Morning Report: The hottest real estate markets are cooling off 9/28/16

Vital Statistics:

Last Change
S&P Futures 2153.5 1.0
Eurostoxx Index 343.1 3.0
Oil (WTI) 45.2 0.5
US dollar index 86.3 -0.2
10 Year Govt Bond Yield 1.56%
Current Coupon Fannie Mae TBA 103.3
Current Coupon Ginnie Mae TBA 104.2
30 Year Fixed Rate Mortgage 3.47

Stocks are flat this morning on no real news. Bonds and MBS are flat as well.

We have a lot of Fed-Speak today, with Neel Kashkari, Janet Yellen, and James Bullard speaking this morning. Charles Evans, Loretta Mester, and Esther George speak this afternoon. There is the possibility that some of them could say something market-moving so be careful with your locks.

Mortgage Applications fell 0.7% last week as purchases rose 1% and refis fell 2%.

Durable Goods orders were flat month-over-month and down 1.3% YOY. Ex-transportation, they fell on a MOM and YOY basis. Capital Goods orders (a proxy for business capital investment) is also down for the year, although it was up on a MOM basis. July’s numbers were revised downward, so this report is nothing to write home about.

Despite the gloom in the corporate sector, consumer confidence rose and is at post-crisis highs. This is probably being driven by the stronger labor market. We aren’t seeing these numbers flow through to actual sales at the retailers though. The Back-To-School shopping season was a disappointment.

The hottest real estate markets are beginning to cool off, as high prices and low inventory are putting off buyers. Many of these markets have long surpassed their bubble peaks and are hitting new highs. Given that incomes have not recovered, these price levels may be unsupportable, especially as the Fed hikes interest rates and mortgages become more expensive.

The latest CoreLogic Market Pulse looks at some of the overvalued markets based on price to income ratios and price to rent ratios. Unsurprisingly, there are pockets of overvaluation in CA, NY, FL, and TX, while the Midwest remains undervalued. The chart is below:


The article also goes on to say that we aren’t in a housing bubble. This is true, as bubbles are largely psychological phenomenons where investors and lenders consider an asset “special” and believe it can only go up in price. The last residential real estate bubble (aside from the mid 00s) was in the 1920s. Residential real estate bubbles are rare and I doubt any of us will see another on in the US in our lives. That said, we have residential real estate bubbles in lots of countries overseas (especially China, Norway, and Canada), which will be a damper on global growth when they burst.

During the debates, Donald Trump went after the Fed, calling them “political” for not raising interest rates. Politicians have always jawboned the Fed, but this has to be the first time I have heard a politician complain that the Fed is keeping rates too low. Usually, politicians are calling for the Fed to not raise rates because they are worried about a recession. At least one economist thinks Janet Yellen would resign if Trump wins.

16 Responses

  1. This is indeed the year we have seen Austin prices level while all satellite cities have continued to skyrocket. The influx of people to the metro continues unabated as the job market is so strong it is seemingly insatiable.



  2. Another reason to vote Trump.

    Shorter Friedman: Do you even Davos?


  3. Coming out of the debate, I’ve found it interesting that there was a post with a graphic illustrating how many more times Hillary was interrupted during the debate than Donald, apparently in a reaction to what is some kind of trolling effort on the supposed alt-right to suggest that Trump was interrupted way more than Hillary. Of all the things they are arguing about, that actually deserve a graphic and an attempt to make it go viral? Seriously? And I’m seeing more “fact check” posts that are basically “Trump says he is awesome. Is it true? Factcheck!” Like the one “fact checking” his claim that all the polls say he won the debate. Next, they should factcheck his claim that he weighs 198 pounds. Because (a) he’s clearly heavier, and (b) it’s critical that the truth be exposed on this issue and the voters are informed.

    Also, the fight over whether or not HRC had an earpiece. I think they same thing was done to Dubya. Maybe she had a ear piece, maybe she didn’t. Who frickin’ cares? Politicians don’t do it all by themselves, they don’t write all their own speeches. An ear piece would be like post-prep prep. It’s not like she’d govern in a way that much adhered to her campaign, or what she says in the debates, or that her administration wouldn’t be a collective organization . . . this is the modern era. Politicians are like movie stars, enabled by huge undergirding organizations. James Carville did more to get Bill Clinton into the presidency than Bill Clinton ever did, that’s for sure.

    Incoherent post-debate rambling over.


  4. It’s rather obvious that she didn’t have an earpiece. I base this on the experience of being married to an interpreter. Unless one has specific training and a lot of experience (good simul interpreters have both), it is impossible to listen while simultaneously speaking fluently. It amazes me every time I hear an interpreter do her job.

    With regards to sexism, please inform me of all the times the other candidates were told to smile more (but not too much, because that’s unattractive).


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