Morning Report – Further home price appreciation probably limited until wage growth returns 12/22/14

This week is for all intents and purposes a two day week. Markets will close early on Christmas Eve and many will take off Friday.

The big deluge of data is tomorrow, with GDP, personal income, personal spending and a host of other indicators.

The risk-on trade continues this morning, with stocks up small and bonds down a tad. Oil continues to fall.

Existing Home Sales fell 6.1% to a seasonally adjusted annual rate of 4.93 million, according to NAR. Housing inventory was tight and bad weather didn’t help things either. The median existing home price was 205,300, which is 5% above November 2013. According to Sentier Research, the median income in the US was $53,700 as of the end of October. This makes the median home price to median income ratio just over 3.8, which is above its historical range of 3.15x – 3.55x. This means home price appreciation is probably going to be hard to come by until wage inflation begins to pick up.

The Chicago Fed National Activity Index hit +.73 in November, which is a very strong reading. Production and employment drove the increase. Housing and Consumption remained small headwinds.

The strength in the US bond market is likely to continue into 2015 as global bond investors see (relatively) high yields underpinned by a strong dollar. The punch line is that even if the Fed starts hiking rates, global demand for the 10 year bond means that mortgage rates could pretty much stay where they are for the time being. In other words, the Fed could hike rates and we could simply see the yield curve flatten. That is good news for the real estate industry, obviously.

One other thing to keep in mind: a flattening yield curve is a classic “tell” that the economy is slowing down, and by all accounts, it looks like the economy is accelerating. This will be another situation where the classic investing playbook isn’t going to help you all that much. In other words, if the Fed starts hiking rates and mortgage rates stay where they are, don’t all of a sudden dump your portfolio and pile into defensives like Proctor and Gamble or General Mills.

16 Responses

  1. FRIST! Was the senator from the great state of Tennessee! Better name than “Corker”.

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  2. For Scott

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  3. Ta-Nehisi Coates has an excellent piece on the NY police shootings:

    “Blue Lives Matter
    Talking about “police reform” obscures the task. Today’s policies are, at the very least, the product of democratic will.

    Ta-Nehisi Coates”

    http://www.theatlantic.com/politics/archive/2014/12/blue-lives-matter-nypd-shooting/383977/

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    • jnc:

      Ta-Nehisi Coates has an excellent piece on the NY police shootings:

      I think his primary premise is wrong.

      We are outraged by violence done to police, because it is violence done to all of us as a society. In the same measure, we look away from violence done by the police, because the police are not the true agents of the violence. We are.

      This is just negative spin placed on the standard progressive premise that government is “us” and that government action is nothing more the “us” acting together. But the premise is false whether spun negatively or positively. Government isn’t “us”. To the extent that the concept of “us” even makes sense in this context, government is actually an outside agency over which some of “us” occasionally have an influence.

      Also ignored is the fact the very raison d’etre of the police is legal violence. We generally look away at violence done by police not because “we” are the true agents of violence, but because violence (and the threat of it) is what the police exist to do. The question that arises in the Brown and Garner instances is not simply over mere police use of violence, but rather over the police use of excessive violence. If police violence is more widely accepted and excused than violence committed by private citizens, it is because drawing a line over how much violence is justified in a particular circumstance is a lot more difficult with regard to those required to use violence to enforce the law than with regard to those prevented from using violence by the law.

      I also don’t agree with this:

      The charge of insufficient outrage over “black on black crime” has been endorsed, at varying points, by everyone from the NAACP to Washington Post columnist Eugene Robinson to Giuliani’s archenemy Al Sharpton.

      Implicit in this notion is that outrage over killings by the police should not be any greater than killings by ordinary criminals.

      I totally disagree with the claim. The charge of insufficient outrage is aimed strictly at making a point about the quantity, not quality, of each type of killing. To recognize that more people die in, say, car accidents than in lightning strikes, and so a movement to combat car accidents will do more to save lives than efforts to combat lightning strikes, is not to say that a death due to a car accident is more tragic than a death due to a lightning strike. Likewise, to recognize that more black people are killed by black criminals than by police officers, and so a movement to combat black criminality will save more lives than a movement to prevent police killings does not at all imply that being killed by a black criminal is more outrageous than being killed by a policeman.

      Also, on this:

      The criminal-justice system has been the most consistent tool for making American will manifest in black communities.

      This is not particular to “black communities”. To the extent that “American will” means government policy, the criminal justice system has been the most consistent tool for making American will manifest in any community in the nation. That, after all, is the precise purpose of the criminal justice system…to impose the will of the government on any unwilling participants, be they black or white or red or yellow.

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      • Also ignored is the fact the very raison d’etre of the police is legal violence. We generally look away at violence done by police not because “we” are the true agents of violence, but because violence (and the threat of it) is what the police exist to do. The question that arises in the Brown and Garner instances is not simply over mere police use of violence, but rather over the police use of excessive violence.

        Perfectly stated, IMO, Scott, and I wish I had written it first.

        The criminal-justice system has been the most consistent tool for making American will manifest in black communities.

