Morning Report – Waiting on the Fed, Household formation hits mid 90s lows 10/29/14

Markets are flattish this morning as we await the Fed. Bonds and MBS are flat.

Mortgage Applications fell 6.6% last week as rates rose. Purchases fell 5% while refis fell 7.4%. The 30 year fixed rate mortgage rose to 4.13% from 4.1%.

The market’s reaction to today’s FOMC statement may well hinge on two words: “considerable time” – meaning the market wants to hear that the Fed will keep rates abnormally low for a considerable time after unemployment hits the Fed’s target. I doubt the Fed takes James Bullard’s advice and maintains QE – they have already said they intend to end it at this meeting, and I don’t think they want to risk their credibility. I also think they want to end QE in order to clear the decks for monetary policy normalization.

The homeownership rate ticked down in the third quarter from 64.7% to 64.4%. Household formation was roughly flat. We are pretty much back at levels not seen since the Clinton Administration began its big push to increase home ownership early in its administration.What is going on? Tight credit and a weak labor market is keeping the Millennial generation renting instead of buying. Median asking rents continue to rise and are now around $756. The P&I payment on the median house versus at the current 30 year fixed rate with 20% down is $796.

Ultimately, the number of 25-34 year olds is outpacing the growth in housing stock, as housing starts remain stubbornly around 1 million units per year. Median rents keep increasing due to tight housing supply – eventually the value proposition of buying versus renting becomes too big to ignore.

13 Responses

  1. Worth noting here:

    “Nothing in Moderation
    Thomas B. Edsall
    OCT. 28, 2014

    What if the notion that a large segment of the electorate is made up of moderates who hunger for centrist compromise is illusory? What if ordinary voters are, in many respects, even more extreme in their views than members of Congress?”


    • jnc:

      Worth noting here:

      That was interesting.

      BTW, I think the fact that there seems to be more left-leaning “extremists” than right-leaning “extremists” supports my belief that the nation’s politics have definitely moved to the left of where it has historically existed, not to the right as is so often alleged.

      Also, with regards to his conclusion:

      In other words, Americans can look forward to a recurrence of public dissatisfaction for which there is no remedy and to intractable conflict among elites resulting in the inability of either side to enact a durable agenda.

      Sure there is a remedy. Divorce.


    • JNC, I am willing to accept that Americans are all over the place on an issue by issue basis. The same person might say “shoot them at the border” and “soak the rich”. These people should not be elected to office, needless to say.

      Scott, dividing the nation based on the findings that Americans are inconsistently wildly left and right would cause imminent and irreversible harm to many hypothetical persons in the study JNC’s link cited.

      I think the UK’s devolution movement bears watching. It might have lessons for a gradual devolution movement here at home.


      • Mark:

        Scott, dividing the nation based on the findings that Americans are inconsistently wildly left and right…

        I’m not sure it is entirely fair to say that they are necessarily inconsistent. For example, a Christian whose religious convictions compels him to support both a more generous welfare state and laws against abortion can be seen as perfectly consistent within his own moral framework, even if the two positions appear inconsistent on the standard political party spectrum. As for a “divorce” doing irreversible harm, I don’t think it would because it would allow for a return to the kind of federalism originally intended by the Constitution, which is really the best solution to the existence of so many varied policy opinions among the population. My notion of a divorce isn’t meant to create two distinct, strictly right and left nations. It is to allow the continued pursuit of centralized federal power by those who prefer it (mostly the left), while freeing the rest of us to revert back to the federalist system that has been largely destroyed over the last 70 years, and which gives us as individuals the best chance of living under whatever politically idiosyncratic policies we most prefer.

        EDIT: Corked by jnc!


  2. Quote of the day

    “Taxi mogul calls UberX “exactly the same menace” as ISIS

    “I try to equate this illegal operation of UberX as a terroristic act like you see ISIS invading the Middle East. It’s exactly the same menace.””

    Because you see ISIS’s main strategy to defeat the West is soon going to be giving people cheap, convenient rides around Syria and Iraq.

    Original source

    “Mr. Friedman has a point that attempting to seize control of a country through violent insurrection and beheadings and selling rides to consenting passengers without a government permit are both illegal activities, but the similarities appear to end there.”


  3. “for a gradual devolution movement here at home.”

    There was one originally. It was called federalism. The trend at least since the Progressive Era and especially after the New Deal has been in the opposite direction.


    • There was one originally. Yep. Of course, I am not old enough to remember that time, which I would actually date as ante-bellum. But it is time for cautious and careful devolution. Does it (centralization) all require undoing? I don’t think so. But we could do it a bit at a time and see how it goes.

      I would pick low hanging fruit first and start limiting the fed involvement in local education.


      • Mark:

        But it is time for cautious and careful devolution.

        Yes, but it is getting agreement over this that is the real problem. Although most of our political haggling ostensibly revolves around this or that issue/policy (SSM, abortion, ACA), the fundamental problem is not left/right disagreement over policies, but rather it is disagreement over centralization/federalism. We have a powerful political constituency in this country – mostly of the left – that genuinely desires concentrated rather than diffused power. They have largely won that battle via the court system. They aren’t going to willingly give up the ground they have already conquered.


  4. NoVA: The GOTV flyer from the church you linked the other day wasn’t an outlier.


  5. Interesting reminder of the recent zenith of liberal judicial activism

    This is manifestly not the Supreme Court’s role:

    “The Supreme Court, in his view, was appropriately intervening to save the country from a policy demonstrably destructive of the social fabric.”


  6. “And their source is surprising. The effort is being led by national Democrats and their state party organizations — not, in most instances, by the shadowy and often untraceable political action committees that typically employ such provocative messages.”

    That can’t be. it has to be an effort to suppress the vote


    also, the WaPo won’t load for me today.


  7. @ScottC: “not to the right as is so often alleged.”

    That’s the fairness doctrine in action. And Fox News. The attitude that the country has shifted to the right has been produced by the fact conservatives now have more than National Review and Firing Line as places to express their views. They have an entire news network! Talk radio! I have to hear them more often than I used to, the country has shifted to the right. I say, until the next election, when I will argue that the Democrats are guaranteed to win because demographics have made straight white males a minority.


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