Morning Report – Waiting on the Fed 9/17/14

Markets are flat this morning as we await the Fed’s decision at 2:00 pm. Bonds and MBS are up.

The FOMC decision should be out by 2:00 pm EST. I suspect any surprises will be in the press conference, not the actual release.

The NAHB Homebuilder Sentiment Index rose to a post-bubble high.

Mortgage Applications rebounded 7.9% last week after printing the lowest level since 2001 in the prior holiday-shortened week. Purchases rose 4.8%, while refis increased 10.3%. Interestingly, MBA is reporting the average 30 year fixed rate mortgage rate increased to 4.36% after having been stuck in a 4.25% – 4.30% range all summer. Mortgage rates didn’t really follow bond yields lower ahead of the ECB announcement, but now they are heading higher along with bonds. This could be evidence of (a) capacity having been wrung out of the system, or (b) bankers making loans that they wouldn’t have made a year ago, which carry higher rates.

Inflation at the consumer level remains muted. The consumer price index fell .2% in August as gas prices decreased. Ex-food and energy, it was flat. Certainly not seeing much evidence of inflation.

Lennar reported good numbers, with a 23% jump in new orders, a 29% increase in backlog, Average Selling Prices rose 14% to $332,000. Lennar was one of the few companies that reported increases in deliveries – most had been showing drops in deliveries offset by an increase in ASPs. The stock is up a couple of bucks pre-open.

Good news for builders like Lennar, Pulte, and D.R. Horton who have exposure to the entry-level buyer – the Millennial generation is moving out of Mom and Dad’s basement. This has all sorts of implications for the housing market – they will be the demand for rentals and also for starter homes. We have underbuilt since the bust and demand is starting to come back. Of course we have a long way to go to get to normalcy, but at least we are headed in the right direction. Note the Wells survey from yesterday – many might actually be interested in buying, but they believe (wrongly) that a 20% downpayment and perfect credit is mandatory to get a loan. Education about FHA loans is key.

HUD secretary Julian Castro spoke at the Bipartisan Policy Center 2014 Housing Summit. Here are his prepared remarks. Obviously access to credit is a big concern on the part of HUD, and they are trying to address it by clarifying rules and regulation and putting them in a single resource – the Single Family Handbook, which will address loan defects and how serious they are. Second, they are rolling out a program designed to counsel first time homebuyers, rewarding them with a MI break if they go through the program. I do wonder how much improved access we are going to get with the barrage of lawsuits continuing.

%d bloggers like this: