Morning Report – Toll Brothers reports the luxury end of the market is doing well 12/10/13

Posted on December 10, 2013 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1803.5 -5.5 -0.30%
Eurostoxx Index 2964.6 -24.1 -0.81%
Oil (WTI) 98.47 1.1 1.16%
LIBOR 0.242 -0.001 -0.31%
US Dollar Index (DXY) 79.98 -0.154 -0.19%
10 Year Govt Bond Yield 2.80% -0.04%
Current Coupon Ginnie Mae TBA 104.9 0.3
Current Coupon Fannie Mae TBA 103.9 0.1
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.44
Markets are lower this morning on no real news. Bonds and MBS are higher
Toll Brothers announced better-than expected earnings of 54 cents a share. The luxury end of the market continues to do well. Average Selling Prices increased to $703,000. Contracts were flat in the first 5 weeks of this quarter, as higher prices and interest rates tamp down demand. That said, they believe “this leveling of demand will prove temporary based on still-significant pent-up demand, the gradual strengthening of the economy and the improving prospects of our affluent customers.”
The National Federation of Independent Business Optimism Index rose to 92.5 from 91.6. This is still a relatively depressed level historically, and speaks to the great divide in American business. The S&P 500 is at record highs, while small business is still stuck in the post-bubble morass. The difference: QE is driving money into stocks, and the big US companies that make up the index have a lot of international exposure. That is why the economy feels “meh” even though the stock market is at record highs.
The Obama Administration’s latest housing scorecard is out. As of October, 1.2 million homeowners have had their principal cut through HAMP. Housing remains affordable as the NAR Housing Affordability index stands at 164.3, (lower than its peak of 213.6 in January, but well above its historical average of 135).

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Morning Report – FHA lowers the upper limit on mortgages 12/9/13

Posted on December 9, 2013 by Brent Nyitray

Vital Statistics:

 

  Last Change Percent
S&P Futures  1807.0 2.0 0.11%
Eurostoxx Index 2981.6 1.6 0.05%
Oil (WTI) 97.71 0.1 0.06%
LIBOR 0.243 0.002 0.73%
US Dollar Index (DXY) 80.22 -0.098 -0.12%
10 Year Govt Bond Yield 2.85% -0.01%  
Current Coupon Ginnie Mae TBA 104.6 0.3  
Current Coupon Fannie Mae TBA 103.8 0.4  
RPX Composite Real Estate Index 200.7 -0.2  
BankRate 30 Year Fixed Rate Mortgage 4.48    

 

World markets are higher this morning after Friday’s stronger-than-expected jobs report. Bonds and MBS are up small as well.
 
The upcoming week is relatively data-light, so the markets will be left to fret about the FOMC meeting next week. The Street seems to be handicapping a December tapering at 50/50. Don’t forget, even if the Fed does begin to reduce asset purchases, it doesn’t necessarily follow that MBS purchases will drop. In fact, most observers think that the Fed will only reduce Treasury purchases and maintain their current rate of MBS purchases. The only reason why the Fed may want to reduce MBS purchases would be to reflect that the Fed’s current purchase rate of $40 billion a month is much higher as a percentage of total MBS issuance than it was a year ago. This is because overall issuance has fallen since the refi boom ended.
 
Consumer sentiment is on the rebound, but is still below what one would call “normalcy.” The chart below is of the University of Michigan Consumer Sentiment Index. You can see that we are close to post-bubble highs, but are still mired in that early 90s malaise. Consumer sentiment is a big driver of real estate activity – in fact the CEO of KB Home said that consumer sentiment matters more than interest rates, at least to the homebuilders. Things are improving, albeit slowly.
 

 

It looks like we have some sort of budget deal in Washington, which should at least take the possibility of another government shutdown off the table. It looks like some of the sharper edges of the sequester will be sanded down, and it will be paid for by increased pension contributions from Federal workers and increased airport security fees. It is a “kick the can down the road” agreement that will at least prevent some fireworks beginning next year. 

 

The FHA reduced the upper limit on FHA mortgages in high cost areas from $729,750 to $625,500. The jumbo market has been back for quite some time, and FHA is happy to let upper income borrowers access private capital. 

 
Completed foreclosures dropped 30% from a year ago, and 26% from last month, according to CoreLogic. The foreclosure pipeline is 900k homes, which is a big drop, however we are still far from “normalcy,” which would be about a quarter of that number. The judicial states still have the highest level of foreclosure inventory, as you can see from this foreclosure heat map. 
 

