Morning Report: Blockbuster GDP print

Vital Statistics:

			Last	Change
S&P futures			2842	2
Eurostoxx index			391.88	1.35
Oil (WTI)			69.55	-0.1
10 Year Government Bond Yield				2.95%
30 Year fixed rate mortgage				4.62%

Stocks are up this morning after blowout earnings from Amazon and a strong GDP report. Bonds and MBS are up.

Second quarter GDP came in at 4.1%, a big jump from the first quarter, and the highest print in 4 years. Q1 was revised upward to 2.2% from 2.0%. The inflation numbers were good as well. Q2 inflation came in at 1.8% which was a decrease from the 2.5% pace in Q1. Ex-food and energy, prices increased 2%. Consumption increased 4%, while investment increased 2.1%. Capital Expenditures increased strongly, while residential construction fell. Inventories fell, which dismisses the talking point that Q2 was artificially boosted by inventory build ahead of a trade war. 

Note that international trade was a big boost to GDP numbers. While economists talk about trade wars negatively affecting growth, remember that GDP includes the net trade balance. So if imports fall in response to tariffs, that will actually increase GDP. Does that mean you can goose growth via trade spats? No, but trade wars that reduce the trade deficit will bump up the GDP numbers, which is largely an accounting question. 

In the wake of the GDP report, the Fed funds futures are predicting a 90% chance of a Sep hike and a 68% chance of a Sep and Dec hike. 

Freddie Mac reported that delinquencies fell in June and they are back to pre-hurricane levels. 

Foreign demand for US residential property fell in 21% Q1, according to NAR. Foreign buyers accounted for 8% of existing home sales, a drop from 10% in the previous period. While a drop in foreign buying will help alleviate the supply / demand imbalance in the US resi market, new construction is really needed to square the circle, and judging by the GDP numbers, that still isn't happening. 

Morning Report: Discussing the mortgage interest deduction

Vital Statistics:

	Last	Change
S&P Futures	2582.0	-1.0
Eurostoxx Index	396.3	0.3
Oil (WTI)	56.0	0.3
US dollar index	87.9	0.0
10 Year Govt Bond Yield	2.32%
Current Coupon Fannie Mae TBA	102.875
Current Coupon Ginnie Mae TBA	103.938
30 Year Fixed Rate Mortgage	3.95

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

It should be a quiet week with respect to market-moving data and Fed Speak. New York Fed Governor William Dudley speaks at noon today, and that is it for the week. William Dudley is set to retire in mid-2018.

Work on tax reform continues, with both the House and the Senate drafting their own bills. Blue state Republicans (especially in CA, NY and NJ) are fighting to save the state and local tax deductions. The House hopes to vote on the bill next week. My sense is that the path to passage is so narrow that it will be a largely symbolic bill designed more to achieve a legislative victory than to reform taxes. I also think the estate tax will survive in order to save the state and local tax deduction. 

White House economic advisor Gary Cohn says that he doesn't think eliminating the mortgage interest deduction will affect the housing market. “The ability to deduct interest is a component that allows you to buy a bigger house, not what drives you to buy a house,” Cohn said during a Bloomberg Television interview Friday. It will affect the luxury market (especially in areas like the Northeast, where the luxury market is already weak),  but with the median house price around $245,000 limiting the mortgage interest deduction to $500,000 won't affect most MSAs. If you wanted to eliminate the MID at a point where it will cause the least amount of pain, now would be the time to do it, simply because low interest rates are making the interest portion of the typical mortgage payment small by historical standards. Back when interest rates were super high in the early 80s, almost 100% of your first year's mortgage payment went to interest. Today, about 70% is interest. 

The National Association of Realtors weighed in on the mortgage interest deduction as well, and they are against changes to it, as you would expect. They commissioned a study earlier this year that predicted a 10% drop in home prices and that homeowners with incomes between $50,000 and $200,000 would see an average increase in taxes of $815. 

