Morning Report: House prices rise 5%

Vital Statistics:

	Last	Change	Percent
S&P Futures	2057.0	-5.3	-0.26%
Eurostoxx Index	3393.7	-20.9	-0.61%
Oil (WTI)	43.1	-0.9	-2.00%
LIBOR	0.323	0.003	0.94%
US Dollar Index (DXY)	96.76	-0.101	-0.10%
10 Year Govt Bond Yield	2.04%	-0.02%
Current Coupon Ginnie Mae TBA	104.9
Current Coupon Fannie Mae TBA	104.6
BankRate 30 Year Fixed Rate Mortgage	3.79

Stocks are lower this morning as the Fed begins their two day FOMC meeting. Bonds and MBS are up small. 

Another sign the economy is slowing down: Durable goods orders fell 1.2% in September, and are down 0.4% ex-transportation. Capital Goods orders (a proxy for business capital expenditures) fell 0.3%. As a result of these numbers, Goldman took down their Q3 GDP estimates to 1% from 1.2% and JPM took theirs down to 0.6%.  

The Markit US Composite PMI slipped to 54.5 from 55 in October and the Services PMI fell from 55.1 to 54.4.

Consumer confidence fell in October to 97.6 from a downward-revised 102.6 in September. 

The S&P/Case-Shiller Home Price Index rose 0.11% in August and is up 5.1% year-over-year. They make this point about home price appreciation: “A notable part of today’s economy is the continuing low inflation rate; in the year to September, consumer prices were unchanged. Even excluding food and energy, the core inflation was 1.9%. One result is that a 5% price increase in the value of a house means more today than it did in 2005-2006, the peak of the housing boom when the inflation rate was higher. The rebound from the recent lows was faster than the 1997-2005 housing boom, and also much less driven by inflation."

Supposedly there is a deal to prevent a government shutdown. The sequester is lifted, and the carried interest deduction goes away. This should clear the decks for Paul Ryan to take over as Speaker of the House. This deal will probably get unanimous Democratic support, but it might be hard to get the necessary 30 Republican votes. 

How to get the Millennials to buy houses? NAR had a symposium on that recently, with HUD Secretary Julian Castro speaking. He lamented the tight credit in the mortgage market. The aftermath of the housing bubble has sent homeownership rates to the lowest levels in almost 50 years. 

Morning Report: New Home Sales drop, but prices up 13.5%.

Vital Statistics:

	Last	Change	Percent
S&P Futures	2066.8	0.8	0.04%
Eurostoxx Index	3417.5	-8.3	-0.24%
Oil (WTI)	44.45	-0.1	-0.34%
LIBOR	0.323	0.003	0.94%
US Dollar Index (DXY)	96.97	-0.157	-0.16%
10 Year Govt Bond Yield	2.06%	-0.02%
Current Coupon Ginnie Mae TBA	104.9
Current Coupon Fannie Mae TBA	104.5
BankRate 30 Year Fixed Rate Mortgage	3.79

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

New Home Sales fell in September to a seasonally-adjusted annual rate of 468,000, down from 529,000 in August. The median home price rose 13.5% however to $296,000. So, inventory is tight, and the builders continue to raise prices but aren't really ramping up production. Builder sentiment is at a 10 year high, but building permits continue to disappoint. Strange state of affairs. 

The FOMC meets this Tuesday and Wednesday. The decision will be out around 2:00 on Wednesday. The markets are handicapping a very low probability of a move at this meeting (something under 10%). Mohammed El-Arian lays out the no-action case. 

We will get some important economic data this week with Durable Goods tomorrow and Case-Shiller. On Wed we will get the FOMC decision, and on Thursday, the first estimate of third quarter GDP. Finally, on Friday we get personal income and personal spending. GDP, the FOMC statement, and personal income / personal spending are the biggest chances of volatility in the bond markets. 

Deutsche Bank is predicting a good holiday season this year for retailers. The average consumer intends to spend about $812 on gifts this year, which is about the same level in 2007. Punch line: "U.S. consumers don’t seem to worry about the risk of a hard landing in China, the widening of high yield credit spreads, a potential government shutdown, Brazilian corporate debt levels or low bond market liquidity."  We will get personal income and personal spending data on Friday. FedEx confirmed they expect record shipments this holiday season.

House prices rose 0.3% last month and are up 5.5% from a year ago, according to Black Knight Financial Services. The index came in at $253,000, which is off 5.3% from its June 2006 peak of $268,000. 

Morning Report: China cuts rates

Vital Statistics:

	Last	Change	Percent
S&P Futures	2069.3	16.2	0.79%
Eurostoxx Index	3439.4	86.3	2.57%
Oil (WTI)	45.22	-0.2	-0.35%
LIBOR	0.316	-0.004	-1.25%
US Dollar Index (DXY)	96.71	0.335	0.35%
10 Year Govt Bond Yield	2.09%	0.06%
Current Coupon Ginnie Mae TBA	105
Current Coupon Fannie Mae TBA	104.5
BankRate 30 Year Fixed Rate Mortgage	3.78

Stocks are higher this morning after China cut interest rates. Bonds and MBS are down. 

