Morning Report: Pending home sales fall on tight inventory 9/29/16

Vital Statistics:

Last Change
S&P Futures 2159.0 -4.0
Eurostoxx Index 344.3 2.0
Oil (WTI) 47.1 0.0
US dollar index 86.5 0.4
10 Year Govt Bond Yield 1.59%
Current Coupon Fannie Mae TBA 103.3
Current Coupon Ginnie Mae TBA 104.2
30 Year Fixed Rate Mortgage 3.47

Stocks are lower this morning as oil rallies. Bonds and MBS are down small.

Initial Jobless Claims came in at 254k, which is at a 43 year low. When you take into account population growth, that number is astounding. The last time jobless claims were around these levels, we had just ended the draft for the Vietnam War.

The third revision for Q2 GDP came in at 1.4%, which was an increase from the second estimate of 1.1%. Non-residential fixed investment and consumption drove the upward revision. The Personal Consumption Expenditure Index (the Fed’s preferred measure of inflation) came in at 2%, spot on with their target. Gross Domestic Income fell 0.2%, which is a disappointment.

Consumer Comfort ticked up last week, according to the Bloomberg Consumer Comfort Index.

Pending Home Sales dropped 2.4% in August, according to the NAR. Lawrence Yun, NAR chief economist, says suffering supply levels have taken the wind out of the momentum the housing market experienced earlier this year. “Contract activity slackened throughout the country in August except for in the Northeast, where higher inventory totals are giving home shoppers greater options and better success signing a contract,” he said. “In most other areas, an increased number of prospective buyers appear to be either wavering at the steeper home prices pushed up by inventory shortages or disheartened by the competition for the miniscule number of affordable listings.”

Immigrants are much more educated today than they were a couple of decades ago. That is creating issues in the housing market. Traditionally, low-skilled immigrants were builders of housing. Today many are arriving with college degrees, and therefore they are much more likely to be buyers of housing. This partially explains why inventory is tight and why it is hard to find skilled labor.

Corporate profits fell 1.7% YOY in the second quarter. This is the third consecutive drop, which is a worrisome stat for the stock market, especially as the Fed begins to take away the punch bowl.

Separately, are rising incomes helping to alleviate the problem of affordability? The drop in GDI didn’t help. The ultimate issue will revolve around the long-term unemployed. Do they come back into the workforce or stay out? If they come back, wage inflation will be modest until that reservoir is used up. Ultimately that is better for the economy long-term. If they stay out, it will depress consumption and will probably start pushing up wages for those that do have jobs. Watch the quits rate on the JOLTS job openings. That will be the tell.

33 Responses

  1. Brent, as an FYI there was a local story today about the counties here cutting the fees that home builders have to pay by 50% to spur more building and also dedicating the remainder of the fee exclusively to transportation building tied to the new developments instead of also including libraries and other things.

    It had been unchanged since 1989, so it looks like they really are trying to spur more home construction.


  2. I’m shocked:

    “Crunching data from 7,300 corporate officers at 497 financial firms eligible to get cash from TARP, the researchers found political connections paid off — big time.

    “We looked at bank boards who had a director or officer who had work experience, current or past, at a bank regulatory agency, the Senate or the House, and we found that the boards of those banks that had those political connections traded more heavily during the financial crisis,” explained Daniel J. Taylor an accounting professor at the University of Pennsylvania’s Wharton School, in an interview with the school’s business journal.

    In other words: while the government was supposedly deciding in private who would get TARP funding, politically-connected individuals traded as if they already knew the outcomes of those decisions — before the decisions were made public. That information translated into cash: The politically connected saw between 4-5 percent return in just three days. Those with political connections also traded more than three times the average volume in the 30 days leading up to the announcement of who would get how much in bailout funds.”

    Pity Trump isn’t sophisticated enough to make this an issue. I doubt Johnson will either.

    Liked by 1 person

    • I would imagine every major financial institution would have at least one director what has some government experience. Or at a minimum, their compliance officer would.


  3. “Gary Johnson can’t name a single foreign leader he admires”

    I can’t think of any current foreign leaders that I “admire” either. Maybe Theresa May, but she’s only been PM for a couple of months.

    Good piece:

    Liked by 1 person

    • not ready for prime time. run for a house seat, Gary. or Senate seat

      Liked by 1 person

      • I can’t decide if they would be doing better if the ticket was reversed.

        Johnson’s gaffes are an issue, but the alternative seems to be no coverage at all.


