Morning Report: The CFPB has two directors.

Vital Statistics:

	Last	Change
S&P Futures	2601.0	0.0
Eurostoxx Index	385.7	-1.0
Oil (WTI)	58.3	-0.7
US dollar index	86.2	-0.2
10 Year Govt Bond Yield	2.33%
Current Coupon Fannie Mae TBA	102.651
Current Coupon Ginnie Mae TBA	103.494
30 Year Fixed Rate Mortgage	3.9

Stocks are flat this morning after the US comes back from a long weekend. Bonds and MBS are up. 

Retailers are rallying this morning on expectations of a strong holiday shopping season. Meanwhile, Bitcoin is pushing $10,000. 

New Home Sales rose 6.2% MOM and almost 19% YOY, according to Census and HUD. The median sales price was $313k, while the average was $400k. Inventory is at 4.9 months' worth. 

We have a good amount of data this week, although the jobs report will not be released this Friday. We get new home sales today, house prices tomorrow, GDP on Wednesday, Personal Incomes / Spending on Thursday, and the ISM data on Friday. Janet Yellen will also speak on Wednesday. 

Richard Cordray resigned from the CFPB last week and Donald Trump nominated Mick Mulvaney to lead the Bureau. Outgoing Director Cordray nominated Obama appointee Leandra English (a career civil servant in the Elizabeth Warren mold) to replace himself and the agency is suing the Trump Administration to prevent him from nominating Mulvaney. So, for the moment, the agency has two directors. 

While there is partisan rancor over who will lead the CFPB, Trump's nominee to lead the Fed, Jerome Powell, expects to have a smooth path to confirmation. 

Tax reform will be front and center this week as the Senate hopes to vote this Thursday. If the Senate passes a bill, the House and the Senate will need to come to an agreement between their respective bills. Trump hopes to sign something by the end of the year. 

Who would be the biggest losers in the tax bill? The very rich in Greenwich, CT and Manhattan. This is the last thing Connecticut needs - their entire state is largely financed by the rich in Fairfield County. Goldman Sachs estimates that NYC could lose 4% of their top earners. The most likely beneficiary? Florida. The rarefied air of the Northeast luxury market will take a hit (it was already moribund before people were talking about eliminating the state and local tax rate), although inventory is so tight it probably won't affect the lower price points. 

The NAR has released a study claiming that tax reform will hit real estate prices overall by 10%. The fear is that it will discourage homebuilding which will sap the economy of strength. It is true that economic growth has been tepid over the past decade as homebuilding contracted, but will the changes in the tax code matter all that much? I am skeptical that lowering the MID cap from $1 million to $500k will matter all that much, given the median home price in the US is under $250k. The median income in the US is under $60k as well and most people will be better off just taking the increased standardized deduction. So while they may "lose the mortgage interest deduction" it is a moot point - the increased standard deduction replaces it. But yes, I would expect to see some sort of effect at the top 10% of the market, but that should be about it. As far as homebuilding, I think the builders will shift their focus from luxury to starter homes, where the demand is. As a matter of policy, if you wanted to get rid of the mortgage interest deduction when it causes the least amount of economic pain, you would do it when the economy is expanding and interest rates are low. Interest as a percent of your mortgage payment is the lowest in 50 years. 

Morning Report: Richard Cordray resigns

Vital Statistics:

	Last	Change
S&P Futures	2572.0	7.0
Eurostoxx Index	382.0	-1.9
Oil (WTI)	55.4	0.1
US dollar index	87.3	0.0
10 Year Govt Bond Yield	2.34%
Current Coupon Fannie Mae TBA	102.688
Current Coupon Ginnie Mae TBA	104
30 Year Fixed Rate Mortgage	3.87

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

Some economic data this morning: Initial Jobless Claims rose to 249k last week, which is still a remarkably low number. We are starting to see wage inflation at the blue collar level. Manufacturing is still strong in the Northeast, with the Philly Fed index coming in at 22.7. Inflation remains on the low side, although import prices did increase by 0.2% MOM / 2.5% YOY on a weaker dollar. Finally, industrial and manufacturing production came in higher than estimates, while capacity utilization improved to 77% from 76.4%. All of these data point to less slack in the economy. 

