Morning Report – Chinese property prices 6/20/14

Vital Statistics:


Last Change Percent
S&P Futures 1953.3 3.0 0.15%
Eurostoxx Index 3314.6 -0.3 -0.01%
Oil (WTI) 107.1 0.6 0.58%
LIBOR 0.231 0.001 0.44%
US Dollar Index (DXY) 80.45 0.129 0.16%
10 Year Govt Bond Yield 2.65% 0.03%
Current Coupon Ginnie Mae TBA 106.2 -0.1
Current Coupon Fannie Mae TBA 105.4 0.0
BankRate 30 Year Fixed Rate Mortgage 4.22


Stocks are up on no real news this morning. Bonds and MBS are down.
No economic data this morning. Today has that “summer Friday doldrums” feel to it, where half the Street will be on the L.I.E. by noon.
The next big economic event will probably be the bursting of the Chinese property bubble. Small investment trusts in China are already going belly-up, and that is usually the first step in the process. The Chinese government is trying to manage the process of deflating the bubble, but as we have seen elsewhere these things take on a life of their own and are more or less uncontrollable. The knock on effects will certainly be felt here, which I imagine will be most evident in lower inflation and lower commodity prices. It may also keep interest rates lower here than people are expecting as the Fed will struggle to maintain inflation at its 2% target.
I suspect luxury real estate markets where Chines money is prevalent – Vancouver, San Francisco, etc will certainly see more supply come on the market. In fact, this could be the trigger that bursts the Canadian real estate bubble. The Canadian banking system and housing finance system is generally more sound than ours in that lending standards are strict, and the Canadian government doesn’t play all the social engineering games the US does when it comes to housing.
Low inventory will support housing prices, and overall home sales for 2014 will be around 5.4 million units, according to Freddie Mac in their latest U.S. Economic and Housing Market Outlook. Here are the salient economic forecasts:
  • GDP will be 3% for 2H of 2014, and full year GDP will be 2% – 2.5%
  • House prices will grow 5% for the year
  • Home sales will drop to 5.4 million units
  • The 30 year fixed rate mortgage will be 5% a year from now
  • The 10 year will be above 3% by Q115.
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