Morning Report: Pending Home Sales flat

Vital Statistics:

	Last	Change	Percent
S&P Futures	2093.6	3.7	0.18%
Eurostoxx Index	3511.1	22.1	0.63%
Oil (WTI)	42.13	0.4	1.01%
LIBOR	0.414	0.003	0.61%
US Dollar Index (DXY)	100.2	0.140	0.14%
10 Year Govt Bond Yield	2.22%	0.00%
Current Coupon Ginnie Mae TBA	104.1
Current Coupon Fannie Mae TBA	103.5
BankRate 30 Year Fixed Rate Mortgage	3.92

Stocks are higher as market participants return from the Thanksgiving holiday. Bonds and MBS are flat.

The highlight of this week will be the jobs report on Friday. This will be the last jobs report before the December FOMC meeting. The Fed Funds futures are pricing in a 75% chance of a tightening. 

The European Central Bank meets this week, which should add even more noise to interest rates later this week. 

Pending Home Sales rose 0.2% in October and are up 2.1% year-over-year. Tight inventory and rising prices are crimping sales. Pending Home Sales rose the most in the Northeast, where we haven't been seeing the torrid price appreciation we have been seeing on the West Coast. 

The ISM Milwaukee manufacturing index fell to 45.3 from 46.7 last month. The Chicago Purchasing Manager index fell from 56.2 to 48.7. Again, we are seeing the stronger dollar affect manufacturing. Inventory build is a problem, and was the driver of the upward revision in Q3 GDP. We could be setting ourselves up for a letdown in Q4.

Technical issues could keep a lid on long-term yields, which should be good for mortgage rates. Due to a shrinking budget deficit, funding needs for the government are falling, and regulatory requirements have increased demand for shorter-term Treasury bills instead of longer-term bonds. Treasury bond issuance is expected to fall 33% next year to $400 billion. Some analysts are forecasting a 50% drop. This means we could be looking at a scenario where short term rates increase and longer term rates go nowhere. 

As home prices rise, affordability is declining. The median house price to median income ratio is around 4.6x, which is closing in on its bubble high of almost 5x, and well above its historical range of 3.2x - 3.6x. What is driving the increase in house prices? Restricted supply has been an issue, as housing starts have been anemic since the bust. Another issue has been foreign demand, especially from China. There are a couple of things going on here. First, Chinese demand is partially driven by a desire to have dollar denominated assets, and second US policy regarding immigration. If a Chinese investor funds a development which creates US jobs, they get a green card. Chinese money which levitated prices on the West Coast is now moving inland, funding McMansion communities outside suburbs of Dallas and Chicago. Since Chinese buyers are cash-rich, they don't need a mortgage and are winning bidding wars by offering cash. 

Morning Report: GDP revised upward on inventory build

Vital Statistics:

	Last	Change	Percent
S&P Futures	2073.0	-11.2	-0.54%
Eurostoxx Index	3380.9	-64.4	-1.87%
Oil (WTI)	42.58	0.8	1.99%
LIBOR	0.382	0.005	1.19%
US Dollar Index (DXY)	99.54	-0.264	-0.26%
10 Year Govt Bond Yield	2.23%	-0.01%
Current Coupon Ginnie Mae TBA	104
Current Coupon Fannie Mae TBA	103.4
BankRate 30 Year Fixed Rate Mortgage	3.93

Markets are lower this morning after Turkey shot down a Russian plane in Syria and Brussels stays on lockdown. Bonds and MBS are up small.

The second revision to third quarter GDP came in at 2.1%, in line with estimates, and up from the initial 1.5% estimate. Personal consumption rose 3.0%, a little below expectations, while inflation was slightly higher. Inventory build accounted for a lot of the growth, which means the third quarter may have "borrowed" some growth from Q4. 

Consumer Confidence took a big hit in November, falling from 97.6 to 90.4,

The Richmond Fed Manufacturing Index fall to -3 from -1 in November.

The S&P/Case-Shiller index rose .61% in September and is up 5.45% year-over-year. 

The Allergan / Pfizer merger has brought out all the usual suspects jawboning about "corporate patriotism." It is another inversion trade, where the larger Pfizer is getting bought by smaller Allergan in order for Pfizer to change its domicile to Ireland and lower its effective tax rate from 25% to 17-18%. The companies sure made themselves a target by doing this in an election year, however the reality remains: the US has the highest corporate tax rate in the world, and we double-tax foreign income, which most countries do not. Until corporate tax reform happens, these sorts of things will continue. 