 

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Championship Saturday

Posted on December 7, 2013 by markinaustin

This is all about getting to the Mythical National Championship, or the other four BCS Bowls for consolation.  First, we say goodbye to Louisville, NIU, and Fresno.  Byebye.

 
Then we look at what ought to be the premier matchup: MSU [10] against tOSU osu (they don’t deserve capitals, Mark!)[2], tonight around 7:15 CST.
Kelley and my sis are Spartans for life.  They are underdogs here.  While I will back MSU and Narduzzi’s creative defense in this game, it is not without fear that ESPN will engineer an SEC team into the MNC Game if tOSU osu loses.  ESPN controls college sports now and it is hopelessly in bed with the SEC.

 
First game is at 11CST.   Okie Lite[6] hosts the Land Thieves[17] in Stillwater in unseemly cold weather for the southwest.

 

At 2:30 CST, my ‘Horns [25] are in Waco ready to be drubbed by Baylor [9].  Should be Mack Brown’s last regular season game.  Because of the unseemly weather and the popular nickname for our noodle armed QB, we shall call the game “Derp on ice”.

 
At 3 CST, MO [5] plays Auburn [3].  It doesn’t occur to ESPN that MO and aTm have done far better in the SEC than they did in the entire history of the Big 12.  I pick MO.  I think Malzahn may be UT’s next coach despite the extension he just signed at Auburn.

 

At 6:45 CST Stanford [7] plays ASU [11].  Top to bottom, the PAC has been really strong this year, but this game is only for the Rose Bowl, thanks to the possibility of two unbeaten teams and the certainty that ESPN will force us to watch SEC football if either unbeaten goes down.

 

At 7 CST FSU [1] plays a BASKETBALL SCHOOL [20] for the ACC title.  Since Jameis has been cleared of rape charges and not indicted, there is no hope whatsoever for the BASKETBALL SCHOOL.

 

With Fresno and NIU gone from the unbeatens, the five BCS bowls will have ten BCS teams from six BCS conferences.  The four extras should go to the PAC, the 12, the BiG, and the SEC, but not to the ACC or the little east or whatever that abomination is.

 
Finally, ‘Goose may have some interest in Utah State v. Fresno [23] at 9 CST.

 
‘Goose, edits are welcome!

Filed under: Football, Open Thread, Saturday | 16 Comments »

Morning Report – Goldilocks jobs report 12/6/13

Posted on December 6, 2013 by Brent Nyitray

Vital Statistics:

 

  Last Change Percent
S&P Futures  1802.1 18.1 1.01%
Eurostoxx Index 2977.9 24.7 0.84%
Oil (WTI) 97.63 0.3 0.26%
LIBOR 0.241 -0.001 -0.31%
US Dollar Index (DXY) 80.45 0.210 0.26%
10 Year Govt Bond Yield 2.85% -0.02%  
Current Coupon Ginnie Mae TBA 104.2 -0.1  
Current Coupon Fannie Mae TBA 103.5 0.1  
RPX Composite Real Estate Index 200.7 -0.2  
BankRate 30 Year Fixed Rate Mortgage 4.52    

 

Markets are stronger this morning on a better-than-expected jobs report. Bonds and MBS are up small, in a classic case of “buy the rumor, sell the fact.”
 
Nonfarm payrolls increased by 203,000 in November, which beat the 185,000 street estimate. The unemployment rate fell to 7% as the labor force participation rate rose from 62.8% to 63%. Personal income fell, while personal spending rose .3%. All in all, consider this a “Goldilocks” jobs report from the stock market’s perspective: strong enough to make people think about a better economy ahead, but weak enough to keep the Fed on your side. At the margin, it does make a tapering move more likely at the Fed this month.
 
It is looking like Janet Yellen and Mel Watt will be confirmed next week. 
 
Newark, NJ is moving forward with an eminent domain plan. As the cities that go this route get bigger and bigger, eventually Obama and Watt will have to take a position on this tactic. They will only be able to get away with the “it’s a local issue” dodge so long. 
 
It looks like we are close to a budget deal, which takes another government shutdown off the table. No major spending cuts, no tax increases, however some additional revenue will be raised through increasing airport security fees and PBGC premiums.