One wrinkle to the change in the MID is that it applies to newly-purchased homes. So, if you haven't moved, your existing MID would not change. That will make depress existing home sales at the margin, but I can't see people staying put simply because of tax treatment of mortgage interest. People move for various reasons, but tax treatment usually isn't one of them. Regardless, if this provision stays, the death of the MID will have a much less dramatic effect than people are forecasting. 

Morning Report: Strong jobs report

Vital Statistics:

	Last	Change
S&P Futures	2547.5	-2.5
Eurostoxx Index	390.1	-0.9
Oil (WTI)	49.7	-1.1
US dollar index	87.2	0.2
10 Year Govt Bond Yield	2.38%
Current Coupon Fannie Mae TBA	102.875
Current Coupon Ginnie Mae TBA	103.938
30 Year Fixed Rate Mortgage	3.9

Stocks are lower after the jobs report. Bonds and MBS are down as well.

Jobs report data dump:

• Nonfarm payrolls -33,000 (100k-150k expected)
• Unemployment rate 4.2% (4.4% expected)
• Labor force participation rate 63.1% (62.8% expected)
• Average hourly earnings up .5% MOM / 2.9% YOY (expectation .3% / 2.6%)

Hurricanes Harvey and Irma are responsible for the weak payroll number, which is the only depressed number in an otherwise strong report. Much of the drop in payrolls was due to a drop in restaurant / bar jobs. If a restaurant was closed due to power outages or evacuation the employees are generally not paid, and therefore won't show up on the list of jobs. 

The critical numbers from the jobs report (which is causing rates to rise) is due to higher-than-expected wage growth and the increase in the labor force participation rate. These point to a tightening in the labor market and an increased likelihood of a rate hike in December. The Fed Funds futures are now predicting a 92% chance of a December hike, up from 80% yesterday. 

Take a look at the chart of average hourly earnings below. You can see the change in inflection (sharp slowdown in growth) starting in early 2009, however you can also see the change in inflection (that appears to be accelerating) that started in early 2015. We could finally be seeing some wage inflation at long last. Note that there is a possibility that the jump in wages could be driven by the drop in restaurant jobs, which are generally low-paying. That would bump up the average a tad. 

The NAHB and NAR are parting ways on the issue of the mortgage interest deduction. The MID is slated to become less important as tax reform takes shape. The standard deduction will be doubled, but many popular deductions will go away. For most people, taking the increased standard deduction will make more sense than itemizing. The NAHB is willing to allow the mortgage interest deduction to go away, as long as the low-income housing tax credit remains. The LIHTC is the big driver that makes building affordable housing make sense. NAR, on the other hand is suggesting that losing the MID would cause a 10% drop in house prices. Since Democrats will be uniformly opposed to any changes to the tax code, it will only take a few Republicans in blue states to put the kibosh on this. The MID has survived many attempts to kill it, and it is simply so popular that it may live to fight another day. Note that there are two things to make the MID less and less important: First, with interest rates so low, the actual interest paid is much less than it was, say, 30 years ago. Second, the MID cap is not indexed to inflation, so as house prices rise, the cap will kick in at progressively lower relative levels. 

The Fed weighed in on tax reform, saying that it could cause a short term bump in the economy, but will raise the deficit and inflation.  Of course how much it increases the deficit will depend on the economic forecast used. Republicans want to argue that cutting taxes will increase growth, which will increase the taxes received by Treasury (called dynamic scoring). Democrats want to exclude that growth, arguing that it is invariably too rosy. All sorts of think tanks will weigh in on it and you will have to know their political predilections before reading their take. Many think tanks sell themselves as "non-partisan" when they really are not. 

Morning Report: NAR studies the drivers of the low homeownership rate

Vital Statistics

	Last	Change
S&P Futures	2426.3	-4.3
Eurostoxx Index	387.1	-3.3
Oil (WTI)	46.6	0.8
US dollar index	88.4	-0.1
10 Year Govt Bond Yield	2.21%
Current Coupon Fannie Mae TBA	103.47
Current Coupon Ginnie Mae TBA	104.33
30 Year Fixed Rate Mortgage	3.89

Stocks are lower this morning amidst a global tech stock sell-off led by Apple. Bonds and MBS are down a tick or two. 