Morning Report: Existing Home Sales fall

Vital Statistics:

	Last	Change	Percent
S&P Futures	2087.8	-0.9	-0.04%
Eurostoxx Index	3442.2	-10.3	-0.30%
Oil (WTI)	41.45	-0.4	-1.07%
LIBOR	0.382	0.005	1.19%
US Dollar Index (DXY)	99.82	0.255	0.26%
10 Year Govt Bond Yield	2.28%	0.02%
Current Coupon Ginnie Mae TBA	103.9
Current Coupon Fannie Mae TBA	103.2
BankRate 30 Year Fixed Rate Mortgage	3.92

Markets are flattish on no real news. Bonds and MBS are down.

Existing Home Sales fell to 5.36 million in October, according to the NAR. The median home price increased to 219,600. Inventories remain tight, with the number of homes for sale dropping to 2.14 million, which is about 4.8 month's worth of inventory. 6 - 6.5 months is considered a balanced market. It doesn't appear that TRID had much of an effect on home sales, at least so far. 

The Chicago Fed National Activity Index increased to -.04 in October. This is the third negative reading in a row, and the 8th  negative month this year. Note we will get the second revision to Q3 GDP this week. 

We have another big merger today, with Pfizer buying Allergan in a $160 billion inversion trade. Pfizer will become an Irish corporation for tax purposes, although the headquarters will remain in New York. 

The S&P 500 is approaching its highs yet corporate profits have fallen in the second and third quarters. Blame low oil prices and the strong dollar. Of course stocks are forward-looking instruments and investors may be focusing on 2016 and beyond. Still, it is one more reason to be cautious about stocks as the Fed begins a tightening cycle. I would venture to say the majority of the traders on the Street have never witnessed one. Goldman is forecasting a 100 basis point hike in rates in 2016. 

The back-to-school shopping season was somewhat disappointing for retailers as consumers remain cautious. Retailers continue to be promotional (retail-speak for "cutting prices") and WalMart will begin its Cyber Monday sales prices on Sunday night. 

Part of the issue with consumption is that homeowners are not tapping their home equity, at least the way they did before. Home equity loans are about 25% of what they were in 2007. While mortgage lenders are being more conservative, auto loans are now the new credit bubble. When you can get an 8 year car loan for about the same prices as a 30 year fixed rate mortgage, you know this has the potential to end very badly. 

Morning Report: TRID is not affecting closing times, at least not yet.

Vital Statistics:

	Last	Change	Percent
S&P Futures	2084.6	5.4	0.26%
Eurostoxx Index	3460.5	11.6	0.34%
Oil (WTI)	40.1	-0.4	-1.09%
LIBOR	0.37	0.003	0.68%
US Dollar Index (DXY)	99.21	0.217	0.22%
10 Year Govt Bond Yield	2.24%	-0.01%
Current Coupon Ginnie Mae TBA	104.1
Current Coupon Fannie Mae TBA	103.5
BankRate 30 Year Fixed Rate Mortgage	3.83

Markets are higher this morning after Mario Draghi said the ECB will do what it must to raise inflation as quickly as possible. Bonds and MBS are rallying.

Fed Heads Bullard and Dudley will be speaking on the economy today. 

Weakness in Europe has pushed bond yields down overseas, and the relative value trade should start having an effect here. The German Bund has been incredibly volatile over the past year, trading in a range of 5 basis points to 106 basis points. It currently stands at 47 basis points and looks to be headed lower. 

Home sales stalled in October, according to Redfin. Sales increased 0.3%, and the median house price rose about 6% year over year. TRID probably played a role in bumping up September's numbers and lowering October's. 

Americans are re-leveraging. Household debt reached $12 trillion in the third quarter according to the New York Fed. Mortgage debt, student loan debt and auto loans all increased. The delinquency rate for student loans is an astounding 11.6%. 

Senator Robert Menendez is asking why Freddie Mac is not meeting its affordable housing goals. 

Credit is loosening somewhat, according to Ellie Mae. Average FICO scored dropped a point to 722. Note that time to close a loan (46 days) did not increase in October, so if TRID is slowing down closings, it isn't apparent in the numbers, at least not yet. 

Morning Report: The Fed sets the table for a Dec rate hike

Vital Statistics:

	Last	Change	Percent
S&P Futures	2081.8	2.1	0.10%
Eurostoxx Index	3457.2	25.3	0.74%
Oil (WTI)	40.22	-0.5	-1.30%
LIBOR	0.367	0.003	0.82%
US Dollar Index (DXY)	99.34	-0.313	-0.31%
10 Year Govt Bond Yield	2.25%	-0.02%
Current Coupon Ginnie Mae TBA	104.1
Current Coupon Fannie Mae TBA	103.4
BankRate 30 Year Fixed Rate Mortgage	3.87

Stocks are higher this morning on no real news. Bonds and MBS are up.