Homebuilder sentiment bounced back in November, according to the NAHB. The index rose to 70  from 68 in October. The index hit a post-recession peak of 71 in early 2017, and the last time above that level was in late 2005. Builders are happy, bit supply remains low. In fact, inventory is so low in San Jose, days on market is less than two weeks, and prices rose almost 20% to hit a median value of over $1 million. 

CFPB Chairman Richard Cordray announced his resignation yesterday and said he will be stepping down at the end of the month. The speculation is that he will challenge John Kasich for governor of Ohio. No word on who might replace him. What's Angelo Mozillo up to these days?

The House is scheduled to vote on tax reform today, while the Senate continues to work on it. Public support for tax reform remains weak, probably because there hasn't been a plan yet to actually sell to the public - it remains in such a state of flux nobody knows what it will actually entail. The latest potential provisions include sunsetting the individual tax cuts, removing the Obamacare mandate, and cutting Medicare. While these may or may not be smart things to do, Congress and the WH need to be singing from the same sheet of music, which they aren't. Meanwhile, opponents have been able to run stories against it largely unopposed. Ironically, tax reform in the Senate will probably hinge on two Republicans who will not be facing re-election again in their lives: John McCain and Jeff Flake. I stand by my initial thoughts on this - that the only thing that has a chance of passing is something small and largely symbolic. Re-doing the corporate tax code should be a bipartisan endeavor with comment periods, a visible public debate, etc.. Not finalizing a plan hours before the vote. 

Home equity wealth hit a new high of $13.9 trillion, half a trillion over the 2006 high and double the low at the nadir of the Great Recession. It is important to remember that these are nominal numbers (in other words, not adjusted for inflation). Inflation-adjusted home prices still have yet to recoup their highs, in fact they are still 17% below their peak levels. This is why affordability remains decent in spite of the nominal home price indices hitting new highs. It is also why articles in the financial press warning of a new real estate bubble are complete and utter nonsense. 

Morning Report: Mortgage Credit Increases

Vital Statistics:

	Last	Change
S&P Futures	2285.3	-0.3
Eurostoxx Index	363.7	0.9
Oil (WTI)	51.8	-0.4
US dollar index	90.7	-0.1
10 Year Govt Bond Yield	2.36%
Current Coupon Fannie Mae TBA	102.1
Current Coupon Ginnie Mae TBA	103.2
30 Year Fixed Rate Mortgage	4.13

Stocks are flat this morning while bonds and MBS are up.

Mortgage applications rose 2.3% last week as purchases rose 2% and refis rose 2%. Refi activity slipped to 48% of total applications, the lowest since June 2009. 

Jeb Hensarling, the Chairman of the US Financial Services Committee says that reforming Dodd-Frank is a "this year priority." Congressional Republicans are planning to introduce legislation that will give banks relief from certain Dodd-Frank provisions if they increase their capital. 

In expectation of an easier regulatory environment, we are seeing startup banks after a long dormant period post-crisis. Eight banks filed applications with the FDIC in 2016. This is a far cry from the salad days when you would see 250-300 applications, but it is a step in the right direction towards increasing credit. 

Speaking of credit, the MBA Mortgage Credit Availability Index rose in January. The conventional, conforming, government and jumbo indices all rose, although jumbo was really what drove the increase. Since the index was benchmarked at 100 in early 2012 (probably the bottom of the housing market) the increase since then looks pretty dramatic. However, when you compare it to the longer term chart (that includes the bubble years) you can see how much things have changed. 

Long-term MCAI chart: Credit probably overshot in the immediate aftermath of the bubble (and credit is probably still too tight), however we are nowhere near returning to the days when ads for "pick a pay" mortgages dominated the Super Bowl. 

Will rising rates kill home price appreciation? Probably not, since inventory is so tight. At a minimum, borrowers are looking to get ahead of any increase in mortgage rates, so this could be a lagged effect. Ultimately, mortgage rates will be determined by the 10 year bond, which is influenced by the Fed Funds rate, but doesn't move in lockstep. In fact, the correlation between the two is quite low: around .12 since 1990. Until we start seeing wage inflation, the yield curve will probably flatten as the fed hikes.