with job, population, and income growth. That is over 2 year's worth of current housing starts for the whole US population. Pretty astounding when you consider those years start before the housing bubble really got going. CA has always had NIMBY issues, and now there is a push to allow dense multi-family building near public transit, even if local zoning codes prohibit it. Separately, it looks like Dodd-Frank regulations did have an adverse affect on smaller banks. I wonder how much that plays into the housing shortage. 

Speaking of CA housing, here is what you can get for $800,000 in San Jose. Handyman special.