Slow news day

Initial Jobless Claims fell to 271k last week. 

The Index of Leading Economic Indicators rose in October to 0.6% from an upward-revised -0.1% in September. 

The Philly Fed Business Outlook rose to 1.9 from -4.5 in October. 

The Bloomberg Consumer Comfort Index slipped to 41.2 from 41.6 last week. 

France has shot and killed the mastermind of the Paris terrorist attacks. Now the debate turns to Syrian refugees, which has predictably lined up as a partisan issue.

The FOMC minutes were a nonevent as there was no new information and bonds barely moved. They sound like they are going to move in December, especially since some of the economic data has improved since then. 

Atlanta Fed Chairman Dennis Lockhart endorsed raising rates yesterday, provided there is no deterioration in the economy.

Morning Report: Cracks appearing in the credit markets.

Vital Statistics:

	Last	Change	Percent
S&P Futures	2056.2	7.2	0.35%
Eurostoxx Index	3434.4	-17.5	-0.51%
Oil (WTI)	41.04	0.4	0.91%
LIBOR	0.364	0.001	0.14%
US Dollar Index (DXY)	99.57	-0.060	-0.06%
10 Year Govt Bond Yield	2.29%	0.02%
Current Coupon Ginnie Mae TBA	104.2
Current Coupon Fannie Mae TBA	103.2
BankRate 30 Year Fixed Rate Mortgage	3.86

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

Housing starts fell from a 1.19 million average pace in September to a 1.06 million pace in October. Building Permits rose from 1.1 million to 1.15 million. Multifam starts (which is notoriously volatile) drove the decline.

Mortgage Applications rose 6.2% last week as purchases rose 11.9% and refis rose 2.3%. 

We will get the FOMC minutes from the October meeting around 2:00 pm today. Not expecting any big bond market moves from it, but I wouldn't rule anything out. Here is a rundown on what the Street is looking for. 

Investors are starting to balk at the debt issues. The latest one was the financing for the Veritas / Symantec deal. Interestingly, the first indication we had a a problem during the financial crisis was a deal-related bond issue that was unsold. Not predicting another 2008, but just be aware. 

We are starting to see an increase in consumer credit defaults. Auto loan financing has gotten absolutely ridiculous, with companies offering 8 year car loans at 30 year fixed rate mortgage interest rates. Yet another unintended consequence of ZIRP. You can't blame consumers for taking the money - eventually all of this central bank money printing will make its way into the inflation numbers.

FHA is trying to ease rules to financing condos. Affordable housing advocates have been pushing for these changes.. Separately, Obama has threatened to veto legislation that would increase lender protections for non-QM loans. Guess FHA lending is going nowhere as the leader in low - income / low downpayment financing. 

Morning Report: Foreclosures continue to decline

Vital Statistics:

	Last	Change	Percent
S&P Futures	2057.6	9.6	0.47%
Eurostoxx Index	3436.9	74.7	2.22%
Oil (WTI)	41.53	-0.2	-0.50%
LIBOR	0.364	0.002	0.55%
US Dollar Index (DXY)	99.55	0.105	0.11%
10 Year Govt Bond Yield	2.30%	0.03%
Current Coupon Ginnie Mae TBA	104.1
Current Coupon Fannie Mae TBA	103.2
BankRate 30 Year Fixed Rate Mortgage	3.87

Markets are higher this morning after good numbers out of Wal Mart and the Home Despot. Bonds and MBS are down.

Russia and France are going to coordinate military operations against ISIS. 

Foreclosures fell to 1.88% of all homes with a mortgage in the third quarter, according to the Mortgage Bankers Association. While we are approaching normalcy, we still have a ways to go to get there. That said, I wonder how many of the homes left in foreclosure will ever sell. Many have been vacant for years and are in areas where the population is leaving. 

Mortgage delinquencies fell to 4.99% from 5.3% as well. 

The National Association of Homebuilders sentiment index slipped to 62 in November from 64 in October. 

Inflation remains well-controlled, as the Consumer Price Index came in at 0.2% MOM in October and is up 1.9% YOY. Real average weekly earnings were up 2.1%. 

Industrial production fell 0.2% in October, while manufacturing production increase 0.4%. Utilities and mining dragged down the industrial production numbers. Capacity Utilization fell to 77.5%.

