Morning Report – Attitudes about housing 6/5/14

Vital Statistics:

Last Change Percent
S&P Futures 1931.2 5.5 0.29%
Eurostoxx Index 3285.1 47.2 1.46%
Oil (WTI) 102.4 -0.3 -0.27%
LIBOR 0.231 0.001 0.48%
US Dollar Index (DXY) 80.94 0.281 0.35%
10 Year Govt Bond Yield 2.61% 0.01%
Current Coupon Ginnie Mae TBA 106.3 0.0
Current Coupon Fannie Mae TBA 105.3 -0.1
BankRate 30 Year Fixed Rate Mortgage 4.2


Markets are higher this morning after the European Central Bank took some unprecedented stimulus measures. Bonds and MBS are down small, rebounding after an initial sell-off on the ECB’s actions.
The ECB, fearing deflation, cut its deposit rate to -.1%, which means you have to pay to invest your money at the central bank. They are also lowered the benchmark rate to .15% from .25%. The ECB hasn’t ruled out quantitative easing, but the fact that there is no “Euro” sovereign bond complicates things. How will this affect US rates? Hard to tell, but at the margin, it will be dollar positive / euro negative which would be US bond bullish. That said, the direction of US bonds will undoubtedly be driven by tomorrow’s jobs report more than anything.
In economic data this morning, announced job cuts increased 45.5% to 53,000 in May, according to outplacement firm Challenger, Gray and Christmas. Hewlett-Packard largely drove the increase with a plan to cut payrolls by almost 19,000. Transportation, Health Care, Government, and Services rounded out the other job cuts. This is the highest number in 15 months. It is important to distinguish between job cuts and job losses – these numbers come from company press releases, which often never materialize as market conditions change. Second, often these reductions are done by attrition.
Initial Jobless Claims came in at 312,000, another decent number. Later on today, we will get the Household change in net worth from the Fed. This is not going to necessarily be a market-moving number, but changes in it should drive consumption going forward.
The McArthur Foundation released a survey of Americans’ attitudes about housing. The McArthur Foundation leans left, so the survey focuses on lower-income housing issues and slices and dices according to demographics. The punch line from the survey is that most people think affordable housing is hard to come by, and that we are still in the middle of the crisis. However, the biggest conclusion is that homeownership is not viewed as the vehicle to building wealth that it once was, and the public believes that renting has grown in appeal while owning has declined. That said, 70% of non-owners do aspire to own a home, and luckily the age 18-34 cohort – the classic first-time homebuyer – is most keen on owning a home. Only 44% of non-owners over 50 desire to buy a home. A full 2/3 of the public believes it is less likely today than it was 20 or 30 years ago to build equity and wealth through home ownership. Again, we are exiting a once-in-several-generation housing bust and many people who levered up too much / bought more house than they could afford are going to be gun shy. This survey, however speaks to the challenge for many in the mortgage industry – how to change attitudes about housing. We have a housing shortage in this country and home prices / mortgage rates are still highly affordable. Yes housing was a terrible bet in 2005 – 2009. But it isn’t 2005 anymore.

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