Morning Report: Home prices are stretched versus incomes again 7/21/16

Vital Statistics:

Last Change
S&P Futures 2173.0 9.0
Eurostoxx Index 339.4 2.0
Oil (WTI) 44.9 -0.2
US dollar index 88.0 0.2
10 Year Govt Bond Yield 1.62%
Current Coupon Fannie Mae TBA 103.3
Current Coupon Ginnie Mae TBA 104.2
30 Year Fixed Rate Mortgage 3.52

Markets are higher this morning after the ECB hinted at further stimulus down the road. Bonds and MBS are down.

The Fed Funds futures are now pricing in a 47% chance of 1 more rate hike this year. That probability was 20% about 10 days ago. That is what has been driving the 10 year yield back up.

We have a bunch of economic data this morning.

Existing home sales rose 1.1% to an annual pace of 5.57 million, according to the NAR. This is up 3% YOY, and is the highest level since February 2007. All regions except the Northeast reported an increase. The median home price rose 4.8% to $247,700. This puts the median home price to median income ratio at 4.3x, which is extended versus its historical range of 3.2x – 3.6x. Of course interest rates are influencing this as well, but it looks like home prices are beginning to run a little too far, too fast. Below is a chart of incomes versus home prices, indexed back to 1975. This doesn’t really speak to bubble behavior – it speaks to the caution out of the homebuilders who are reluctant to add supply. The current inventory of houses for sale is about 4.6 month’s worth, while a balanced market is about 6.5 months.


Median house price to median income indexed


Initial Jobless Claims slipped 1,000 to 253k last week. We should be seeing an increase given this is the season for re-tooling factories, however we aren’t, and we are hitting all-time lows for initial jobless claims, which goes back to the 1960s. To put it in perspective, the last time initial jobless claims were around these levels, we had a military draft.

House prices rose 0.2% month-over-month in May and are up 5.2% YOY, according to the FHFA House Price Index. The East Coast continues to lag while the Left Coast is still hitting high single digit YOY appreciation. The index as a whole has recouped all of the losses from the real estate bust. Remember, the FHFA House Price index only looks at houses with a conforming mortgage, so it ignores the extremes of both ends of the spectrum – distressed and jumbo.

The Philly Fed index fell to -2.9 while the Chicago Fed National Activity Index rebounded to +.15. The Bloomberg Consumer Comfort Index slipped again to 42.9, while the Index of Leading Economic Indicators rose to 0.3%.

PulteGroup announced earnings this morning, beating estimates and announcing a new value creation plan. They will buy back up to $1.5 billion in stock over the next 18 months, and reduce land investment. This is a bit of a surprise given that revenues increased 41%, and average selling prices increased 11%. Pulte has been targeting the first time homebuyer pretty aggressively, and given the pent-up demand, they probably should be investing in the business instead of buying back stock.

D.R. Horton also announced this morning, with earnings coming in line with expectations. Revenues increased 9% and earnings increased 13%.

40 Responses

  1. *cough*


    Liked by 1 person


    Do not play video games in a mine field.


    • That actually sounds like a good way to clean up the minefields and the gene pool.

      Liked by 1 person

    • Darwin Award just begging to happen!

      Did you see that here in Charm City we had some (1) black (2) teens (3) sideswipe a cop car (luckily no cops in the car) at (4) 3:30 in the morning?

      Amazing that the cops did nothing more than tweet “Don’t play Pokemon Go while driving”. They must have awesome senses of humor.

      Liked by 2 people

  3. Probably the only person to come out of the Republican convention looking better than when they went into it will be Ted Cruz:

    “Breakfast with Ted Cruz

    I don’t want to admire him as much as I do right now.
    By Charles P. Pierce
    Jul 21, 2016”


    • jnc:

      Probably the only person to come out of the Republican convention looking better than when they went into it will be Ted Cruz:

      Trump supporters seem to have a total lack of self awareness. Wholly apart from their characterization of Cruz’s speech as graceless and dishonorable (Wait…Trump supporters declaring someone else to be graceless and dishonorable?!?!), the absence of self-awareness couldn’t have been more on display as they booed Cruz:

      Cruz: Go out and vote your conscience. Vote for people you can trust to defend freedom and the constitution!