Filed under: Morning Report | 19 Comments »

Morning Report – stronger-than-expected revision to 3Q GDP

Posted on December 5, 2013 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1790.1 -1.7 -0.09%
Eurostoxx Index 2989.6 -2.2 -0.07%
Oil (WTI) 97.44 0.2 0.25%
LIBOR 0.242 0.000 -0.10%
US Dollar Index (DXY) 80.76 0.140 0.17%
10 Year Govt Bond Yield 2.86% 0.03%
Current Coupon Ginnie Mae TBA 104.3 -0.1
Current Coupon Fannie Mae TBA 103.4 -0.1
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.52
Markets are slightly lower after a stronger-than-expected GDP report and some other good labor-market data. Bonds and MBS are selling off, and the market is setting itself up for a strong jobs report tomorrow.
The second revision to third quarter GDP came in at 3.6%, much higher than the 3.1% estimate. Consumption was a little lower than expected at 1.4%, and the inflation was at 2%. Inventory build drove the increase, and consumer spending was somewhat low, so unless spending picks up, Q3 will end up “borrowing” growth from Q4. The main takeaway from the report? Higher interest rates aren’t acting like a drag on the economy, at least not yet, which has to be a relief to the Fed.
Initial Jobless Claims printed below 300k, although that number should be taken with a grain of salt due to the Thanksgiving holiday. Challenger and Gray reported announced job cuts dropped 20% as well. The Challenger Survey looks at company press releases of restructurings and job cuts. Many of these cuts never end up materializing, but they do weigh heavily on consumer confidence.
The Street expectation for payroll growth is 185k, and a print like 220k would be considered a “blowout” number. However, historically, is that a “good” number? Actually it is. Since 1980, monthly payroll growth has averaged around 100k. During the boom years of the 95-99, payrolls averaged 224k a month. So something like 220k would be considered a “normal” expansionary number, with all the caveats about population growth, etc..

In an effort to change the subject from the growing pains of obamacare, the President gave a speech about income inequality and the need to hike the minimum wage. Politically, this is going absolutely nowhere, and all he is really doing is rallying his base. Separately, fast food workers in 100 cities today are going on strike to protest low wages. It will be interesting to see if they get any traction. The reason why inflation has been so low has been the lack of wage growth – you cannot get a wage / price spiral if the “wage” side doesn’t cooperate. The Fed wants to see a modest amount of inflation – for the average American, 3% inflation and 3% wage growth is a lot more comfortable than 0% inflation and 0% wage growth. Plus, the biggest problem for Americans is debt, and inflation is a debtor’s best friend.

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Morning Report – Bonds sell off on stronger-than-expected ADP report 12/4/13

Posted on December 4, 2013 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1788.0 -3.4 -0.19%
Eurostoxx Index 2988.7 -25.2 -0.84%
Oil (WTI) 97.06 1.0 1.06%
LIBOR 0.242 0.001 0.23%
US Dollar Index (DXY) 80.77 0.180 0.22%
10 Year Govt Bond Yield 2.84% 0.06%
Current Coupon Ginnie Mae TBA 104.7 -0.1
Current Coupon Fannie Mae TBA 103.4 -0.4
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.43
Markets are lower this morning after a strong ADP employment report. Bonds and MBS are down. Later on today, we will get the ISM services index and new home sales.
The ADP employment report showed 215k jobs added in November, above the 170k estimate. October was revised upward from 130k to 184k. The forecast for Friday’s payroll number is 175k. Lately, ADP has not been a great predictor of the upcoming jobs report, so bear that in mind. According to JP Morgan, the street is leaning heavily short going into the number, so the reaction to a strong report could be muted. Conversely a weak report could send bonds flying. A classic case of “buy the rumor, sell the fact.”

Mortgage applications fell 12.8% last week, which isn’t surprising given the holiday. Purchases dropped 4.1% while refis dipped 17.5%. Mel Watt is supposedly going to be confirmed next week and the rumor is that he wants a HARP extension for loans through 2010. So we could see some sort of refi wave, although it won’t be anything like 2012 was.
Smaller mortgage lenders have been picking up market share, according to Inside Mortgage Finance. As of Q3, they had a 60% market share vs 39% share in 2009. One reason – the big banks have tightened credit standards and are taking longer to process loans than smaller lenders. LOs, this is a good selling point to bring up with your realtor contacts – what realtor wants to get paid later rather than sooner?
Detroit has filed for bankruptcy, and it looks like pensions and creditors will likely take a hit. Detroit owes more than $18 billion and cannot perform even basic services. Half of that debt is retiree benefits. If Detroit was a company, they would be filing Chapter 7, not Chapter 11. Given the crime rate in the city, I don’t know what brings business back into Detroit. Almost on cue, Fitch, which recently cut Chicago’s rating, is predicting there will be more muni downgrades than upgrades in 2014.
Here is what the CFPB is going to be up to over the next few months.
Bill Gross’s Investment Outlook is pretty good:  If you look at asset prices, there is an implied growth rate built in. But that implied growth rate is based in part on risk-free asset prices that are being manipulated by the Fed. That implied growth hasn’t happened yet, and it may never materialize. Then what?