        To me, this is drivel. Historically the most consistent local policy tool imposed on local black communities was segregation; in schools, in housing, in ward spending, in job preferences, you name it. Every level of government was complicit until after I became an adult. Because I think Coates wrote something fairy dust imaginary there I think your criticism of it is too accepting of the premise that local policing is a major form of “American policy”. My beef is with Coates, however, not you.

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        • Whether or not I get back here later in the week, Merry Christmas and Happy New Year. If anyone else here is Jewish, or celebrates with Jewish family members or friends, Happy Chanukah.

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  4. jnc

    The police are not the only embodiment of democratic society. And one does not have to work hard to imagine a future when the agents of our will, the agents whom we created, are in fact our masters. On that day one can expect that the tactics intended for the ghettos will enjoy wider usage.

    A chilling commentary.

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    • lms:

      A chilling commentary.

      All the more reason to advocate for less, not more, government regulation of daily activity. The more control the government tries to exercise, the more interaction the police will necessarily have with people.

      Eric Garner wouldn’t have been arrested (and in the process killed) if not for the tax on cigarettes and the government’s decision to aggressively pursue those who avoid it by buying/selling singles.

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      • Kevin Williamson on on resisting the urge to blame the aggrieved and protesting left for the murders of 2 policemen:

        But conservatives’ first duty is to reality, and the reality is that what causes American murders is our national failure to adequately monitor, restrict, or rehabilitate violent offenders with sub-homicidal criminal careers and our national failure to address seriously the role of mental illness in violent crime, private demons leading to public mayhem. It isn’t sexy, it isn’t ideologically neat, and it doesn’t provide much of an opportunity to engage in moral preening, one of the greatest and most destructive of all temptations. It may pay to campaign at Jane Fonda depths of stupidity — the inexplicable success of Barack Obama suggests very strongly that it does. But we cannot govern that way, and we surely cannot live that way — nor would any sensible person wish to.

        If we could eliminate all the American murders rooted in political ideology, there would be (almost) no effect. If we could eliminate all the American murders committed by people with prior criminal records, there would be (almost) no murder. The relevant question in the matter of Ismaaiyl Brinsley isn’t what he was doing on Instagram but what he was doing on the street.

        http://www.nationalreview.com/article/395263/what-causes-american-murders-kevin-d-williamson/page/0/1

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  5. Mark

    Whether or not I get back here later in the week, Merry Christmas and Happy New Year. If anyone else here is Jewish, or celebrates with Jewish family members or friends, Happy Chanukah.

    Happy Chanukah and best wishes for a fabulous New Year! Do you have anything you’re working on in 2015 that is new and different from 2014?

    Hope everyone has a great Holiday and a couple of extra days off at least! We’re pretty low key here this year as 2/3 of the family is in Colorado or New Hampshire. I’m pretty sure we’ll all be in CO next year……LOL

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  6. Scott, I’m sorry but I think you’re stretching the truth a little with the The more control the government tries to exercise, the more interaction the police will necessarily have with people.

    Perhaps I’m wrong but I don’t really believe the “police state” is only a product of liberal policies.

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    • lms:

      Scott, I’m sorry but I think you’re stretching the truth a little with the The more control the government tries to exercise, the more interaction the police will necessarily have with people.

      How so? I think it is a pretty obvious truism. One might dispute that more police interaction is a bad thing, but I don’t know how one can sensibly dispute that the more laws and regulations that exist, the more necessary police interaction becomes.

      Perhaps I’m wrong but I don’t really believe the “police state” is only a product of liberal policies.

      I wouldn’t say it is only a product of liberal policies, but I certainly think that any political ideology that consistently seeks to expand government power to control increasing aspects of individual life is doing much more to facilitate a police state than, say, one which promotes a small, much less all-encompassing government.

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  7. “This is just negative spin placed on the standard progressive premise that government is “us” and that government action is nothing more the “us” acting together.”

    I took it as you can’t divorce the violence from the policy it’s enforcing. I.e. there’s no way to successfully prosecute the War on Drugs and several other policies (Broken Windows, Zero tolerance, etc) without violating civil liberties, but most people are in denial about the trade offs.

    This could of course be me reading my own biases into it, but I did think it was notable that he didn’t go on a rant about Giuliani’s comments but instead argued that there’s no reason for anyone to be outraged as the argument he was making has been made before and is pretty much mainstream consensus.

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    • jnc:

      I took it as you can’t divorce the violence from the policy it’s enforcing. I.e. there’s no way to successfully prosecute the War on Drugs and several other policies (Broken Windows, Zero tolerance, etc) without violating civil liberties, but most people are in denial about the trade offs.

      What you say is probably true, but if this is really all he meant, the emphasis on a racial element seems misplaced.

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  8. @ScottC: “Scott, I’m sorry but I think you’re stretching the truth a little with the The more control the government tries to exercise, the more interaction the police will necessarily have with people.”

    It’s unavoidable. Control (and, obviously, the collection of revenue) requires enforcement. It can be the police or it can be some other form of enforcement, but the more taxes and more regulation will require increased enforcement, and increase interactions between the average citizens and the enforcement methods used. Typically, this is going to be the police or other government agents that can and will use coercion and/or violence to enforce statutes and collect taxes.

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