      Trump supporters: Boo! Hiss! Get off the stage!

      Wait, what?

      Liked by 1 person

      • Everybody in the arena know what he was talking about, it was a real dog whistle. He should have stayed away if he wasn’t going to endorse, it made him look weasely.

        Liked by 1 person

        • McWing:

          He should have stayed away if he wasn’t going to endorse, it made him look weasely.

          I thought he was asked to speak, and not conditioned on his giving an endorsement. Perhaps it was slightly bad form (and really only slightly…it’s not as if he trashed Trump or told people not to vote for him), but given that Trump’s very success among his supporters has come from having thoroughly ignored normal political etiquette, it takes a lot of chutzpah for the Trumpsters to now try to hold others to traditional standards of good form.


        • Scott’s correct–he was invited to speak. And, by all accounts, Mr Trump knew ahead of time that Sen Cruz wasn’t going to endorse him.


        • Retread what I wrote.


        • He gave Trump’s campaign a copy of the speech beforehand. If he had gone off script after telling them something else, I would be more inclined to agree with you.

          I actually thought that Trump might use it as an opportunity to triangulate against the Republican establishment, i.e. if both the Democrats and other Republicans hate me, then I must be right.


        • Redhead what I wrote

          Liked by 1 person

      • While no more a fan of Cruz than Trump, I agree. “Go out and vote your conscience. Vote for people you can trust to defend freedom and the constitution!” … It’s a fair statement, and he’s hardly the only human being or Republican who believes Trump is not the guy to do that. The idea that everybody read that as being opposed to Trump . . . holy moly, what a mess the GOP has managed to get itself in. Or I guess Trump has really just done a number on them, because, you know . . . he could.


  4. That’s gonna leave a mark.

    Liked by 1 person

  5. Interesting observation:

    “It was only near the end of his marathon speech that Trump exposed the soft underbelly of Clinton’s campaign, and it was done so quickly, and with so little apparent thought, it was not clear Trump knew what he was doing.

    “My opponent asks her supporters to recite a three-word loyalty pledge,” Trump said in an apparent ad-lib from his prepared text. “It reads: I’m With Her. I choose to recite a different pledge. My pledge reads: I’M WITH YOU—THE AMERICAN PEOPLE!”

    “I am your voice.”

    The major fault line through the Clinton campaign—one Bernie Sanders capitalized on to stunning effect—is her implied conviction that she is in this alone. From the left and from the right, voters this year have expressed a decided preference for candidates who are with them, with them against candidates who claim to be for them. Trump is paternalistic where Sanders was collaborative, but the net impression is the same. If Warrior Trump is smart, this is the drum he will continue to beat.”

    Liked by 1 person

    • If Trump were a serious politician, or conservative, or someone else (with the possible exception of Cruz) had gotten the nomination, I think Hillary would be doomed. As it is, not so much.



    dlibert’s take. he also picks up on the “i’m you’re voice” bit.


  7. Given all of the breathless articles from the left, I almost hope Trump wins, just to piss them off…

    If you didn’t care when obama ignored the constitution, you can’t bitch now…


    • Brent:

      If you didn’t care when obama ignored the constitution, you can’t bitch now…

      If one believes, as the left does, that the only use the constitution has is in service to the leftist project, then it is perfectly reasonable to ignore the constitution in some circumstances, but demand fidelity to it in others. For the left, logic and intellectual consistency are not desirable for their own sake. They are useful only as standards to which ideological opponents, especially those who actually care about such standards, can be held.


  8. The Democrats treat the media like a PR firm they have retained…


    • Folks on the left (and/or Democrats) will read this part: “The final copy of the story did not appear have any significant edits, and Clinton’s campaign seemed unhappy with the final copy of the article.”

      And say: nothing to see here. No big deal. It just proves the media isn’t biased for Democrats!


    • Not: why in the world would a journalist submit a story about a campaign’s fundraising operation to that same campaign before publication?


  9. John Kerry is out lecturing the world on how air conditioners are more of a threat to national security than ISIS..


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