Filed under: Morning Report | 53 Comments »

In England, Poor White Kids are far Behind Poor Black Kids

Posted on December 3, 2013 by markinaustin

Filed under: education, Open Thread, Poverty | 8 Comments »

Morning Report – Bonds sell off on strong ISM report 12/3/13

Posted on December 3, 2013 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1794.3 -5.4 -0.30%
Eurostoxx Index 3033.9 -43.3 -1.41%
Oil (WTI) 93.81 0.0 -0.01%
LIBOR 0.241 0.002 1.03%
US Dollar Index (DXY) 80.62 -0.302 -0.37%
10 Year Govt Bond Yield 2.77% -0.03%
Current Coupon Ginnie Mae TBA 105 0.1
Current Coupon Fannie Mae TBA 104.1 0.1
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.43
Weaker overseas markets mean US stocks are soggy this morning. Bonds and MBS are rallying small. Later on this morning, we will get the ISM New York and IBD / TIPP economic optimism.
Corelogic reported that home prices were up 12.5% year over year and up .2% in October. Home prices remain 17.3% below their April 2006 peak. The .2% month-over-month gain shows that real estate price growth is moderating, which was more or less to be expected. Almost half the states in the US are within 10% of their respective historical price peaks.
Yesterday’s bond sell-off was triggered by a better-than-expected ISM report, which showed that manufacturing is improving in the US and is approaching two year highs. If you look at the historical relationship between the ISM and GDP growth, the November number of 57.3 corresponds to a 4.7% increase in real GDP. The 2013 average corresponds to a 3.6% increase. Manufacturing isn’t as large of a component of the US economy as it used to be, but it does show that at least one major sector in the US is picking up steam.
The other sector that really matters is housing / construction, and there we still have relatively moribund numbers, although they are steadily building back off the lows. Construction spending increased .8% month over month in October after falling .3% in September. We still have yet to get housing starts data since August, but building permits topped a 1 million pace in October. Part of the reason why this recovery has been so weak is that housing is usually the first industry to rebound after a recession and we are still at very depressed levels historically. Part of that has to do with the excesses of the bubble and low household formation numbers due to the lousy job market. The excesses of the bubble are more or less reversed and if anything, we have a deficit. The low household formation numbers have been driven by a lousy job market, not fertility rates 25 years ago, and therefore represents pent-up demand. This state of affairs cannot last (and won’t).
So maybe the holidays won’t be so bad after all. It looks like Cyber Monday sales were record-breaking after Black Friday sales were disappointing. Even still, it looks like the retailers are being highly promotional, which doesn’t exactly speak to a healthy consumer environment. Many noted that using a deal as “bait” fell flat on its face as customers got in line to purchase one specific item, and bought it without buying anything else. Back-to-School was lousy, so it is hard to get over-optimistic about the holiday shopping season. One other thing to note – we can now look forward to the FAA regulating internet sales.

Filed under: Morning Report | 35 Comments »

Morning Report – Black Friday disappoints 12/2/13

Posted on December 2, 2013 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1804.7 0.6 0.03%
Eurostoxx Index 3080.2 -6.4 -0.21%
Oil (WTI) 93.09 0.4 0.40%
LIBOR 0.239 0.000 -0.10%
US Dollar Index (DXY) 80.9 0.220 0.27%
10 Year Govt Bond Yield 2.78% 0.03%
Current Coupon Ginnie Mae TBA 105.3 0.0
Current Coupon Fannie Mae TBA 104.1 -0.2
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.38
Markets are flattish as traders return from a long weekend. Bonds and MBS are down. At 10:00 we will get the ISM manufacturing report and construction spending.
There is a lot of data this week, starting with the ISM report today, GDP on Thursday, and the all-important jobs report on Friday. Given the October surprise and the fact that the bar is set pretty low for Friday’s report (180k jobs / 7.2% unemployment) bonds could be vulnerable as any upside surprise will re-ignite December taper talk.
Black Friday was disappointing according to the National Retail Federation, as retailers were highly promotional early into the holiday shopping season. We have seen Wal Mart and Target already cut profit forecasts for the year. On Thursday, we will get the comp store data dump from all the retailers as they report November same store sales. We might see some profit warnings as well. It is hard to see how the Fed sees growth accelerating into 2014 with a consumer that is still cautious.
The White House is saying that the healthcare.gov website is operating fine, therefore it made its self-imposed Dec 1 deadline. The Administration is hoping that this will mollify Democrats in red districts with cold feet about the whole thing. We’ll see if it actually “works for the vast majority of users” as HHS claims it does.

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