Morning Report: Housing starts disappoint

Vital Statistics:

			Last	Change
S&P futures			2832	11
Eurostoxx index			380.51	0.81
Oil (WTI)			65.03	0.02
10 Year Government Bond Yield				2.87%
30 Year fixed rate mortgage				4.58%

Stocks are higher this morning on a potential that in trade tensions. Bonds and MBS are flat.

Initial Jobless Claims fell to 212k from 215k last week. 

Housing starts came in below forecasts for June - rising an anemic 0.9% to 1.17 million. They are down 1.4% on a YOY basis. Most areas showed modest increases, except for the West, which fell substantially. Permits were a little better, rising 1.5% MOM and 4.2% YOY. These numbers echo the drop in homebuilder sentiment, which is being driven by rising construction costs and labor shortages. "The solid economic expansion and firm job market should spur demand for new single-family homes in the months ahead," NAHB Chief Economist Robert Dietz said in a statement. "Meanwhile, builders continue to monitor how tariffs and the growing threat of a trade war are affecting key building material prices, including lumber. These cost increases, coupled with rising interest rates, are putting upward pressure on home prices and contributing to growing affordability challenges."

In the wake of the residential real estate bubble, the government has focused on regulatory solutions to fraud in the single family market. However, multifam was largely left alone, and it looks like the government is in the process of investigating an upstate NY developer which has about $1.5 billion in loans backed by the GSEs which may have been made under fraudulent circumstances. Apparently things like tenant income go unverified on these sorts of loans, and it is a systemic problem. 

Here are 3 misconceptions about credit scores: First, carrying a balance on revolving credit does not increase your score. Second incomes do not factor in a credit score (they aren't even tracked) and finally, your spouse's credit score and your own are completely independent. 

The Trump Administration is looking to tweak the Volcker rule in order to give banks a brighter line on what constitutes proprietary trading. The banks are not interested, surprisingly. Currently, the rule says banks need to hold a security for longer than 60 days in order to prove they aren't proprietary trading. The proposal would track the "available for sale" securities account and test it that way. From the bank's standpoint, brighter lines are better, but having spent a lot on internal controls to ensure compliance with the new rules, they don't seem anxious to re-do it. 

At the end of the day, market-making is largely dead, having been done in by declining bid-ask spreads, electronic trading, regulations, and declining brokerage fees. It simply is a money-losing business any more. The next crash is going to be an eye-opener when large swaths of the markets simply go no-bid.