Morning Report: Pending Home Sales edge up 11/30/15

Stocks are higher as market participants return from the Thanksgiving holiday. Bonds and MBS are flat.

The highlight of this week will be the jobs report on Friday. This will be the last jobs report before the December FOMC meeting. The Fed Funds futures are pricing in a 75% chance of a tightening.

The European Central Bank meets this week, which should add even more noise to interest rates later this week.

Pending Home Sales rose 0.2% in October and are up 2.1% year-over-year. Tight inventory and rising prices are crimping sales. Pending Home Sales rose the most in the Northeast, where we haven’t been seeing the torrid price appreciation we have been seeing on the West Coast.

The ISM Milwaukee manufacturing index fell to 45.3 from 46.7 last month. The Chicago Purchasing Manager index fell from 56.2 to 48.7. Again, we are seeing the stronger dollar affect manufacturing. Inventory build is a problem, and was the driver of the upward revision in Q3 GDP. We could be setting ourselves up for a letdown in Q4.

Technical issues could keep a lid on long-term yields, which should be good for mortgage rates. Due to a shrinking budget deficit, funding needs for the government are falling, and regulatory requirements have increased demand for shorter-term Treasury bills instead of longer-term bonds. Treasury bond issuance is expected to fall 33% next year to $400 billion. Some analysts are forecasting a 50% drop. This means we could be looking at a scenario where short term rates increase and longer term rates go nowhere.

As home prices rise, affordability is declining. The median house price to median income ratio is around 4.6x, which is closing in on its bubble high of almost 5x, and well above its historical range of 3.2x – 3.6x. What is driving the increase in house prices? Restricted supply has been an issue, as housing starts have been anemic since the bust. Another issue has been foreign demand, especially from China. There are a couple of things going on here. First, Chinese demand is partially driven by a desire to have dollar denominated assets, and second US policy regarding immigration. If a Chinese investor funds a development which creates US jobs, they get a green card. Chinese money which levitated prices on the West Coast is now moving inland, funding McMansion communities outside suburbs of Dallas and Chicago. Since Chinese buyers are cash-rich, they don’t need a mortgage and are winning bidding wars by offering cash.

23 Responses

  1. @novahockey:

    Not to rub it in or anything, but I’m wearing my Seahawks jersey today. OK–to rub it in a bit.

    And frist!


    • Hope Sparty beats Iowa, gets fourth seed, and wins National Championship.

      If -and this is still an if- the seeds are Clemson, AL, Landthieves, and Sparty, I think Sparty gets the easiest opener. I don’t think Clemson is that good.

      In fact, Clemson could lose to UNC and Bama could lose to FL. If that happens, the B1G winner and the landthieves are probably seeded 1-2, and we get many possibilities for 3-4. Probably UNC and FL, but no certainty there.

      This is a year that begs for an 8 team playoff, if that happens.


      • Mark:

        I don’t think Clemson is that good.

        Clemson’s offense is very good, I think. Watson is an excellent QB, one of the best in the nation, and creates huge problems for defenses with his strong multidimensional game. He’s also really good at reading defenses. Clemson’s weakness is their defense, as has been shown over the last three weeks. They’ve given up a lot of points to teams that have no business scoring as much as they have. Still, I like Clemson’s chances against everyone except Alabama.

        Go Tigers.


  2. since when are you a seahawks fan?


  3. I thought you knew? Ever since I lived in WA state. Sonics, too, until they jumped ship and became the Thunder.


  4. @markinaustin: I think whoever wins the MSU/Iowa game is going to win it all. But then, I bleed Big Ten.


  5. i thought Ravens. you’re not a sports bigamist are you?


  6. Polygamist, actually, as I also own stock in the Packers. You’ve chided me about his before. 🙂


    • McWing:

      The U.N. climate conference in Paris is most likely humanity’s last chance to thwart global environmental disaster, Pope Francis said on Monday, warning the world was “at the limits of suicide”.

      I hate to say it, but the pope is either a charlatan or a moron. Nether is a good look for a pontiff.


      • Ace reporting that the State Department has released more of Hillary’s e-mails that contained classified info. Can someone explain to me why this might be seen as remotely interesting info? I mean, there can’t really have been any doubt that she was lying through her teeth about not having received or sent classified info via her e-mail server. She was the fucking Secretary of State….of course she was receiving and sending classified info. It would be shocking if she hadn’t been.

        Yes, Hillary is a congenital liar. And water is wet. This is news?


  7. Hilarious!

    I bet this is all the rubes at PL talk about.

    You AGWers are suckers. Or cheap dates. It’s the massage equivalent of a rub ‘n tug.


  8. Hilarious!

    Hey, how else are we gonna defeat ISIS?


  9. Dude looked totally plugged in. Prolly had a fiber-optic into his trailer so he could stream CSPAN to get his killing orders.


  10. Always said that aside from abortion, gay marriage, and maybe pot, the left just isn’t all that into the idea of freedom.


  11. Scratch a progressive and you find your fascists.


  12. @scottc1: “I hate to say it, but the pope is either a charlatan or a moron. Nether is a good look for a pontiff.”

    Well, more relevantly he is a European liberal, doing the responsible thing of “bringing awareness” to the masses. Or something.


  13. It’s worth looking at Drudge’s top headline right now.


  14. @mcwing: “Dude looked totally plugged in. Prolly had a fiber-optic into his trailer so he could stream CSPAN to get his killing orders.”

    He probably had a medicine cabinet full of prescribed pharmaceuticals. I’m guessing there with some SSRIs involved. But, nah, the problem isn’t a messed up dude taking legal drugs that permanently fuck up your brain chemistry, it’s folks who characterized Planned Parenthood’s fetal tissue harvesting/donation and then compensation that went with it as inappropriate (and also suggested, not without documentation, that many folks involved in PP have a very casual attitude towards human life, especially of the fetal kind.

    Which, btw, is not an incitement. Shooting things up is never the answer. Period.

    If I were a conspiracy theorist, I might question the proximity of this incident to the Paris attacks, and wonder and how conveniently it slips into the narrative of “conservative = Islamic terrorist” so popular with the hard partisan left. I just don’t see how Soros could have engineered it. Unless the Bilderbergs have some sort of mind-control machine . . .

    Agenda 21! Chemtrails!


  15. @scottc1: “Actually he is an Argentinian Marxist, but I admit it can be tough to tell the difference sometimes.”

    My bad! That being said . . . is there a difference? I mean, other than the accent? 😉


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