The big event this week will be the FOMC meeting which starts Tuesday. The announcement will come at 2:00 pm on Wednesday. The Fed Funds futures are pricing in a 96% chance of a 25 basis point hike in the Fed funds rate. We will also have a Bank of England and a Bank of Japan meeting this week. 

Merrill Lynch is looking for the Fed to hike 25 basis points, but they think the focus of the press conference will be on balance sheet normalization. While there is the possibility that weak economic data on Wed morning (CPI and retail sales) could prevent the Fed from hiking that is a long shot. Merrill is also looking for the Fed to cheat down their inflation projection for 2017 to 1.7%, although they expect 2018 to be unchanged at 2%. They also note that inflows into bond funds have been elevated as bond bears throw in the towel on the Trump reflation trade. 

A group called "Fed Up" which includes liberal economists like Joseph Stiglitz and even includes former Fed President Narayana Kochlerakota is urging the Fed to increase its inflation target from 2% to something higher. The group notes that fiscal policy is almost impossible in this political environment, so higher inflation could act as a buffer against recessions. They are also concerned that the Fed's tightening could send the economy into a recession. Note that Barack Obama stacked the Fed with doves already, so if the Fed is reticent to do this now, it probably isn't going to happen as Donald Trump starts replacing members. 

Market strategists have been cheating down their end of year target rate for the 10 year bond yield, and it now stands at 2.7%, about 50 basis points higher than it is currently. The lowest forecast in the data set is 1.9%. China is prepared to buy more Treasuries to stabilize the yuan market, and developed market bond fund managers are finding relative value in Treasuries, which have sold off more than other developed countries. 

The NAR wrote a white paper detailing the barriers to homeownership and many of the reasons are pretty well-known. The biggest constraints are tighter mortgage lending, student loan debt, affordability issues, and a lack of supply. They take a look at the QM and ATR rules and conclude that these rules are actually hurting mortgage availability when they were intended to ease the burden on lenders:

"Though each individual provision included in the new regulations that banks must adhere to may not cause much burden for lenders in isolation, the combined impact of the numerous regulatory changes generated a multiplicative effect that is contributing to an environment of extreme caution among mortgage lenders. One such regulation that contributes a number of strenuous lender requirements is the ability-to-repay rule, detailed in the Dodd Frank Act and enforced by the Consumer Financial Protection Bureau (CFPB). The rule stipulates that lenders must ensure that borrowers are able to make timely monthly payments. While the intention behind the rule is to ensure borrower credit-worthiness and avoid the worst abuses that led to the housing bubble, the rule essentially requires lenders to document every potential element of borrower risk, no matter how small. Effectively, many lenders are forced to document issues that have little to do with lending risk, simply to remain in compliance. Additionally, the rule makes the lender liable for issues that may cause a borrower to not repay a mortgage in the future, exposing lenders to potential future litigation, the risk, scale and cost of which are largely unknown"

The paper then goes on to look at other regulatory costs, and concludes that regulatory costs and uncertainties have combined to increase average credit scores, which is shutting many creditworthy borrowers out of the market because their loan circumstances don't "fit inside the box." I would add that the private label MBS market is still a shadow of its pre-crisis self, which means that these loans have to be retained on a bank's or REITs balance sheet. This limits the available credit, however the most puzzling aspect is that a lot of lenders want to get into the non-QM business, but the demand for non-QM credit has been disappointingly small. People are ramping up the non-QM product, but the loans just haven't been there yet. 

Chart: US homeownership rate 1965-present:

Morning Report: 2016 had the lowest homeownership rates since 1965

Vital Statistics:

	Last	Change
S&P Futures	2267.5	-7.0
Eurostoxx Index	362.7	-0.5
Oil (WTI)	54.0	0.2
US dollar index	90.2	-0.4
10 Year Govt Bond Yield	2.44%
Current Coupon Fannie Mae TBA	102.1
Current Coupon Ginnie Mae TBA	103.2
30 Year Fixed Rate Mortgage	4.16

Stocks are lower this morning on overseas weakness. Bonds and MBS are up.