Yes, house prices are approaching their 2006 highs. Do we need to worry about another bubble? The Fed says no. The bubble years were fueled by an expansion of mortgage credit, while this time around we aren't seeing that. Two other indicators: the house price to rent ratio and mortgage debt to personal income ratios are both well below the bubble years. I have always said bubbles are a psychological phenomenon. People have to believe an asset class is "special" and cannot go down in value. That isn't the case anymore.

Morning Report: Surprising calm in the markets

Morning Report:

	Last	Change	Percent
S&P Futures	2015.7	-2.9	-0.14%
Eurostoxx Index	3354.3	-6.4	-0.19%
Oil (WTI)	40.66	-0.1	-0.20%
LIBOR	0.364	0.002	0.55%
US Dollar Index (DXY)	99.09	0.087	0.09%
10 Year Govt Bond Yield	2.25%	-0.02%
Current Coupon Ginnie Mae TBA	104.2
Current Coupon Fannie Mae TBA	103.3
BankRate 30 Year Fixed Rate Mortgage	3.87

Markets are flattish despite the terrorist incidents in Paris over the weekend. Bonds and MBS are up small. 

Not much in economic data today, but we will get some important numbers with industrial production / capacity utilization tomorrow, housing starts and building permits on Wednesday, and the FOMC minutes as well. 

The Empire Manufacturing Index fell for the fourth month in a row. 

The usual playbook says things like terrorism are stock bearish and bond bullish. Surprised to see so little reaction to the news. Even oil is flat. Not a lot is making sense in the bond markets these days.

To me, the most striking statistic about ISIS is this: 3 attacks (Russian airliner, Beirut suicide bombing, and Paris) in 2 weeks. These guys are stepping it up. If there is one thing markets weren't counting on, it is a war. 

The Fed Funds futures markets are still predicting a 77% chance of a rate hike at the December meeting. 

Morning Report: Retail Sales miss

Vital Statistics:

	Last	Change	Percent
S&P Futures	2037.7	-2.9	-0.14%
Eurostoxx Index	3354.2	-33.5	-0.99%
Oil (WTI)	41.36	-0.4	-0.93%
LIBOR	0.359	0.003	0.84%
US Dollar Index (DXY)	98.95	0.299	0.30%
10 Year Govt Bond Yield	2.30%	-0.02%
Current Coupon Ginnie Mae TBA	104
Current Coupon Fannie Mae TBA	103.1
BankRate 30 Year Fixed Rate Mortgage	3.91

Stocks are lower this morning after some disappointing data and an earnings miss out of Cisco Systems. Bonds and MBS are up small.

Retail Sales rose 0.1% in October, missing estimates. The control group which strips out autos, gas and building supplies rose 0.2%, which was again below expectations. Retail sales are getting tougher to measure as more and more shopping goes on line. Many of the small online shops do not report their sales data to the government, so actual retail sales data is hard to come by. 

The Producer Price Index fell 0.4% in October, which was well below expectations again. Ex-food and energy, the index was up 0.1%. 

The University of Michigan Consumer Sentiment Survey increased to 93.1 from 90. 

Low energy prices are a big driver of this disinflationary environment. They aren't going away as the International Energy Association says we have 3 billion barrels in storage, which is a record. And soon we will have Iran adding to the supply.

The third quarter was the best in nearly a decade, according to the NAR. Home prices increased in 87% of all MSAs. Existing home sales are up 8.3% YOY and prices are up 5.4%. Inventory remains tight. 

Citing market conditions, non-bank lender Loan Depot is postponing its IPO. 

Morning Report: Strange things happening in the financial markets

Vital Statistics:

	Last	Change	Percent
S&P Futures	2062.0	-7.0	-0.34%
Eurostoxx Index	3409.0	-39.4	-1.14%
Oil (WTI)	42.2	-0.7	-1.70%
LIBOR	0.356	0.001	0.14%
US Dollar Index (DXY)	99.05	0.039	0.04%
10 Year Govt Bond Yield	2.33%	0.00%
Current Coupon Ginnie Mae TBA	103.9
Current Coupon Fannie Mae TBA	102.9
BankRate 30 Year Fixed Rate Mortgage	3.86

Stocks are lower this morning as comments from Mario Draghi fail to inspire markets overseas and commodity prices cannot get out of their own way. Bonds and MBS are flat. 

Job openings increased to 5.5 million in the US last month. 

Macy's cut its profit outlook, which is an ominous sign for the holiday shopping season. Note we get retail sales tomorrow.

The Bloomberg Consumer Comfort Index rose from 41.1 to 41.6 last week. Sentiment regarding the economy and people's personal finances were unchanged, but the perception of the buying climate improved. I am sure low gas prices are having an effect here. 

