Morning Report - 2015 could be the best year for housing since 2007

Vital Statistics:

	Last	Change	Percent
S&P Futures	2064.0	24.5	1.20%
Eurostoxx Index	3632.4	-9.0	-0.25%
Oil (WTI)	46.1	-0.9	-2.02%
LIBOR	0.27	0.002	0.82%
US Dollar Index (DXY)	99.58	0.142	0.14%
10 Year Govt Bond Yield	2.10%	-0.01%
Current Coupon Ginnie Mae TBA	102.4	-0.1
Current Coupon Fannie Mae TBA	101.1	0.0
BankRate 30 Year Fixed Rate Mortgage	3.88

Markets are lower this morning on no real news. Bonds andMBS are flattish.

Inflation at the wholesale level remains nowhere to be found, as the Producer Price Index fell .5%. You can't blame this on oil, as the index fell .5% ex-food and energy. Six out of the last seven months have been negative on the headline number.

Consumer sentiment fell to 91.2 from 95.4 in February, according the University of Michigan. Current conditions are down, but expectations fell quite a bit. Does a lot of snow make people depressed?

Freddie Mac is saying that 2015 could be the best year for housing since 2007. Given the carnage in housing over the past 8 years, that is like discussing the best season for the Detroit Lions under Matt Millen. They are forecasting housing starts of 1.18 million, mortgage originations of $1.3 trillion (of which 40% are refis), and home sales of 5.6 million. 

The NYT has a good article on parsing the Fed's language. Next week we will get the FOMC decision, and everyone will be looking for the presence of absence of the word "patient." (In the context of "the Fed can be patient in raising interest rates.). If that word is removed, the market will take it to mean the Fed will hike rates at its June FOMC meeting. For LOs with borrowers who are floating, let them know that next Wed could be a big day in the bond market.

Morning Report - Retail Sales fall again

Vital Statistics:

	Last	Change	Percent
S&P Futures	2052.0	12.5	0.61%
Eurostoxx Index	3645.1	-4.5	-0.12%
Oil (WTI)	48.2	0.0	0.06%
LIBOR	0.268	0.001	0.41%
US Dollar Index (DXY)	99.1	-0.698	-0.70%
10 Year Govt Bond Yield	2.07%	-0.04%
Current Coupon Ginnie Mae TBA	102.5	0.1
Current Coupon Fannie Mae TBA	101.4	0.2
BankRate 30 Year Fixed Rate Mortgage	3.84

Stocks are higher this morning after the big US banks passed their stress tests and raised dividends / buybacks. Bonds and MBS are up.

Retail Sales fell .6% in February. Ex autos and gas, they fell .2%. Poor weather on the East Coast and the West Coast port strike undoubtedly affected these numbers. The port strike is causing retailers to be light on spring inventory, particularly apparel.

Initial Jobless Claims fell to 289k from 320k the week. Import Prices rose .4% in Feb, but are down 9.4% year-over-year. The Bloomberg Consumer Comfort Index rose to 43.3, and business inventories were flat in January. 

Are we starting to feel the economic effects of the stronger dollar? Exporters are beginning to cite dollar strength for weakness in their overseas operations.  

Morning Report - Home Affordability still higher than pre-bubble days

Vital Statistics:

	Last	Change	Percent
S&P Futures	2049.0	7.1	0.35%
Eurostoxx Index	3629.1	61.9	1.73%
Oil (WTI)	48.78	0.5	1.01%
LIBOR	0.267	0.002	0.76%
US Dollar Index (DXY)	99.17	0.555	0.56%
10 Year Govt Bond Yield	2.15%	0.02%
Current Coupon Ginnie Mae TBA	102.2	-0.2
Current Coupon Fannie Mae TBA	100.9	-0.1
BankRate 30 Year Fixed Rate Mortgage	3.86

Stocks are bouncing back after yesterday's sell-off. Bonds and MBS are down small.

Mortgage Applications fell 1.3% last week. Purchases were up 1.9% while refis fell 2.9%. 

Attitudes about the US economy are finally turning around, according to the Fannie Mae National Housing Survey. More people think the economy is on the right track than the wrong track. Also interesting is that consumers sense that mortgages are becoming easier to get. 

Inflation remains low, partly because the rally in the dollar is keeping a lid on import prices. Ever since the ECB began the march towards full QE, the dollar has been screaming. The dollar is approaching parity on the Euro - start thinking about that summer vacation in the South of France. Fun fact, when the euro was trading around 86 cents on the dollar, you could stay at the Ritz in Paris for roughly about the price of a good business hotel in Manhattan.

