Morning Report: GDP revised upward 11/29/16

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US dollar index 91.7 0.3
10 Year Govt Bond Yield 2.34%
Current Coupon Fannie Mae TBA 103
Current Coupon Ginnie Mae TBA 104
30 Year Fixed Rate Mortgage 4.14

Stocks are flat this morning as GDP surprises to the upside but oil falls as OPEC appears unable to cut production. Bonds and MBS are down.

Third quarter GDP was revised upward to 3.2% from the advance estimate of 2.9%. We will get one more revision to this number in a few weeks. Upward revisions in consumption drove the increase, while residential investment remains a drag. Business capital investment remains weak as well. The PCE Price index rose 1.4%, which means inflation remains below the Fed’s target rate. We have had a meaningful rebound in GDP after a run of 3 weak quarters.

gdp

The Case-Shiller index (considered to be the Dow Jones Industrial Average of real estate indices) surpassed its July 2006 peak in September. The index is up 5.1% YOY. The press release includes a cool table that shows the returns on real estate versus the returns on the stock market and compares those to income growth. Since 1975, real estate has increased almost 5%, and stocks have increased 8%. Since 2000, real estate has outperformed stocks. While stocks have have been a higher returning investment overall, they are typically much more volatile, and you can’t live in an ETF. Also, the press releases doesn’t address the tax benefits of real estate, which would certainly affect the analysis and improve the relative performance of real estate.

asset-returns

Corporate profits rebounded in the third quarter, rising 5.2% YOY after a 3 consecutive negative quarters. The divergence between stock prices (rising) and profits (falling) was creating an untenable situation in the stock market.

Ben Carson is reportedly going to be the next Secretary of HUD. Realtor.com has the potential implications. Though his background is in medicine, Carson does appear to follow housing: here is an editorial he wrote just over a year ago. The editorial covers fair housing issues, however doesn’t address the state of the mortgage market, and how to bring private capital back into the market. At the moment, the taxpayer bears the credit risk of the vast majority of new mortgages. Suffice it to say it doesn’t look like fair housing issues will be front and center at the new HUD, the way they have for the past 8 years.

Donald Trump named Georgia Congressman Tim Price as secretary of health and human services. Trump is meeting with Mitt Romney again for the Secretary of State position.

Consumer confidence rose sharply in November, according to the Conference Board, increasing to 107.1 from 100.8 in October. This index is back to pre-recession levels. Separately, Cyber Monday sales look to have increased 9.4% YOY.

Foreclosure starts fell to 56,500 in October, the lowest level in 12 years, according to Black Knight Financial Services. Delinquencies had a small uptick MOM, but are down YOY. Prepay speeds ticked down, but are still up markedly YOY.

Demand for houses fell in October, according to Redfin. The number of people requesting tours and submitting offers fell. Tight inventory remains the biggest issue – the number of homes listed was down almost 10% from a year ago.

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