The Fed maintained interest rates at current levels and made no changes to its reinvestment policy. The statement itself was relatively dovish, which caused a small rally in bonds in the afternoon. The money quote: "In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run." There was no mention of Washington, and a slight reference to improving sentiment. 

Productivity remains a problem as it increased at an anemic 1.3% pace in the fourth quarter. Output increased 2.2% and hours worked increased 0.2%. Unit labor costs increased 1.7% as wages and compensation increased 3% and productivity increased 1.3%. Part of the problem is that business capital expenditures have been in maintenance mode since the financial crisis. Morgan Stanley believes that sentiment is changing, and that means more capital expenditures going forward. Higher productivity means higher non-inflationary wage growth, which translates into higher standards of living. Note the recent divergence between capital expenditure plans and actual spending. 

Announced job cuts increased to 45,934 in January, according to outplacement firm Challenger, Gray and Christmas. The holiday season was atrocious for many bricks and mortar retailers, and some are shuttering stores and declaring bankruptcy. Macy's accounted for almost a quarter of the layoffs. The energy patch is finally on the mend and hiring again. 

Initial Jobless Claims fell to 246,000 last week.

The homeownership rate ticked up to 63.7% in the fourth quarter after hitting a 52 year low in the second quarter. Overall, the homeownership rate for 2016 was the lowest since records began in 1965. 

NAR took a look at the aspiring homeowner in its latest survey. Affordability was the #1 reason for people not owning a home, followed by flexibility concerns. That said, 88% of non-owners eventually do want to own a home. There still seems to be a disconnect between what people think they need (as far as a downpayment) versus what is actually required. FHA loans remain the best way to get these people their first home. 

Morning Report: Housing starts disappoint

Vital Statistics:

	Last	Change
S&P Futures	2137.5	4.0
Eurostoxx Index	343.1	0.6
Oil (WTI)	51.1	0.8
US dollar index	88.0	0.0
10 Year Govt Bond Yield	1.76%
Current Coupon Fannie Mae TBA	103.3
Current Coupon Ginnie Mae TBA	104.2
30 Year Fixed Rate Mortgage	3.57

Stocks are up this morning as earnings reports continue to pile in. Bonds and MBS are flat.

Mortgage Applications rose 0.6% last week as purchases rose 3% and refis fell 1%. 

Housing starts fell to a 1.05 million pace in September, driven by a big drop in multi-fam. Single fam was up around 8%. Building Permits rose to 1.23 million. Housing continues to be the biggest underperformer in the economy, but the subject hasn't really come up in this election, for either side. 

We have some Fed-speak today, with John Williams speaking at 8:45, Rob Kaplan at 1:30 and William Dudley tonight. 

The final debate is tonight, and it looks like Hillary is pulling away from Trump at this point. The black swan event for the markets is a Democratic Party sweep, which will probably cause the stock market to spit up a hairball. 

Lending standards in the jumbo space are loosening, even as the luxury end of the housing market underperforms. Loan Depot is now offering 40 year jumbo products that are interest-only for the first 10 years. Redwood is now offering a 90 LTV product that goes down to a 660 FICO. 

The NAR is releasing its latest Profile of Home Buyers and Sellers. Here are the big changes over the past 35 years.

• The first time homebuyer is a smaller percentage than it has been in the past. 
• The internet is not replacing the real estate agent
• Houses have been getting bigger of the past 30 years, but have leveled out in recent years
• Down payments have been going down
• The home search process is taking longer than ever due to tight inventory

Zillow has their own report on trends in housing. Here is the executive summary (the report is very long and detailed): 

"The home buying experience is both an intimidating financial transaction and an emotional milestone. Half of home buyers in the U.S. are under 36, meaning a new generation— Millennials—is shaping the future of real estate. Despite demographic reports about young adults’ urban lifestyles, Millennials share their parents’ aspirations for a single-family home, often in the suburbs. 

