Morning Report: Existing Home Sales fall again

Vital Statistics:

	Last	Change
S&P Futures	2590.3	8.3
Eurostoxx Index	388.5	2.1
Oil (WTI)	56.2	-0.3
US dollar index	87.4	-0.1
10 Year Govt Bond Yield	2.36%
Current Coupon Fannie Mae TBA	102.651
Current Coupon Ginnie Mae TBA	103.494
30 Year Fixed Rate Mortgage	3.9

Stocks are higher this morning on overseas strength. Bonds and MBS are flat.

Existing Home Sales rose 0.7% in September, according to NAR. This was the second slowest this year, behind August. Overall, sales were down 1.5% YOY. Tight inventory and the hurricanes affected sales. The median home price increased 4.2% YOY to 245k. Inventory was 4.2 month's worth. First time homebuyers fell to 29% of sales, driven by a dearth of inventory at the lower price points. The NAR also puts in a plug for maintaining the mortgage interest deduction and the state / local tax deductions, as eliminating them will make homeownership more expensive. “There's no way around the fact that any proposal that marginalizes the mortgage interest deduction and eliminates state and local tax deductions essentially disincentives homeownership and is a potential tax hike on millions of middle-class homeowners,” said Brown. “Reforming the tax code is a worthy goal, but it should not lead to the middle class, who primarily build wealth through owning a home, footing the bill. Instead, Congress should be looking at ways to ensure more creditworthy prospective buyers are able to achieve homeownership and enjoy its personal and wealth-building benefits.”

Economic activity picked up in October, according the Chicago Fed National Activity Index. Production-related indicators drove the increase. Employment-related indicators were positive, but less so than September. The economy definitely seems to be accelerating. 

What is driving global growth? China and India for the most part, but it looks like Japan is waking from its long slumber at last. Japanese growth has been missing since the early 90s and is transitioning from being a drag on global growth to a driver of it. Don't forget, Japan is the third biggest economy in the world and has been largely moribund since the early 90s. Want to see what a real bear market in stocks looks like? Take a look at the long term chart of the Nikkei 225: The Nikkei is hitting 20 year highs, and is still 43% below its 1989 peak. 

The Japanese resurgence will probably mean higher interest rates, at least at the margin, as well as higher commodity prices. Much of this will depend on what happens in China, which has a massive real estate bubble and will probably have to go through a secular recession like the US did in the 30s and Japan did for the last 2 decades. 

Janet Yellen said she will resign her position on the Federal Reserve Board once Jerome Powell is sworn in. “As I prepare to leave the Board, I am gratified that the financial system is much stronger than a decade ago, better able to withstand future bouts of instability and continue supporting the economic aspirations of American families and businesses,” Yellen said in her resignation letter. Her term officially expires in 2024, but it is rare for an ex-chairman to stay on. Donald Trump will have four open positions to fill, leaving him with the ability to make his mark on the Fed.

Morning Report: Third quarter GDP comes in strong

Vital Statistics:

	Last	Change
S&P Futures	2567.3	5.8
Eurostoxx Index	392.7	1.4
Oil (WTI)	52.4	-0.3
US dollar index	88.2	0.4
10 Year Govt Bond Yield	2.46%
Current Coupon Fannie Mae TBA	102.875
Current Coupon Ginnie Mae TBA	103.938
30 Year Fixed Rate Mortgage	4

Stocks are higher this morning on strong earnings and a good GDP report. Bonds and MBS are down.

Very slow news day. 

Third quarter GDP came in at 3%, much higher than the 2.5% the Street was looking for. This is the strongest back-to-back performance since 2014. It looks like the hurricanes had a negligible effect on growth, and the Commerce Department cannot measure the effect at any rate. Consumption increased 2.4%. Housing remained a weak spot, falling 6%, as builders struggle with labor shortages and a lack of buildable land. This is the worst stretch for housing since 2010. The core inflation rate rose at 1.3%, an increase from the 0.9% from Q2, but well below the Fed's 2% target. 

Paul Ryan is confident he can sweeten tax reform to bring some of the last GOP holdouts in line. The biggest hurdle will be Republican house members in blue states, who will be affected by any changes to the state and local tax deduction. Tax reform is scheduled to be unveiled November 1. 

The luxury end of the market is beginning to bifurcate, as the super high end ($5 MM plus) languishes while homes in the $1.5 million range are moving quickly. Demand for high-end homes is being driven by foreign demand as well as the stock market rally. That said, in the Northeast, particularly the pricey NYC suburbs, sellers are pulling their listings given weak demand. 

Janet Yellen is reportedly out of the running now for Fed Chairman. It will come down to John Taylor (the conservative choice) versus Jerome Powell (the Professional Economist's choice). Her term ends February 1. 

Ben Carson says that HUD will work with DOJ to pull back on fines for mortgage lending errors. Aggressive prosecution during the Obama Administration pushed J.P. Morgan to get out of the FHA business altogether. “Innocent errors should not create chaos and fear and make people less likely to get involved in the first place," he said.