Initial Jobless Claims were flat at 276k last week. They are at a 5 week high, but are still below 300k and are sitting at lows we haven't seen since the 1970s. 

Mortgage Applications fell 1.3% last week as purchases rose 0.1% and refis fell 2.2%. 

Five head scratchers in the market which are caused by regulation and central bank distortions. People are demanding higher rates from the government than they are demanding from other banks. Theoretically this should be impossible, however capital requirements have made it happen. There are other strange pricing / volatility events happening, which is why the Fed is anxious to get off the zero bound, even though inflation remains well controlled and the economy remains tepid. 

Completed foreclosures increased to 55k in September as the judicial states continue to work through their foreclosure inventory. The national foreclosure inventory stands at 470,000 homes, which amounts to about 1.2% of all homes with a mortgage. This is down 24% YOY. Here is what is behind the spike in REO. Part of it is seasonal - many states have foreclosure moratoriums around the holiday season. 

Sentiment for home purchases declined slightly in September, according to the Fannie Mae Housing Survey. Overall, sentiment about the real estate market is slowly improving, but it has been a tough slog. 

Morning Report: Good numbers out of D.R. Horton

Vital Statistics:

	Last	Change	Percent
S&P Futures	2068.7	-4.2	-0.20%
Eurostoxx Index	3419.4	1.1	0.03%
Oil (WTI)	43.85	0.0	-0.05%
LIBOR	0.341	-0.003	-0.73%
US Dollar Index (DXY)	99.36	0.376	0.38%
10 Year Govt Bond Yield	2.34%	-0.01%
Current Coupon Ginnie Mae TBA	103.8
Current Coupon Fannie Mae TBA	102.9
BankRate 30 Year Fixed Rate Mortgage	3.84

Stocks are lower on no real news. Bonds and MBS are flat

The NFIB Small Business Optimism Index was flat in October at 96.1. Interestingly, "quality of labor" has replaced "poor sales" as the #3 issue facing small business (taxes and regulations are 1 and 2). Over half of all firms reported trying to hire in October, but 48% of them couldn't find qualified applicants. A net 17% of small businesses intend to raise pay, up from September and the highest level since 2007. Perhaps we are finally starting to see wage growth pick up in the US. 

Import prices fell 0.5% in October and are down 10.5% year-over-year. 

Wholesale inventories and wholesale sales rose 0.5% in September. The inventory to sales ratio is at 1.31, which is pretty high and is a warning sign for a cyclical slowdown. 

Completed Foreclosures are up 50% to 55k in September, but are down 17.6% year-over-year. The seriously delinquent percentage is 3.4%, the lowest since December 2007. The judicial states, particularly the Northeast are beginning to make some progress in reducing their foreclosure inventory. 

Homebuilder D.R. Horton reported better-than-expected numbers this morning. Earnings were up 44% to 64 cents a share. They also hiked their dividend. Homebuilding revenue was up 28% and orders increased by 19%. Overall, orders seem to be looking up for the builders, which bodes well for the 2016 Spring Selling Season, which starts in a few months. 

Speaking of betting on housing, two big timber REITs - Plum Creek Timber and Weyerhaeuser - announced a merger yesterday. This deal is basically a big levered bet on housing. The US has under-built for years and we have tremendous pent-up demand, especially at the lower price points. 

Morning Report: Bill Gross says 100% chance of a move in December

Vital Statistics:

	Last	Change	Percent
S&P Futures	2089.4	-4.3	-0.21%
Eurostoxx Index	3459.5	-8.8	-0.25%
Oil (WTI)	44.28	0.0	-0.02%
LIBOR	0.341	-0.003	-0.73%
US Dollar Index (DXY)	99.14	-0.033	-0.03%
10 Year Govt Bond Yield	2.35%	0.03%
Current Coupon Ginnie Mae TBA	104.1
Current Coupon Fannie Mae TBA	103.2
BankRate 30 Year Fixed Rate Mortgage	3.82

Stocks are down this morning as investors digest the jobs report. Bonds and MBS are down.

The Labor Market Conditions Index improved to 1.6 in October from an upward-revised 1.3 in September.

The week after the jobs report is usually pretty data-light, and this week is no exception. Aside from the JOLTS job openings on Thursday and retail sales on Friday, there simply isn't much market-moving data. 