The process of finding or selling a home is much more collaborative for Millennials than for older generations. They bring all available tools to the process, including their smartphones, social media and online networks. While older generations rely on real estate agents for information and expertise, Millennials expect real estate agents to become trusted advisers and strategic partners. 

Millennial home buyers are also diverse. While only 9 percent of all homeowners are Hispanic, nearly 15 percent of the Millennials buying homes are Hispanic—reflecting the changing demographics of the American middle class. 

Homeownership remains a vehicle for wealth in the U.S., but it can also be a financial burden, as families stretch their finances to afford the space they need, and large, dated homes owned by Baby Boomers and the Silent Generation demand maintenance and improvements."

Morning Report: Market at odds with Fed projections

Vital Statistics:

	Last	Change	Percent
S&P Futures	1942.2	12.7	0.66%
Eurostoxx Index	2972.2	26.5	0.90%
Oil (WTI)	34.31	0.6	1.66%
LIBOR	0.635	-0.001	-0.08%
US Dollar Index (DXY)	98.2	-0.012	-0.01%
10 Year Govt Bond Yield	1.74%	0.01%
Current Coupon Ginnie Mae TBA	105.5
Current Coupon Fannie Mae TBA	104.8
BankRate 30 Year Fixed Rate Mortgage	3.84

Green on the screen this morning as oil and emerging markets rally and the Chinese act to boost lending. Bondsd and MBS are flat.

The ISM manufacturing Index improved to 49.5 from 48.2 last month. Still below 50, which indicates a slowdown, but better than expected. The Markit US Manufacturing PMI came in at 51.3, better than expected. 

Construction Spending rose 1.5% in January, much higher than the 0.3% forecast. Public construction drove the increase. Private residential construction was flat for the month. 

The turmoil in the financial markets and the global economy have cooled the market's forecast for further rate hikes. The Fed Funds futures contracts are now forecasting only a 10% chance of a rate hike at the upcoming March meeting and a coin toss for one by December. This is at odds with the last dot graph from the December FOMC meeting, where the median forecast was 1.25% by the end of 2016. 

Vehicle sales are coming in strong this morning. Ford Feb sales were up 20%, while Fiat Chrysler sales were up 12% on strong Jeep sales. SUVs were the big gainer overall, as lower gasoline prices entice drivers to switch to bigger cars. Much of this growth is being fueled by cheap credit, however there is so much pent-up demand for new cars (the average age of a car in the US is 11.4 years) that this growth is probably sustainable for the near term and isn't just a cheap credit story. 

Today is Super Tuesday, where 12 states are holding primaries. So far, it looks like Hillary Clinton and Donald Trump will emerge as the winners. 

Elmer Fudd warns of "distortions to savings and investment" due to negative interest rates. As the primary architect of the Great United States Housing Bubble, it would have been nice if he had worried about monetary policy-driven distortions to savings and investment say, 15 year ago. 

Home prices continue to rise according to CoreLogic. Prices rose 1.3% MOM and are up 6.9% YOY. According to Corelogic, prices remain about 7% below their April 2006 peak. Overvalued markets include many in Texas, Washington DC, and Florida. You can see in the map below, which areas are cheap and expensive (green=cheap, red=expensive).

NAR is predicting existing home sales of 5.38 million in 2016, with average home price appreciation of 4% to 5%. It looks like the Northeast is finally starting to pick up a bit, with contracts up 11% in January. 

Morning Report: Pending Home Sales fall

Vital Statistics:

	Last	Change	Percent
S&P Futures	2066.9	-5.9	-0.28%
Eurostoxx Index	3292.5	-21.8	-0.66%
Oil (WTI)	36.87	-1.0	-2.64%
LIBOR	0.603	0.000	0.00%
US Dollar Index (DXY)	98.32	0.220	0.22%
10 Year Govt Bond Yield	2.31%	0.01%
Current Coupon Ginnie Mae TBA	103.8
Current Coupon Fannie Mae TBA	102.8
BankRate 30 Year Fixed Rate Mortgage	3.91

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

Not a lot going on today with New Year's just around the corner. The MBA will be releasing mortgage application data next week, but is skipping this week. 