Morning Report: Home price appreciation is accelerating

Vital Statistics:

	Last	Change
S&P Futures	2431.8	-1.8
Eurostoxx Index	387.6	-0.9
Oil (WTI)	42.9	0.4
US dollar index	88.8	-0.1
10 Year Govt Bond Yield	2.15%
Current Coupon Fannie Mae TBA	103.31
Current Coupon Ginnie Mae TBA	104.375
30 Year Fixed Rate Mortgage	3.92

Stocks are lower this morning as oil turns into a bear market. Bonds and MBS are up small. 

Initial Jobless Claims rose 3000 last week to 241k, while the index of leading economic indicators rose again. The LEI report noted that pretty much everything is improving, except for housing and the manufacturing workweek. 

Home Prices rose 0.7% in April, according to the FHFA House Price Index. On a YOY basis, they are up 6.8%. As inventory gets tighter, price increases are accelerating, which is a problem as house prices are now pretty stretched versus incomes. The West Coast is still experiencing close to double digit growth, while home price inflation in the Upper Midwest and Northeast lag the rest of the country. 

Some Trump advisors are recommending that Janet Yellen be replaced when her term ends in February. Yellen is a dove, and Trump recently seemed to reverse his pre-election view on interest rates. As a general rule, politicians love dovish Feds, so this is unsurprising. Treasury Secretary Mnuchin says Trump "hasn't given this much thought" since it is so far away. Among the other names being mentioned include Stanford's John Taylor, Columbia's Glenn Hubbard, and former Fed governor Kevin Warsh. 

As rates have fallen, prepayment speeds have increased, which is generally good news for originators, but bad news for those who own servicing. Delinquencies have reversed their calendar-driven April rise as well, according to Black Knight Financial Services. In fact, loans 90 days down or in foreclosure hit a 10 year low. 

The average closing rate for a mortgage inched up in May, according to the Ellie Mae Origination Insight Report. The typical FICO rose a point to 723, with an 80 LTV. The closing rate hit 70.4%. 

What are the priorities for the MBA in the upcoming year?  Removing regulatory barriers to housing, GSE reform, GNMA servicing, and much more. 

Morning Report: The hot real estate markets are cooling off

Vital Statistics:

	Last	Change
S&P Futures	2153.5	1.0
Eurostoxx Index	343.1	3.0
Oil (WTI)	45.2	0.5
US dollar index	86.3	-0.2
10 Year Govt Bond Yield	1.56%
Current Coupon Fannie Mae TBA	103.3
Current Coupon Ginnie Mae TBA	104.2
30 Year Fixed Rate Mortgage	3.47

Stocks are flat this morning on no real news. Bonds and MBS are flat as well.

We have a lot of Fed-Speak today, with Neel Kashkari, Janet Yellen, and James Bullard speaking this morning. Charles Evans, Loretta Mester, and Esther George speak this afternoon. There is the possibility that some of them could say something market-moving so be careful with your locks. 

Mortgage Applications fell 0.7% last week as purchases rose 1% and refis fell 2%. 

Durable Goods orders were flat month-over-month and down 1.3% YOY. Ex-transportation, they fell on a MOM and YOY basis. Capital Goods orders (a proxy for business capital investment) is also down for the year, although it was up on a MOM basis. July's numbers were revised downward, so this report is nothing to write home about. 

Despite the gloom in the corporate sector, consumer confidence rose and is at post-crisis highs. This is probably being driven by the stronger labor market. We aren't seeing these numbers flow through to actual sales at the retailers though. The Back-To-School shopping season was a disappointment. 

The hottest real estate markets are beginning to cool off, as high prices and low inventory are putting off buyers. Many of these markets have long surpassed their bubble peaks and are hitting new highs. Given that incomes have not recovered, these price levels may be unsupportable, especially as the Fed hikes interest rates and mortgages become more expensive. 

The latest CoreLogic Market Pulse looks at some of the overvalued markets based on price to income ratios and price to rent ratios. Unsurprisingly, there are pockets of overvaluation in CA, NY, FL, and TX, while the Midwest remains undervalued. The chart is below:

The article also goes on to say that we aren't in a housing bubble. This is true, as bubbles are largely psychological phenomenons where investors and lenders consider an asset "special" and believe it can only go up in price. The last residential real estate bubble (aside from the mid 00s) was in the 1920s. Residential real estate bubbles are rare and I doubt any of us will see another on in the US in our lives. That said, we have residential real estate bubbles in lots of countries overseas (especially China, Norway, and Canada), which will be a damper on global growth when they burst. 

During the debates, Donald Trump went after the Fed, calling them "political" for not raising interest rates. Politicians have always jawboned the Fed, but this has to be the first time I have heard a politician complain that the Fed is keeping rates too low. Usually, politicians are calling for the Fed to not raise rates because they are worried about a recession. At least one economist thinks Janet Yellen would resign if Trump wins.