Luxury builder Toll Brothers announced preliminary numbers for the 4th quarter and full year. Revenues came in at $1.44 billion, a touch higher than the Street estimates. This was up 6% in dollars and 1% in units. Average selling prices rose 5.8% to $790,000. Signed contracts rose 29% in dollars and 12% in units. Backlog is up 29% in dollars and 10% in units. We will hear from D.R. Horton tomorrow. Although we are in the dull season for the builders, it looks like they are thinking of ramping up production. In the jobs report, construction jobs increased from 33k in September to 78k in October. 

The OECD took down its forecast for global growth in 2016 from 3.6% to 3.3%. A deterioration in the Brazilian and Russian economies drove the downgrade. Japan's forecast from from 1.2% to 1%. The Eurozone was taken down from 1.1% to 1%. The US economy is forecast to grow 2.6%. 

In light of those forecasts, should the Fed hold off on raising rates until things are more clear? Many would argue that ZIRP is an emergency measure and we are no longer in an emergency. Bank of America lays out the argument that the economy can withstand an increase in rates.

Bill Gross says there is a 100% chance the Fed will hike rates in December. 

Morning Report: Blowout jobs report

Vital Statistics:

	Last	Change	Percent
S&P Futures	2085.5	-8.5	-0.41%
Eurostoxx Index	3460.4	12.9	0.37%
Oil (WTI)	44.78	-0.4	-0.93%
LIBOR	0.337	0.003	0.90%
US Dollar Index (DXY)	99.27	1.333	1.36%
10 Year Govt Bond Yield	2.32%	0.09%
Current Coupon Ginnie Mae TBA	104.4
Current Coupon Fannie Mae TBA	103.3
BankRate 30 Year Fixed Rate Mortgage	3.76

Stocks are lower this morning after the jobs report sets the stage for a December rate hike. Bonds and MBS are down.

Jobs report data dump:

• Nonfarm payrolls + 271k 
• Unemployment rate 5.0%
• Average Hourly Earnings 0.4% MOM / 2.5% YOY
• Underemployment rate 9.8%
• Labor Force Participation rate 62.4%

Bond yields dropped hard on the report, with both the 10 year and the 2 year yields up 9 basis points. The Fed Funds future contracts moved substantially after the report, going from a 56% probability of a December rate hike to a 72% chance. Retail and construction drove the increase. Manufacturing payrolls were flat, as manufacturers struggle with a strong dollar. Still hard to reconcile the strong payroll and nascent wage growth with the low labor force participation rate. 

In response to the jobs report, RBS, BNP, and Barclay's all moved their first rate hike forecasts to December. 

The holy grail for the economy (and the Fed) is wage growth. Prior to the Great Recession, wage inflation was running around 2.9%. Subsequently, it has grown at about 2%. If you look at the graph below, you can see where the slope of the line changes at 12/31/08. 

RealtyTrac's latese Home Sellers Report shows that people who sold in the third quarter realized an average gain of just over $40k, which amounts to a 17% increase in price. This is the best level since 2007. They calculate the average sales price was about $264k. The use of FHA loans continues to grow - FHA loans were 23.4% of all financings. All-cash sales as a percent fell to their lowest levels since 2008 - a sign that professional investors are being replaced by "real" buyers. 

That said, we still have a problem with the first time homebuyer. The percentage of first time homebuyers fell again to 32% from 33% last year and is the third straight annual decline. The 32% number is the lowest since 1987. "Normalcy" is about 40%. The big problem: affordability and a dearth of inventory.

In a novel theory, New York Attorney General Eric Schneiderman is accusing Exxon Mobil of securities fraud. The crime? Downplaying the risk of climate change to the company's business model. Not sure how something that might happen in 2100 is material to their stock price, but there you go. But, the government is now in the business of suppressing and criminalizing research that it doesn't like.

Morning Report: Tough go of it for mortgage originators, servicers, and REITs.

Vital Statistics:

	Last	Change	Percent
S&P Futures	2099.1	4.4	0.21%
Eurostoxx Index	3465.3	26.2	0.76%
Oil (WTI)	45.89	-0.4	-0.93%
LIBOR	0.334	-0.001	-0.15%
US Dollar Index (DXY)	97.97	0.023	0.02%
10 Year Govt Bond Yield	2.23%	0.00%
Current Coupon Ginnie Mae TBA	104.4
Current Coupon Fannie Mae TBA	103.7
BankRate 30 Year Fixed Rate Mortgage	3.74

Markets are higher this morning on no real news. Bonds and MBS are flat.

Initial Jobless Claims ticked up to 276k from 260k last week. Still strong numbers - the lowest since the Nixon Administration, which is even more impressive given the growth in the population over that time period. 

Challenger, Gray and Christmas announced job cuts fell 1.3% in October after rising 93.2% the month before. We are continuing to see layoffs in the energy patch. 