Housing affordability has decreased a bit since the trough of 2012, but still remains well above the pre-bubble years of 2000 - 2002, at least as measured by mortgage payment to income ratio. Pre-bubble, the DTI ratio for the median income and mortgage payment was about 26%. It rose to almost 35% during the bubble, fell to 17.6% in the trough, and is now around 21%. If you look at the chart below, you can see how much interest only and negative amortization loans factored into the bubble years. Pretty amazing to think that almost 1 in 5 mortgages was an IO / neg am during the go-go days of the bubble. 

Interesting story about the mess that is Detroit. As downtown begins its gentrification / hipster renaissance, the rest of the city is struggling, and the biggest problem are these sales based on quitclaim deeds, which can leave the buyer with massive liabilities for back taxes. 

In February of 2008, Bank of America was added to the Dow Jones Industrial Average, just as the financial sector was beginning its swan dive. At that time, Apple was a $100 billion dollar company. What would have happened to the index if Apple was added instead of Bank of America?

Morning Report - labor market is tightening

Vital Statistics:

	Last	Change	Percent
S&P Futures	2060.8	-16.9	-0.81%
Eurostoxx Index	3558.4	-51.9	-1.44%
Oil (WTI)	49.78	-0.2	-0.44%
LIBOR	0.265	0.001	0.38%
US Dollar Index (DXY)	98.35	0.759	0.78%
10 Year Govt Bond Yield	2.14%	-0.05%
Current Coupon Ginnie Mae TBA	102.1	0.3
Current Coupon Fannie Mae TBA	101.1	0.1
BankRate 30 Year Fixed Rate Mortgage	3.92

Markets are lower this morning as commodities fall and the dollar climbs. Bonds and MBS are up as the German Bund hits new highs, with a yield of 26 basis points. German Bund yields are negative through 7 years, as the ECB buys the 5 year at a negative yield. 

The continuing rally in European bonds will probably support the US 10 year as global bond managers unload Bunds to the ECB and buy Treasuries instead. The caveat is that inflation has to remain nowhere to be found in the US. Yesterday, Cleveland Fed President Loretta Mester sounded hawkish, saying that at 5.5% unemployment we are close to meeting the Fed's full employment mandate. Of course this assumes that the current labor force participation rate of 62.8% is the new normal. Color me skeptical - I think a lot of these people who are out of the labor force want to work and will choose to if given the opportunity. This will keep a lid on wage growth. 

Job Openings remained around 5 million, according to the JOLTs job report. We are back to early 2001 levels. Hires decreased to 5 million and separations were unch'd at 4.8 million. The quit rate was unchanged at 2%.

Small business optimism rose a hair in February, according to the NFIB to 98 which has been the long-term average of the index, including the Great Recession. It is the third highest reading since 2007. We are seeing more evidence of labor shortages, however, with 53% of the respondents trying to hire, but 47% reported few or no qualified applicants. 29% of all owners reported job openings they cannot fill, which is the highest reading since early 2006. That said, sales fell, which could have been weather-related. 60% reported increased capital expenditures, which is the strongest reading since Oct 2007. Inflation remains nowhere to be found, and it looks like business owners are unable to raise prices.

CFPB Director Richard Cordray appeared before the House yesterday to discuss QM, payday lending, and overdraft protection. The discussion fell along usual partisan lines, with Democrats pushing for more consumer protection, and Republicans worried about limiting consumer choice.

Foreclosures continue to fall, according to CoreLogic. They were down 14.7% month over month and 22% year over year. The seriously delinquent rate of 4% is the lowest since June of 2008. Foreclosure inventory is 549k, down 33% from a year ago. 

Morning Report - mortgage credit continues to ease up

Vital Statistics:

	Last	Change	Percent
S&P Futures	2072.9	2.1	0.10%
Eurostoxx Index	3610.4	-7.3	-0.20%
Oil (WTI)	49.54	-0.1	-0.14%
LIBOR	0.265	0.001	0.38%
US Dollar Index (DXY)	97.59	-0.021	-0.02%
10 Year Govt Bond Yield	2.20%	-0.04%
Current Coupon Ginnie Mae TBA	101.8	-0.6
Current Coupon Fannie Mae TBA	100.9	0.3
BankRate 30 Year Fixed Rate Mortgage	3.94

Stocks and bonds are higher this morning after Friday's bloodbath. 

Global bonds are rallying as the European Central Bank begins purchasing German and Italian government debt. Not sure what difference taking the Bund yield from 40 basis points to 30 basis points is going to make, but there you go. I wonder what economics students will think of this episode in 30 years. Grandpa, tell me again about the time when central banks were willing to buy their host country's debt for dollars on the penny..

