Morning Report: Inflation is picking up

Vital Statistics:

	Last	Change
S&P Futures	2577.0	-5.0
Eurostoxx Index	384.4	-1.8
Oil (WTI)	56.5	-0.3
US dollar index	87.5	0.0
10 Year Govt Bond Yield	2.39%
Current Coupon Fannie Mae TBA	102.875
Current Coupon Ginnie Mae TBA	103.938
30 Year Fixed Rate Mortgage	3.87

Stocks are lower on overseas weakness. Bonds and MBS are flat.

Inflation at the wholesale level picked up in October, according to the Producer Price Index. The headline number rose 0.4% MOM and 2.8% YOY on services inflation, which is being driven (hopefully) by increased compensation. The core rate was up 0.2% MOM and 2.3% YOY. 

Small business optimism picked up in October on strong labor readings. The average firm added .17 workers, while job openings stayed in record territory. In fact, the inability to find qualified workers was the second biggest headache for small business. As an aside, I wonder if this is an inability to find qualified workers, or an inability to find qualified workers who can pass a drug test. A net 27% of firms reported increasing compensation. 

People are spending money on their homes. The Despot reported strong Q3 earnings with comparable store sales up 7.9%, despite the hurricanes. I guess when inventory is as low as it is, people will remodel their current home instead of moving. 203ks anyone?

Loan delinquencies are falling, according to CoreLogic, however we are seeing a bump up in the oil patch states, especially around Houston and in Alaska. 30+ DQ rates fell 0.6% YOY to 4.6% in August. These were the lowest numbers in a decade, however the hurricanes will probably bump up those numbers in the next few readings. The number in foreclosure fell to 0.6% from 0.9% a year ago. 

The Senate came to an agreement to limit some of the post-crisis financial regulation for small and medium sized banks. The threshold for additional scrutiny was increased from $50 billion in assets to $250 billion in assets. Some larger banks who have a more traditional business like US Bancorp and PNC, were hoping for some relief, but didn't get any. “This is the first proposal that has a legitimate shot at making it to the president’s desk,” said Milan Dalal, an attorney at lobbying firm Brownstein Hyatt Farber Schreck in Washington and a former aide to Sen. Mark Warner (D., Va.), who backed Monday’s deal.

Morning Report: Average home sizes falling again

Vital Statistics:

	Last	Change
S&P Futures	2352.8	4.8
Eurostoxx Index	372.3	1.3
Oil (WTI)	54.5	1.1
US dollar index	91.4	0.4
10 Year Govt Bond Yield	2.45%
Current Coupon Fannie Mae TBA	102.045
Current Coupon Ginnie Mae TBA	103.17
30 Year Fixed Rate Mortgage	4.14

Stocks are up as the markets have a risk-on feel to them. Bonds and MBS are down small. 

Not much in economic data, but we will have Fed-speak all day, with Kashkari, Harker, and Williams speaking. 

The highlight of the week should be the FOMC minutes coming out tomorrow. Other than that, we get existing home sales, new home sales and the FHFA House Price Index. 

The initial look at February manufacturing indicates a slight decline as the flash PMI falls from 55.5 to 54.3. Services came in at 53.9. 

Goldman is tempering their enthusiasm for the S&P 500, warning that investors are overly optimistic. They predict the stock market will go nowhere for the rest of the year. Their concerns are that the good earnings from Q4 won't continue, and any sort of fiscal stimulus out of Washington will take time to be felt. 

Despite TRID's best efforts, about 17% of consumers end up being surprised by the existence of closing costs when getting a mortgage. The surprises run the gamut of points, up front MI and taxes. 

Speaking of taxes, here are some tax tips from NAR. 

House Financial Services Committee Chairman Bill Huizenga (R-MI) has introduced a bill to clarify the definition of points and fees under the CFPB QM rule by excluding title charges and escrowed T&I. 

We are starting to see average new home sizes decline, which is a function of the emerging first time homebuyer and the market for starter homes. After the real estate bust, the only segment of the new home market that was working was the ultra-luxury end, which meant that average home sizes increased. From 2009 to 2015, it looks like average square footage increased by close to 400 square feet. Now, as more and more starter homes and townhouses are being built, we are seeing average size decline again. Strange to think that the luxury end is the only part that works in the aftermath of a bust, but there you go. 

One often overlooked advantage to buying versus renting: The fact that making your mortgage payment every month amounts to a savings plan as you pay down your principal on your loan. 

The Despot reported better than expected earnings this morning as more and more people do work on their homes. Comps were up 6.3%. 

Morning Report - Housing Starts top 1.2 million

Vital Statistics:

	Last	Change	Percent
S&P Futures	2096.9	-2.4	-0.11%
Eurostoxx Index	3501.8	3.9	0.11%
Oil (WTI)	41.79	-0.1	-0.19%
LIBOR	0.324	0.004	1.23%
US Dollar Index (DXY)	97.01	0.202	0.21%
10 Year Govt Bond Yield	2.19%	0.02%
Current Coupon Ginnie Mae TBA	104	-0.1
Current Coupon Fannie Mae TBA	103.5	0.0
BankRate 30 Year Fixed Rate Mortgage	4

Stocks are lower this morning after WalMart earnings disappoint. Bonds and MBS are down small

Housing Starts were more or less flat in July at just over 1.2 million. June was revised higher. Multi-fam starts dropped while single family rose. Building Permits fell however from 1.33 million to 1.12 million. Multi-family permits accounted for almost all of the drop. Goldman took up their Q3 GDP tracking estimate from 2.2% to 2.4% on the number. 

Speaking of housing, the Home Despot reported better than expected earnings this morning as well. An improving housing market is encouraging people to spend on renovations. 

PIMCO expects housing to grow at 10% for the next 2 - 3 years. Household formation is picking up, and we have simply underbuilt for a long time.