Definitely a risk-on feel to the markets after yesterday's torrid rally. China's easing and yesterday's comments from the ECB regarding further QE are putting green on the screen. All of this stimulus is going to make it harder for the Fed to raise rates.  Economists are beginning to warn of a global recession.

China's official growth rate is just shy of the government's 7% goal. Nobody actually believes that number however - estimates by foreign economists are closer to 3%.

The Markit US Manufacturing PMI rose in October.

The House Financial Services Committee spent some time yesterday looking at the future of HUD. The hearing looked at how HUD could help people escape poverty instead of simply pushing people to build more affordable housing. HUD has been very aggressive in suing local communities to change their zoning laws. 

Morning Report - Existing Home Sales rebound

Vital Statistics:

	Last	Change	Percent
S&P Futures	2019.4	10.9	0.54%
Eurostoxx Index	3297.9	25.7	0.78%
Oil (WTI)	45.83	0.6	1.39%
LIBOR	0.32	0.004	1.18%
US Dollar Index (DXY)	95.54	0.500	0.53%
10 Year Govt Bond Yield	2.04%	0.02%
Current Coupon Ginnie Mae TBA	104.9
Current Coupon Fannie Mae TBA	104.5
BankRate 30 Year Fixed Rate Mortgage	3.79

Stocks are higher this morning after ECB President Mario Draghi signaled that the central bank may use more stimulus to counteract a weakening Eurozone. Bonds and MBS are down small. 

Existing Home Sales rose 4.7% in September to 5.55 million. This is up 4.7% month-over-month. The median existing home price was $219k, up 6.1% from a year ago. Housing inventory dipped again to 2.21 million homes, which represents a 4.8 month supply, down from 5.1 months in August. Tight inventory remains an issue - 6.5 months is considered a balanced market. First-time buyers continue to sit on the sidelines, as their percentage fell to 29%. This is flat with a year ago. 40% is more or less the historical average. 

The Chicago Fed National Activity Index was more or less flat at -.37 in September. The 3 month moving average was zero, which means the economy is growing pretty much on trend. The index can be volatile, but the trend in the last few months is distinctly downward. 

Confirming the CFNAI trend, the Index of Leading Economic Indicators fell by 0.2% in September. The Conference Board is forecasting GDP growth of around 2.5% over the next couple of quarters. 

Initial Jobless Claims rose to 259k last week. We are still bouncing around 40 year lows in this number.

The Bloomberg Consumer Comfort index fell last week to 43.5 from 45.2. 

The FHFA House Price Index rose 0.3% in August. We are now within 1% of the peak level set in March of 2007. This index only looks at houses with conforming mortgages, so it will be a little different than Case-Shiller or CoreLogic. 

The number of underwater homeowners is still elevated at 14 million, but that number is falling.There are 6.9 million homeowners who are "seriously underwater" or are down by over 25%, but that number has been cut almost in half from the worst point of the crisis. Equity rich homeowners are declining as well, as many use a cash out refi to pay off credit card debt. 

FICO scores ticked down a touch to 723 in September, according to Ellie Mae's Origination Insight Report. Time to close ticked down as well, but we should start seeing that increase due to TRID.

CFPB director Richard Cordray told the MBA conference that the rollout of TRID has not been smooth. Closings are being delayed and consumers end up paying for an extra two weeks of lock protection. Cordray's reply: “These claims reflect a failure or perhaps a refusal to understand what the rule actually says.” Cordray didn't lay it all on lenders - vendors also shoulder some of the blame. 

Morning Report: Homeownership rate down to almost 50 year lows.

Vital Statistics:

	Last	Change	Percent
S&P Futures	2031.2	10.6	0.52%
Eurostoxx Index	3278.1	22.4	0.69%
Oil (WTI)	45.39	-0.9	-1.94%
LIBOR	0.317	-0.001	-0.16%
US Dollar Index (DXY)	94.91	-0.004	0.00%
10 Year Govt Bond Yield	2.04%	-0.02%
Current Coupon Ginnie Mae TBA	104.8
Current Coupon Fannie Mae TBA	104.5
BankRate 30 Year Fixed Rate Mortgage	3.79

Stocks are higher this morning as a couple big mergers are announced. Bonds and MBS are up.

Mortgage Applications rose 11.8% last week, as purchases rose 16.4% and refis rose 8.8%. 

Education opportunity: It is better for Millennials to buy than to rent. The catch: Millennials like the urban environment and in the hot markets like San Francisco and New York, they are priced out of the market. Not all urban areas are bad however: Here are the affordable places:

UBS is closing down its Manged High Yield Plus Fund. Is that a harbinger of bad things to come? The closing of a BNP Paribas fund in 2007 is credited with starting the financial crisis, though I remember the first tell being the inability of banks to sell the debt associated with the Alliance / Boots merger. High yield has been struggling lately as over-extended energy exploration companies are getting hammered by low oil prices. While we don't have a residential real estate bubble anymore, it could still cause some ripples in the bond markets. 

