Morning Report – Luxury building continues to perform well 5/28/14

Vital Statistics:

Last Change Percent
S&P Futures 1908.5 -0.7 -0.04%
Eurostoxx Index 3241.4 -2.9 -0.09%
Oil (WTI) 103.9 -0.3 -0.25%
LIBOR 0.228 -0.002 -0.98%
US Dollar Index (DXY) 80.49 0.139 0.17%
10 Year Govt Bond Yield 2.47% -0.05%
Current Coupon Ginnie Mae TBA 106.8 0.2
Current Coupon Fannie Mae TBA 105.9 0.2
BankRate 30 Year Fixed Rate Mortgage 4.18


Markets are flattish on no real news. Bonds continue their rally, with the 10-year bond trading at 2.47%. MBS are up as well.
Mortgage Applications fell 1.2% last week, as purchases fell 1.1% and refis fell 1.4%. The 10 year bond yield fell a basis point over the week. Refis were 52% of all loans, and ARMs are now 18.5% of the total dollar amount of loans (though only 8.4% of units, so these are mainly jumbos).
Obama has nominated San Antonio Mayor Julian Castro to lead HUD. This is more or less a political appointment, as Castro is viewed as a rising star in the Democratic Party. His confirmation in the Senate should be smooth, and the nomination should not imply any major policy changes out of HUD.
Homebuilder Toll Brothers reported second quarter numbers this morning, and it looks like things are still going swimmingly on the luxury end of things. Revenues rose 53% as deliveries increased 67% in dollar terms and 36% in unit terms. Remember, Toll Brother bought Shapell Homes, so these aren’t necessarily apples-to-apples comparisons. ASPs increased 22% (!) on a year-over-year basis to $706,000. Shapell’s footprint is affluent Coastal California, so that accounts for some of the big jump in ASPs – most other builders are reporting increases in the 9% – 12% range.
Toll CEO Douglas Yearley had this to say: “Demand over the past year has been solid, although relatively flat, compared to the strong growth we initially experienced beginning in 2011, coming off the bottom of this housing cycle. We note that last cycle’s recovery, in the early 1990s, began with a period of rapid acceleration, followed by leveling, before further upward momentum. We believe that we are in a similar leveling period in the early stages of the housing recovery with significant pent-up demand building.”
That said, the Fed is still worried about housing, as the sector continues to grow as expected. Unfortunately, the Fed doesn’t have a lot of levers to deal with the underlying issues: low household formation and tight credit. Again, all real estate is local, and the problems are mainly in the Northeast, which is still dealing with a large shadow inventory of foreclosures. In areas where this has been dealt with already (California), there is a tremendous amount of building.

7 Responses

  1. I’m “IT” today………….frist.

    This is for the runners in our group, of which I am not one.


  2. That is cool… I would love to do it. I have decent form, but I was born very pigeon-toed, so I have some issues there. I am also a terrible heel striker.


  3. Worth noting the mindset shown by this throw away comment on another subject:

    “US employment is determined by the interaction between macroeconomic policy and the underlying tradeoff between inflation and unemployment”

    Someone still clings to the Phillips curve.


    • “US employment is determined by the interaction between macroeconomic policy and the underlying tradeoff between inflation and unemployment”

      In gross, US employment is determined by various demands; local, regional, national, and international, relative to the supply of labor capable of meeting those demands.

      Marginally it is determined by so many factors that we probably could take all day identifying them. The quotation mistakes one marginal factor with an entirety. It is analogous to writing that employment is determined by the weather, or that it is determined by child labor laws, or that it is determined by the extent of automation, or that it is determined by the education and training of the work force, or that it is determined by safety regulations, or that it is determined by trade or immigration or tax policy. Government can help at the margins or hurt at the margins with monetary policy. It can probably hurt more than it can help: tight money in a bust is devastating to regrowth, but while some level of easy money permits regrowth too much drowns the seedling.

      Or so I think.

      Attributing too much to too little was a Marxist fallacy, too. The history of the world is no more about the “class struggle” than it is about the development of technology and sanitation, or about religion, or about warfare, or about population growth and movement, or about language, or art, or geography and geology, or about everything else we factor into the history of the world.


  4. And believes that regulations have no negative effect on jobs.


  5. “regulations have no negative effect on jobs”

    In his world there will be one business and 299.9 million people regulating it.


  6. I agree Mark, but I believe that Krugman and many others on the progressive side do in fact believe that unemployment and economic performance generally is directly determined by government policies. It’s not a misstatement.

    Hence you’ll see arguments being made on the PL and elsewhere that by “squandering the surplus” that Clinton left him, Bush’s tax policies caused the economic collapse. The two are completely unrelated.


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