Pending Home Sales fell 0.9% in November and are up 5.1% YOY. The Midwest and South had modest gains while the Northeast and West fell. Tight inventory and rising prices are hitting affordability.

A good recap of 2015. They discuss wages, consumer confidence and real estate, with a good chart of where the action was (and wasn't) in 2015. 

Meanwhile, the IMF is predicting global growth will be disappointing in 2016. They are blaming a slowdown in China and rising rates in the US as the catalysts. Interesting theory about US rates being a drag since G7 yields have been going nowhere as US rates have risen and the spread of Treasuries to Bunds (a proxy for global interest rates) hit a record earlier this year. 

Median incomes are almost back to pre-recession levels, according to Sentier Research. The median income at the end of November was $56,888 and the median existing house price was $220,000. This puts the median income / median house price ratio to 3.87x, which is still a little elevated compared to pre-bubble years. 

Morning Report: Short, dull week ahead

Vital Statistics:

	Last	Change	Percent
S&P Futures	2043.8	-7.4	-0.36%
Eurostoxx Index	3263.3	-21.2	-0.65%
Oil (WTI)	37.07	-1.0	-2.70%
LIBOR	0.603	0.000	0.00%
US Dollar Index (DXY)	97.96	0.115	0.12%
10 Year Govt Bond Yield	2.24%	0.00%
Current Coupon Ginnie Mae TBA	103.9
Current Coupon Fannie Mae TBA	103
BankRate 30 Year Fixed Rate Mortgage	3.91

Stocks are lower on weaker data out of China. Bonds and MBS are flat.

Not a lot of data this week, which will be shortened by the New Year's holiday on Friday. Not sure if we get an early close on Thursday.

2015 will be remembered as the year that nothing worked. Stocks, bonds, and commodities all performed lousy. Jim Bianco explains: “The Fed stimulus lifted all boats, and then the Fed withdrawing the stimulus is holding the boats down,” Bianco said by phone. “If the argument is right that the economy is going into 2016 weak and earnings are negative, those conditions will continue and therefore on the asset allocation level, I don’t expect anything to break out just yet.”

Know what did work in 2015? Real estate. Speaking of which, here are the hottest real estate markets according to NAR. As expected, the Bay Area tops the list, and California urban areas are well represented. Know what didn't work in real estate? The stocks of companies in real estate with names like Stonegate and Nationstar in the dumps. 

94% of young renters eventually want to buy a home, according to the NAR. If wage inflation returns, 2016 could be the year that this pent-up demand for housing begins to be felt in the industry. 

Foreclosure starts are the lowest since 2006, according to Black Knight Financial Services. Fewer than 700,000 active foreclosures remain. 

Morning Report: House prices continue to rise

Vital Statistics:

	Last	Change	Percent
S&P Futures	1873.5	1.4	0.07%
Eurostoxx Index	3039.4	-0.1	0.00%
Oil (WTI)	44.84	0.4	0.92%
LIBOR	0.326	0.000	-0.09%
US Dollar Index (DXY)	96.17	0.139	0.14%
10 Year Govt Bond Yield	2.08%	-0.01%
Current Coupon Ginnie Mae TBA	104.4	0.0
Current Coupon Fannie Mae TBA	104.1	0.1
BankRate 30 Year Fixed Rate Mortgage	3.87

Markets are up this morning on good economic news overseas. Bonds and MBS are up small.

Slow news day.

The S&P Case-Shiller index of home prices rose 0.37% month-over-month and is up about 4.7% year-over-year. 

Consumer Confidence increased to 103 in September from 101.3.

NAR is saying they expect TRID to delay closings by up to 15 days. There will undoubtedly be a learning curve for the industry. TRID is the biggest change to the industry since the implementation of Dodd-Frank. CFPB claims they will use discretion in not going after lenders who make mistakes but are making a good-faith effort to work within the rules. 

NAR put out the list of the 20 hottest real estate markets. While some at the top are not surprising (San Francisco) some of the other names are more associated with the economic dumpster fires we saw as the collapse began. Cities like Stockton CA and Detroit MI are included in the 20 hottest markets. 

