Morning Report: Housing starts nosedive 12/16/16

Vital Statistics:

Last Change
S&P Futures 2262.0 3.5
Eurostoxx Index 359.6 0.8
Oil (WTI) 51.1 0.2
US dollar index 93.1 -0.1
10 Year Govt Bond Yield 2.58%
Current Coupon Fannie Mae TBA 103
Current Coupon Ginnie Mae TBA 104
30 Year Fixed Rate Mortgage 4.15

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

Housing starts fell 19% in November to an annualized rate of 1.09 million, which was way below estimates. Both single family and multi-fam fell, but multi bore the brunt of it. This is 7% lower than a year ago. Building Permits came in at 1.2 million, which was also below forecasts. Housing starts can be volatile and I wouldn’t be surprised to see this number revised upward.

Despite the low housing starts number, homebuilder sentiment is at highs not seen since the bubble years. This increase was probably due to a post-election bounce, however builders remain cautious and starts are way below historical averages. Perhaps a change in the regulatory environment will change that. “This notable rise in builder sentiment is largely attributable to a post-election bounce, as builders are hopeful that President-elect Trump will follow through on his pledge to cut burdensome regulations that are harming small businesses and housing affordability,” said NAHB Chairman Ed Brady, a home builder and developer from Bloomington, Ill. “This is particularly important, given that a recent NAHB study shows that regulatory costs for home building have increased 29 percent in the past five years.”

Donald Trump is close to choosing Larry Kudlow for the role of Chief Economist. The focus for economic growth will move from trying to improve demand to trying to improve productivity. Kudlow is a veteran of the Reagan Administration and is a firm believer in supply side economics. He has been historically a very vocal free trader, but will have to soften that approach in this administration.

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