Morning Report – Household formation and housing starts 5/7/14

Vital Statistics:

Last Change Percent
S&P Futures 1867.8 3.5 0.19%
Eurostoxx Index 3157.6 7.9 0.25%
Oil (WTI) 100.3 0.8 0.83%
LIBOR 0.224 -0.001 -0.40%
US Dollar Index (DXY) 79.16 0.063 0.08%
10 Year Govt Bond Yield 2.61% 0.02%
Current Coupon Ginnie Mae TBA 106.1 -0.2
Current Coupon Fannie Mae TBA 105.2 -0.1
BankRate 30 Year Fixed Rate Mortgage 4.22

 

Markets are higher this morning on no real news. Bonds and MBS are down.
Mortgage Applications rose 5.3% last week. Purchases were up 8.9%, while refis were up 5%. Refis are now under half of all applications.
Productivity fell in the first quarter as cold weather hampered economic activity. Unit labor costs rose much higher than expected, by 4.2%. On a year-over-year basis, unit labor costs increased .9%. The drop in productivity could be a harbinger of more hiring – companies have squeezed about all they can out of current staff, and if demand picks up they will have to hire more people.
The NAHB Leading Market Index shows that economic activity continues to expand slowly but surely. Builder sentiment continues to improve, especially in the energy states. Everyone is waiting for the job market to make a jump to the next level, which will release all of this pent-up demand. There is a tremendous amount of pent-up demand for housing, given the difference between household formation and housing starts. Household formation typically is depressed during recessions, and then rebounds as the economy recovers. If you look at the chart below of housing starts vs household formation, you can see how household formation is rebounding, yet housing starts are still at recessionary levels, 6 years on. Housing starts of 900k have been associated with the bottoms of recessions. They have been a fact of life since 2008. When you take into account normal obsolescence, you can see we have a shortage of housing already.

41 Responses

  1. Wow, someone must really care deeply on principal mods for Fannie and Freddie loans

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  2. Yo–jnc! Check yer gmail.

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  3. Just came across this and thought it was funny…………..cheered me up a little anyway!

    A list of 26 things that happen when we leave CA

    5. You become the only person who knows what to do in an earthquake drill.

    8. …and the water at the beach feels positively Arctic.

    11. Hard liquor no longer gets its own aisle in the grocery store (in many unlucky places, at least).

    http://www.huffingtonpost.com/2014/05/07/signs-youre-from-california_n_5235362.html

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    • lms:

      8. …and the water at the beach feels positively Arctic.

      It’s been a while since I experienced it, but when I did I thought the water at California’s beaches were way colder than east coast beaches. I had always understood this to be the case because of the flow of currents…Pacific coast water travels south from north, and hence is colder than east coast water that travels up the coast from the south. Is that not correct?

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    • BTW, can you really buy hard liquor in the grocery store in CA? Don’t think I have ever seen that anywhere in the northeast. In CT the only alcohol you can buy in the grocery store is beer, and it was only within the last year or two that they allowed even that on Sunday. In MA I don’t think you can even buy beer…you have to go to the local “packy”.

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  4. What Scott said.

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  5. Maybe, I’ve never swam in the Atlantic Ocean. When I swim here in the summer the water is in the high 60’s. Interesting though.

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    • lms:

      When I swim here in the summer the water is in the high 60′s.

      And that is in southern California! Frigid. On Long Island or even as far north as Cape Cod it’ll be high 70’s easy, if not higher.

      edit: Average highs for Cape Cod from June thru August is almost 78.

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  6. The cold water is what keeps San Diego so temperate… Go about 25 miles inland and you hit this thermal barrier that increases the temps from the high 70s to triple digits…

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  7. Pacific’s ice cold. Humboldt current.

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  8. I just checked the temps in Oceanside vs New Haven…………not even close. 62 here and 50 there………………..so much for that theory. I’ll have to check again this summer. I should go to the beach for Mother’s Day and swim…………it’s close to being warm enough.

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  9. Yes we can. It’s not even locked up……………..well, except for the expensive stuff. All grocery stores sell hard liquor, beer (a million different kinds) and the same for wines. That’s something you can’t get in CO either………………LOL. There’s a reason to stick around.

    I think, or thought, water temps were more a function of latitude than currents. I realize currents have some effect but I think latitude is the most defining issue.

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  10. This is a better website for checking water temps Scott. It’s the one I use when I decide to do a big open water swim……………………hahaha, big for me is about 1 1/2 miles…………….LOL

    http://www.nodc.noaa.gov/dsdt/cwtg/natl.html

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  11. You can get hard liquor at 7-11s in CA!

    Liquor laws vary by county here in Maryland, but in Baltimore County at least you can’t get beer in a grocery store. . . you have to go to the liquor store next door.

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  12. MIchi, I’d recommend a road trip to State Line Liquors. They are great.

    http://www.statelineliquors.com/

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    • jnc:

      MIchi, I’d recommend a road trip to State Line Liquors.