Glencore (which used to be called Xstrata) is a Swiss commodity trader who has been subject to solvency rumors. The stock has gotten hammered over the past year (down over 80%) but is up big today after addressing market rumors about solvency problems. While real estate types don't typically have to worry about what happens in the area of precious metals, energy, and ag, stress in these markets can spill over to the rest of the financial sector. What does this mean for LOs? Stress = lower interest rates. 

Speaking of stress, mutual funds that mimic hedge fund strategies may find themselves wrapped around the axle if we have a period of stress. Hedge fund arbitrage strategies typically require leverage and often invest in illiquid assets. Hedge funds at least have quarterly redemptions, which makes it easier to exit positions if need be. Mutual funds have no wiggle room - they have to accept redemptions daily. This could get ugly if markets turn south. 

Morning Report - Phoenix Phannie

Vital Statistics:

	Last	Change	Percent
S&P Futures	1542.1	3.0	0.19%
Eurostoxx Index	2683.9	-0.1	0.00%
Oil (WTI)	92.88	0.4	0.47%
LIBOR	0.285	0.001	0.18%
US Dollar Index (DXY)	82.58	-0.164	-0.20%
10 Year Govt Bond Yield	1.92%	0.01%
RPX Composite Real Estate Index	191.2	-0.6

Markets are higher this morning after luxury retailer Tiffany reported better than expected earnings, and Cyprus moves towards a resolution. There are no economic releases this morning. Bonds and MBS are up small.

Existing Home sales rose.8% to a seasonally adjusted annual rate of 4.98MM, a 10% annual increase, according to the National Association of Realtors. Some stats from the release:

• The median house price rose 11.6% to $173,600
• Distressed sales accounted for 25% of all sales
• Professional investors purchased 22% of all homes
• The first time homebuyer accounted for 30%
• Short sale haircuts were 15%, while foreclosure haircuts were 18%
• Time on market fell 24% to 74 days
• Cash-only transactions were 1/3 of all transactions.

Chart:  Existing Home Sales.  Approaching normalcy:

One feature of the financials lately has been the resurrection of many stocks given up for dead.  The first one was Impac, which is up 5-fold since August of last year. Then came Radian. Well, guess who is back? Fannie Mae (FNMA), who is up 3-fold since last week when it delayed filing its 10-K and said it expects to post a profit. Also, the "Jumpstart GSE Reform Act" was introduced at the same time, which would require Congressional approval for the government to unload its Fannie Stock. I am hearing that there is action in the Fannie prefs as well. Yes, it is up on volume, too - 94MM shares traded yesterday.

You are seeing the same action in Freddie Mac stock as well - FMCC.

Morning Report 3Q GDP, NAR house price forecast

Vital Statistics:

	Last	Change	Percent
S&P Futures	1403.7	-4.5	-0.32%
Eurostoxx Index	2481.1	-2.3	-0.09%
Oil (WTI)	86.11	0.1	0.07%
LIBOR	0.313	0.000	0.00%
US Dollar Index (DXY)	80.18	0.138	0.17%
10 Year Govt Bond Yield	1.78%	-0.04%
RPX Composite Real Estate Index	193.9	-0.1

Markets are flat after a better than expected GDP report offset the earnings miss from Apple. Surprisingly, bonds and MBS are rallying on the GDP number. Not sure what to make of that.

3Q GDP came in at +2%, higher than the +1.8% expectation.  This is the "advance estimate," which means the source data are still incomplete, so the number will be subject to two revisions.  Increases in consumption and government spending were offset by a drop in nonresidential fixed investment.

The NAR is forecasting that home prices will increase by 3.25% in 2013 based on its survey of 50,000 real estate practitioners.

If Obama wins re-election, Ed DeMarco's days at FHFA are probably numbered. To overcome Republican opposition, he will probably be fired and replaced while Congress is in recess. He has continued to butt heads with the Administration over principal reductions for GSE loans.

The MR may be a casualty of Sandy next week.  Hopefully not.