The week after the jobs report is typically very data-light, and this week is no different. The big events are retail sales on Thursday, and the JOLTS job openings on Tuesday. Which means bonds will probably be primarily influenced by events out of Europe. 

The Bankrate 30 year mortgage rate didn't move on Friday, but that is hard to believe given the big move up in rates. That said, mortgage rates have been lagging the moves in the bond markets.

Mortgage credit eased up in February, driven by jumbo and 97 LTV conventional. While we are at post-bust highs in credit availability, we are nowhere near where we were during the bubble, or even in the pre-bubble years. 

How much do you need to make in the US to buy a house? Good question for the first time homebuyer. The answer is around 48k. Of course all real estate is local, and you need to make 142k to buy a home in San Francisco. Of course you could style in Cleveland on 142k, as you only need 32k to buy a home there. 

Morning Report - Decent jobs report

Vital Statistics:

	Last	Change	Percent
S&P Futures	2089.6	-10.1	-0.48%
Eurostoxx Index	3625.5	7.3	0.20%
Oil (WTI)	50.16	-0.6	-1.18%
LIBOR	0.264	-0.002	-0.58%
US Dollar Index (DXY)	97.26	0.883	0.92%
10 Year Govt Bond Yield	2.19%	0.07%
Current Coupon Ginnie Mae TBA	102	-0.4
Current Coupon Fannie Mae TBA	101	-0.4
BankRate 30 Year Fixed Rate Mortgage	3.95

Markets are lower this morning after a decent jobs report raised fears of a June rate hike. Bonds and MBS are down big.

Jobs report data dump:

• Nonfarm payrolls + 295k (235k expected)
• Unemployment rate 5.5%, down from 5.7% in Jan
• Average hourly earnings + .1% MOM / +2.0% YOY
• Labor force participation rate down to 62.8%.

The payroll number got the attention of the Street, however the drop in unemployment was due to a drop in the labor force. So far, we are not seeing job losses in the oil patch due to lower prices, however employment did fall due to the refinery strike going on. Average hourly earnings are still rising more or less at the rate of inflation, and came in at $24.78 an hour. 

This jobs report is strong enough to make it more likely the Fed will start increasing rates in June, and people who were forecasting a 2016 rate hike are probably re-assessing that outlook. Hence the sharp sell-off in bonds.

End of an era: Apple is joining the Dow Jones Industrial average. Exiting is Ma Bell, who joined the index in 1939. 

FHFA Chairman Mel Watt spoke at the Goldman Sachs Housing Finance Conference yesterday. Here are his prepared remarks. Main points, FHFA is going to sell non-performing loans to the public, progress continues on a single security for Fannie and Freddie loans. Eligibility for HARP will not be expanded. 

Mark Cuban weighs in on technology companies and why he thinks there is a bubble that is worse than the 2000s. 

Morning Report - Is China setting up for a 1929 moment?

Vital Statistics:

	Last	Change	Percent
S&P Futures	2098.8	2.1	0.24%
Eurostoxx Index	3580.6	-10.5	-0.29%
Oil (WTI)	49.66	0.1	0.14%
LIBOR	0.262	0.000	0.10%
US Dollar Index (DXY)	95.4	-0.062	-0.06%
10 Year Govt Bond Yield	2.09%	0.01%
Current Coupon Ginnie Mae TBA	102.2	-0.2
Current Coupon Fannie Mae TBA	101.5	0.0
BankRate 30 Year Fixed Rate Mortgage	3.85

Stocks are higher this morning after the ECB committed to buy 60 billion euros worth of bonds starting Monday. Bonds and MBS are up small.

Nonfarm productivity fell 2.2% in the fourth quarter, as output increased 2.6% and hours worked increased 4.9%. On a year-over-year basis, it fell .1%. Lower productivity means that wage inflation will become inflationary sooner than it otherwise would. Not sure what is driving the decline. 

Unit labor costs rose 4.1%, which was a function of a 1.9% increase in compensation and a 2.2% decline in productivity. Unit Labor Costs are up 2.6% over the last year. 

Initial Jobless Claims rose to 320k, and the Bloomberg Consumer Comfort Index rose to 43.5.

Is China setting up for a 1929 moment? Certainly the backdrop is there. This seems to be par for the course, as countries that go through a long secular growth spurt end up having bubbles. It happened to the US in 1929, it happened to Japan in 1989, and it has happened to China. Their government wants to deflate the bubble, as all governments who face this do, however that is easier said than done. The fallout will be felt in the luxury real estate markets in the US and Canada. Think the Bay Area, San Diego, Washington DC, NYC, Vancouver, Seattle. Do the Chinese banks puke Treasuries or do they buy them as a flight to safety? That is the most interesting question.