        • the name of the game is to win. and you have to position yourself to do that. if they was a way to get on all 50 ballots, great. now turn that into something.


        • best quip so far: asking a Libertarian for their favorite foreign leader is like asking a vegan how they like their steak done…


    • jnc:

      I can’t think of any current foreign leaders that I “admire” either.

      That was my reaction, too, but I saw the clip and his problem wasn’t the “admire” part. In fact he tried to name someone, but couldn’t remember the name…”the former president of Mexico”. Even Johnson himself called it an “aleppo moment”.


      • I took it to mean current leaders which is where I drew a blank. But he could always go with the classic politicians approach of answering the question you want to answer instead of what’s asked and go with the safe choice of Margaret Thatcher.


        • He could have gone with his stoner roots and (edit: said) Haile Salassi.


        • jnc:

          and go with the safe choice of Margaret Thatcher.

          Yup…If he was going to go with a former leader, which he ultimately did, why not pick an obvious one whose name you actually know? he really blew it.

          Not that it ought to matter. It is all just fodder for the media machine. A Johnson who can’t name a single world leader is still preferable to an HRC who has personally met half of them, as far as I am concerned. The things that people will base their votes on, or at least the things the media thinks they will base their votes on, staggers me.


        • fuck, i think even Trump is preferable to hillary…


        • Brent:

          fuck, i think even Trump is preferable to hillary…



    • How to lie about what Johnson actually said because apparently it wasn’t bad enough on it’s own.

      “Gary Johnson can’t name a single foreign leader. Can we stop pretending he’s a real alternative now?

      The Libertarian nominee can’t name a foreign leader, but has a dangerous agenda and can tip the election

      Heather Digby Parton”

      They must be really scared.


  4. I’m starting to come around on impeaching Obama:

    “Obama administration may use obscure fund to pay billions to ACA insurers
    By Amy Goldstein
    September 29 at 12:25 PM

    The Obama administration is maneuvering to pay billions of dollars the government owes to health insurers under the Affordable Care Act, potentially resorting to an obscure Treasury Department fund intended to cover federal legal claims.”


    • Why would using the Judgment Fund to pay a negotiated settlement for less than the Gummint actually owes be anything but wise stewardship, JNC?


      • Because Congress voted to explicitly block the money for the risk corridors.

        The cases haven’t been litigated yet either as far as I know. Much like DOMA, he’s unwilling to defend laws that he disagrees with in court.

        I view it as failing to faithfully execute the laws of the land.


    • JNC and NoVA – Did the USA lawfully incur the obligation to the insurers? IOW, did the statute, presumably the ACA, permit the Gov to offer this backstop to induce insurers into the fold?

      If so, isn’t this a case of one Congress having obligated the Treasury and a subsequent Congress having pulled the funds to meet the obligation after it was incurred?

      I realize there could be another possibility – that the Treaasury said “trust me” without having had the underlying statutory authorization. NoVA – this is your wheelhouse – what is the history?


      • Mark:

        I am no expert, but my understanding is that the payments were designed to come out of a fund created by payments by insurance companies themselves, ie winners paid into the fund, and losers collected from it. The problem is that there were more losers than winners, and so the fund did not have enough revenues to cover the losses. The original ACA did not require that the fund to be revenue neutral, so the implication was that, in such an event, payments could be made from other funds related to ACA. However, in 2014 Congress passed a law (attached to an appropriations bill) saying that only revenues from the specific fund could be used to pay losing insurers.

        See here:


      • I also don’t believe that the administration will mount a good faith defense of the government’s position because they disagree with the law that Congress passed.

        That’s a big part of why I view this as failing to faithfully execute the laws.

        To take it to an extreme, image Trump enterprises suing the government over a payment dispute and Trump directing the DoJ not to defend against the suit but instead settle for 100% of what was demanded.

        This is the next step in bad faith following the DOMA decision.


  5. Telling that this wasn’t considered a gaffe when Clinton attributed this position to Trump in the debate:

    “CLINTON: You know, he tried to switch from looks to stamina. But this is a man who has called women pigs, slobs, and dogs, and someone who has said pregnancy is an inconvenience to employers, who has said…

    TRUMP: I never said that.

    CLINTON: …women don’t deserve equal pay unless they do as good a job as men.

    TRUMP: I didn’t say that.”

    and of course Trump wasn’t dexterous enough to actually defend the position that equal pay should be tied to doing as good of a job as the person you are being compared with.


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