Freddie Mac is looking to expand its offering of low downpayment loans. The government is worried about people being shut out of the mortgage market, particularly low income borrowers and those with difficult to document income. Fannie Mae is looking to make income documentation easier.  Note that the homeownership rate in the US has fallen to 63.4%, about where it was before the US began the Great Experiment In Expanding Home Ownership, which began with Bill Clinton's HUD around 1994. The last time the homeownership rate was this low? 1967. This represents a lot of pent-up demand for purchase business and is an opportunity.

Morning Report: Housing starts rebound to 1.2 million.

Vital Statistics:

	Last	Change	Percent
S&P Futures	2023.2	-4.2	-0.21%
Eurostoxx Index	3253.8	-18.3	-0.56%
Oil (WTI)	46.2	0.3	0.68%
LIBOR	0.317	0.002	0.63%
US Dollar Index (DXY)	94.73	-0.201	-0.21%
10 Year Govt Bond Yield	2.07%	0.04%
Current Coupon Ginnie Mae TBA	104.8
Current Coupon Fannie Mae TBA	104.4
BankRate 30 Year Fixed Rate Mortgage	3.8

Stocks are lower this morning after IBM missed earnings. Bonds and MBS are down.

Housing starts rose 1.2 million in September, beating the 1.1 million estimate. These are up 4.7% from a year ago. Building Permits disappointed however, coming in at 1.1 million vs. the 1.2 million estimate. Starts saw an increase in single fam and multi-fam, however permits saw a drop in multi-fam. 

Goldman is calling the rally in Treasuries overdone. Their argument is that investors are underestimating the potential for inflation. Not seeing where inflationary pressures are going to come from, with a strong dollar, very little wage growth, and capacity utilization at 77%. The current probability of a Dec rate hike is 33%. 

Speaking of wage growth, Wal Mart was hammered last week after announcing that wage increases would cause earnings to drop next year. This will be interesting to watch - do other retailers follow suit or do they maintain lower wages? Some early hints that it will be the former. Turnover for retailers has increased to 65% from 50% and open retail positions are up 31% this year. 

The Obama administration rejected calls to re-privatize Fannie and Fred, leaving GSE reform for the next president. The government is making a lot of cash from F&F. Both private investors (especially activist funds who hold Fannie prefs and common) and affordable housing advocates are pushing the government to clarify where F&F stand. 

Apparently Joe Biden's decision of a presidential run will be released any day now. 

Morning Report: Homebuilder sentiment reaches a decade high

Vital Statistics:

	Last	Change	Percent
S&P Futures	2016.8	-8.7	-0.43%
Eurostoxx Index	3263.6	-1.4	-0.04%
Oil (WTI)	46.17	-1.1	-2.31%
LIBOR	0.317	0.002	0.63%
US Dollar Index (DXY)	94.78	0.235	0.25%
10 Year Govt Bond Yield	2.02%	-0.01%
Current Coupon Ginnie Mae TBA	105.1
Current Coupon Fannie Mae TBA	104.5
BankRate 30 Year Fixed Rate Mortgage	3.8

Markets are lower this morning on some disappointing economic data out of China. Bonds and MBS are up small. 

Not a lot of big data this week, but we do have some stuff related to real estate. Tomorrow, we will get housing starts and building permits. On Thursday, we will get existing home sales and the FHFA House Price Index. We will also hear from homebuilder Pulte on Thursday. 

The NAHB Housing Market Index rose to 64 in October from a downward-revised 61 in September. This is the highest reading since October 2005. Tight supply means that builders can increase average selling prices pretty easily. Unfortunately, since wage inflation remains muted, the median house price to median income ratio has become stretched again. 

Everyone knows China has been dumping Treasuries, yet rates aren't increasing. The reason why is that US firms are buying them. This means that (a) US investors are more making bearish bets on the US economy (b) the Fed will probably be watching this closely as a "tell" whether they need to raise rates, and (c) even if rates go up, you might not see any effect out on the curve, which means that mortgage rates might simply brush off any tightening for a while. 

Deutsche Bank is beginning to discuss scenarios where the next move could be something like a re-introduction of Operation Twist, which is where the Fed sells short term T-bills to fund purchases of long term Treasuries. 

Speaking of the Fed, Republican presidential candidate Donald Trump accused the Fed of keeping rates low for political reasons - to help Barack Obama and Hillary Clinton. Cleveland Fed President Loretta Mester fired back saying that politics is never a factor in their decisions. The political independence of the Fed is extremely important - no politician would ever argue that the Fed should hike rates. One thing to keep in mind however is that as we approach the election in 2016, the Fed will probably hold off on making any rate hikes late in the year to prevent the appearance of being political.