      1.75ml Tanqueray Rangpoor for $35.99 is a good deal. Over $40 where I am, and it isn’t always easy to find.

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      • Scott, Austin is an anomaly in that business growth has been good at every level except for 1986-93, the dotcom bust and 2008-2011. I’ll bet the same is true for Houston. George?

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  13. From that website it definitely looks like you guys are warmer in the summer for sure! Some of those temps seem almost too warm to me……….hahahaha. No wonder it’s so frickin’ humid on the East Coast!

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  14. I was just thinking about the liquor sales and remembered my husband just bought one of the big bottles of JB Scotch that was marked down to $14………….not everything is more expensive in CA.

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  15. One of these days, jnc!

    Got a couple of road trips planned in that direction in the next few weeks.

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  16. Houston was very bad in the early to mid eighties and again (to a lesser degree) in the early to mid nineties due to very low oil prices. 2008-11 just sucked for everybody though less so here as oil prices were high. The problem here was driven by tight credit.

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    • “The problem here was driven by tight credit.”

      Full circle to my first comment – credit for small biz did not look anywhere near “normal” until well into 2011. Even now it is nowhere near what it was in 1979.

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      • Mark:

        Even now it is nowhere near what it was in 1979.

        There are different measures of credit tightness. The prime rate in December 1979 was 15.2%, and reached a historic high of 21.5% in December 1980. Currently it is 3.25% and has been since 2008.

        Changing credit standards will surely have had some impact on recent new business growth, but it doesn’t explain the 30+ year trend since 1979.

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  17. IDK but this study seems to be suggesting that at least a couple of those states advertising pro business policies don’t really compare very favorably with a couple other states that have a pretty poor Alec rating.

    http://www.latimes.com/business/hiltzik/la-fi-mh-surprise-probusiness-20140506-column.html

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    • lms:

      IDK but this study seems to be suggesting that at least a couple of those states advertising pro business policies don’t really compare very favorably with a couple other states that have a pretty poor Alec rating.

      Someone will have to explain to me sometime the theory behind the notion that high taxes, greater regulation, and more government employees spur economic growth, while low taxes, less regulation, and smaller government inhibit it. I don’t get it.

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  18. Yeah Dodd-Frank!

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  19. Big brass balls.

    Women.

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  20. I’d loan a shitload out at 21%

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  21. Scott, it seems to me that there are a lot of factors that spur economic growth or hinder it. I think the point is that higher taxes, greater regulation and government employees don’t necessarily spell doom. Walker made a lot of promises in WI based on his notion of pro business policies and it didn’t exactly work out the way he thought. Regulation and higher taxes don’t doom the economy, especially on the state level. We have an environment in CA that benefits business in other ways, otherwise we’d just be a wasteland!

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    • lms:

      Scott, it seems to me that there are a lot of factors that spur economic growth or hinder it.

      I very much agree. In fact, far too many for politicians or economists to be able to micromanage growth via pro-active government policy. Hence my opposition to such micromanaging.

      I think the point is that higher taxes, greater regulation and government employees don’t necessarily spell doom.

      Clearly they don’t spell doom, but all other things being equal they tend to have a negative effect. It is one thing to argue that higher taxes and greater regulations will provide benefits that outweigh the negative effects on economic growth. But it is quite another to argue that not only don’t they have a negative effect on growth, they tend to promote it.

      We have an environment in CA that benefits business in other ways…

      What other ways?

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  22. What advantages does California offer to, say, a hot sauce manufacturer

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  23. @George: Never mind the name change. Net Nanny now just blocks the whole dang site via HTTP. Thank goodness for HTTPS. 😉 I just have to keep retyping the URL to include the HTTPS.

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    • Kevin:

      Net Nanny now just blocks the whole dang site via HTTP.

      Why does it do that?

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      • Not 100% sure, I think it’s got to be an algorithm taking times the site has been hit (by me) + amount of articles with profanity in comments + who knows? Might just be blocking wordpress blogs that aren’t part of a white list or . . . I dunno.

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  24. Scott

    Hence my opposition to such micromanaging.

    I agree the government via politicians tends to overdo their interference but I do think there is a place for government investment and interest in promoting growth in new industry, clean manufacturing, clean air etc. but not obviously to the point where it becomes so onerous that the profit margin disappears.

    but all other things being equal they tend to have a negative effect.

    I guess my point is that all other things are not generally equal, how could they be? And so while the benefit of low tax/regulation may be obvious to some, there are other factors at play that influence a business climate and sometime those pesky taxes and regulation are a necessary evil.

    What other ways?

    Off the top of my head, very low property taxes, beautiful weather which means no disruption in business that is weather or transportation related, state with the 2nd highest renewable/alternative energy sources, best proximity to port of entry for imports from China, Taiwan, Japan, the Philippines, South Korea etc.

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  25. “Off the top of my head, very low property taxes”

    I assume you remember how that came about.

    http://en.wikipedia.org/wiki/California_Proposition_13_%281978%29

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  26. I sure do JNC, I’ve pretty much been here my entire life.

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