Morning Report: Mortgage credit availability eases

Vital Statistics:

			Last	Change
S&P futures			2792	4
Eurostoxx index			388.99	1.46
Oil (WTI)			65.94	-0.41
10 Year Government Bond Yield				2.96%
30 Year fixed rate mortgage				4.62%

Stocks are higher as we await the FOMC decision. Bonds and MBS are flat.

The FOMC decision is set to come out at 2:00 pm EST. Investors are going to probably focus most closely on the dot plot to get a sense of whether we get 1 or 2 more hikes this year. Generally speaking, the dot plots have been a bit more hawkish than the Fed Funds futures market.

Inflation appears to be picking up at the wholesale level (kind of echoes what we were seeing yesterday in the NFIB Small Business Optimism report). The Producer Price Index rose 0.5% MOM / 3.1% YOY, which was higher than expectations. Much of the pressure came from higher energy prices. Trade (which is a function of the dollar) was the other catalyst. Ex-food and energy, prices rose 0.1% MOM / 2.6% YOY. The Fed does pay attention to this number, however the PCE index is their preferred measure of inflation, and it is sitting close to their target.

Mortgage applications fell 2% last week. Both purchases and refis fell by the same amount.

Mortgage Credit Availability rose in May by 1.5% as a dwindling refi market is encouraging originators to widen the credit box. While the index has been steadily rising since 2011 when it was benchmarked it is nothing like the bubble, where credit was orders of magnitude tighter.

The business press warns that liquidity is going to dry up during the next crisis. While Dodd-Frank claims to allow market making (and not proprietary trading), there is no doubt that banks are going to be completely uninterested in sticking their necks out during the next sell-off. Even worse will be ETF investors who think an exchange traded fund gives them a liquidity risk "free lunch". (It isn't like I am investing in junk bonds - I am investing in an ETF that invests in junk bonds - its different!) When the underlying assets of that ETF go no-bid, so will the ETF.

Ever wonder why servicing values in states like NY, NJ, and CT are so low? The foreclosure process can stretch out for years. In this case, the occupants made their last payment in June 2010.

Speaking of the Northeast, all real estate is local as they say. While the West Coast sees sales close in weeks, luxury properties languish for years in the Northeast. The tony NYC suburb of New Canaan, CT has banned "for sale" signs, because there are too many of them (although the excuse is that people shop on line). There is definitely a bifurcation line in the NYC suburbs - below $750k you can move the property, above that good luck. And $1.5 million or more, forget about it.

From the NAHB: rental inflation is moderating. Meanwhile, home equity hits a new high.