Nonfarm productivity rose 1.6% in the third quarter and unit labor costs rose 1.4%. Productivity tends to be somewhat volatile. Productivity growth is necessary if we are going to see real wage growth. 

The Bloomberg Consumer Comfort Index fell to 41.1 last week.  

Mortgage originator Stonegate reported lower-than expected earnings yesterday. Originations in Q3 were up 1% on a quarter-over-quarter basis and down 2% on a year-over-year basis. The stocks of the originators / servicers have gotten absolutely hammered this year, with Nationstar down 2/3 over the past year, Stonegate down 60%, and Ocwen down 72%. 

Not only has it been rough for the mortgage originators and servicers, mortgage investors have had a rough go of it as well. Pretty much all of the agency mortgage REITs got roughed up last quarter and reported decreases in book value. The volatility in the financial markets over the third quarter pushed out MBS spreads. All of the REITs are switching out of interest-rate sensitive MBS (things like 30 year fixed rate securities, or what originators are typically selling) into more commercial and credit sensitive instruments. It is a bet that the economy is recovering. At the margin, the fact that these entities are pulling back in the MBS market means that mortgage rates are a little higher than they otherwise would be. 

Citi's Head of North American Economics thinks Janet Yellen and the Fed are making a big mistake, letting the markets influence their decision-making. Economists are starting to discuss the possibility that the Fed is really subject to a triple mandate these days - not only are they supposed to keep inflation expectations in check and to minimize unemployment, they also have an unspoken mandate to keep the financial markets stable. The genesis of this really started with the Crash of 1987 when Alan Greenspan said the Fed stood buy to provide liquidity in the aftermath. The Fed rode to the rescue again after the Asian Tiger Crisis, the Long-Term Capital Management crisis, and even took prophylactic measures to prevent Y2K from becoming a crisis. Eventually this all became known as the "Greenspan put" and we have seen the endgame, which is the serial inflating of asset bubbles. 

Morning Report: Earnings season has been a disappointment so far

Vital Statistics:

	Last	Change	Percent
S&P Futures	2107.9	5.0	0.24%
Eurostoxx Index	3466.2	23.5	0.68%
Oil (WTI)	48.07	0.2	0.35%
LIBOR	0.334	0.000	0.00%
US Dollar Index (DXY)	97.57	0.411	0.42%
10 Year Govt Bond Yield	2.21%	0.00%
Current Coupon Ginnie Mae TBA	104.5
Current Coupon Fannie Mae TBA	103.9
BankRate 30 Year Fixed Rate Mortgage	3.78

Stocks are higher this morning after Tesla beat earnings estimates. Bonds and MBS are flat. 

Mortgage Applications fell 0.8% last week as purchases fell 0.6% and refis fell 0.9%. Mortgage rates spiked after the FOMC decision, so that could have been a factor. 

The ADP Employment Change report came in at 182,000 jobs, which is exactly the forecast for Friday's jobs report. 

The ISM services index rose to 59.6 from 56.9 in October, one of the bright spots economically. 

There will be lots of Fed-Speak today, with Janet Yellen, Stanley Fischer, and William Dudley all speaking at various points today. Yellen testifies about banking regulation at 10:00 am before the House Financial Services Committee. New York Fed president William Dudley speaks at 2:30. and Stanley Fischer will speak after the market closes. I don't expect Yellen's testimony to be market moving. 

What's old is new again: Amazon is opening a bookstore.

We had numerous elections last night - as a general overview Republicans are cheering this morning, while Democrats are talking about low turnout..

Earnings season is in full swing, and so far the box scores are pretty dismal. This is the worst quarter for earnings since 2009. Blame low commodity prices for the most part - the energy patch is getting killed with oil at these levels. This will make the stock market even more vulnerable once the Fed starts pulling away the punch bowl. 

Speaking of low energy prices, Transcanada has pulled its application for the Keystone XL pipeline, which inexplicably became a cause celebre for the environmental movement. Tar sands oil doesn't make sense at sub-$50 oil prices. 

Morning Report: Factory orders down, but vehicle sales strong

Vital Statistics:

	Last	Change	Percent
S&P Futures	2092.3	-3.1	-0.15%
Eurostoxx Index	3425.7	-8.8	-0.26%
Oil (WTI)	46.72	0.6	1.26%
LIBOR	0.334	0.005	1.58%
US Dollar Index (DXY)	97.33	0.401	0.41%
10 Year Govt Bond Yield	2.20%	0.03%
Current Coupon Ginnie Mae TBA	104.6
Current Coupon Fannie Mae TBA	104
BankRate 30 Year Fixed Rate Mortgage	3.89

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

Vehicle sales are coming in strong this morning, as the US goes through a long-delayed upgrade cycle. The average age of a US car has been at record levels for years, but consumers have been reluctant to spend on a new car. 

The ISM New York index jumped to 65.8 from 44.5 last month. This is a surprising reading given that factory orders fell 1% in September and August was revised downward from -1.7% to -2.1%. 

Economic optimism fell in November, according to the IBD / TIPP Economic Optimism Index. 

Weaker economic data has prompted the Atlanta Fed to take down its fourth quarter estimate for economic growth to 1.9%. Their prior estimate was 2.5%. While 1.9% growth is probably strong enough that we shouldn't be on the zero bound anymore, it is hard to see how this economy is overheating. 

Home Prices continue to climb, according to CoreLogic. Prices rose 0.6% in September and are up 6.4% year-over-year. Interestingly, they put out a map of the overvalued and undervalued real estate markets, and Southern California is largely undervalued. Green is considered undervalued, red is overvalued, grey is normal. Not sure how they are calculating this, but I find these results surprising. 

If you wondered what the median house looks like in these supposedly "undervalued" markets, here you go. 

Credit standards for conventional loans eased somewhat in the third quarter, while FHA loans tightened a bit, according to the Senior Loan Officer Survey. 

Bill Gross is suggesting that the Fed do "Operation Switch" which is the reverse of Operation Twist. The idea is to steepen the yield curve by selling longer-dated bonds and buying shorter dated bonds. Here is novel concept: How about we let the Treasury market be an actual market and let investors determine the cost of money. 

Seriously delinquent loans have hit a new post-crisis low, hitting 1.59% in September down from 1.96% a year ago. Seriously delinquent loans hit a high of 5.59% in February 2010. A "normal" rate of delinquency is below 1%, so the numbers are still somewhat elevated. I suspect many of these remaining seriously delinquent loans relate to zombie foreclosures left over from the bubble days, largely in states with judicial foreclosure laws. 

Morning Report: Big week ahead

Vital Statistics:

	Last	Change	Percent
S&P Futures	2077.0	3.3	0.16%
Eurostoxx Index	3431.3	13.1	0.38%
Oil (WTI)	45.84	-0.8	-1.61%
LIBOR	0.334	0.005	1.58%
US Dollar Index (DXY)	96.72	-0.228	-0.24%
10 Year Govt Bond Yield	2.17%	0.03%
Current Coupon Ginnie Mae TBA	104.8
Current Coupon Fannie Mae TBA	104.1
BankRate 30 Year Fixed Rate Mortgage	4.01

Stocks are higher this morning after some stronger economic data out of Europe. Bonds and MBS are down.

Construction spending rose 0.6% in September. Residential Construction increased 1.8% while nonresidential construction fell 0.1%. 

The ISM Manufacturing Index fell to 50.1 from 50.2. This is the weakest reading since 2013. The strong US dollar and weak overseas demand is acting like a wet blanket for the big US exporters. Even more worrisome, the employment reading decreased to 47.6 in October, which was the lowest reading since August 2009. 

We have a lot of important data this week, with construction spending today, vehicle sales tomorrow, productivity on Thursday, and the jobs report of Friday. The jobs report will carry the most weight with regards to December's FOMC meeting. The big question the Fed is grappling with is how solid the recovery is. We know that central bank efforts to prop up the economy have supported asset prices more than they have helped actual Main Street businesses. This is why (IMO) the Fed is going to take it slow raising rates. The Bloomberg article compares mortgage credit versus credit everywhere else. The reason why QE hasn't translated into easier mortgage credit (as compared to, well, everything else) is due to the regulatory environment. 

One result of QE and ZIRP has been a spate of merger activity. We have about $10 billion in new merger activity this morning alone. When companies have cash burning a hole in their pocket, but don't see much in the way of expansion opportunities, they buy their competitors and they buy back their stock. 

The latest Fed model has the US using up its resource capacity by the first quarter of 2016. The markets and the Fed have been predicting diametrically opposed outcomes. So far, the markets have been correct. Below, is a chart of the implied inflation rate using the prices of Treasury Inflation Protected Securities. The implied inflation rate has fallen by 100 basis points over the past 2 years.

Mohammed El-Arian sees a 25% - 30% chance of a recession by 2017. Even Larry Summers and Dr. Cowbell disagree on the state of the economy. We are in uncharted territory - not with the recession, since we have had asset bubbles before - it is with the recovery where the central bank has taken such an aggressive role in combating it.