Morning Report: Home inventory at a record low 1/24/17

Vital Statistics:

Last Change
S&P Futures 2262.5 0.5
Eurostoxx Index 361.2 0.2
Oil (WTI) 53.1 0.4
US dollar index 90.9 0.2
10 Year Govt Bond Yield 2.43%
Current Coupon Fannie Mae TBA 102.1
Current Coupon Ginnie Mae TBA 103.2
30 Year Fixed Rate Mortgage 4.19

Stocks are flat this morning as earnings continue to roll in. Bonds and MBS are down.

Existing home sales fell 2.8% in December to an annualized rate of 5.49 million, according to the NAR. This caps off 2016 as the best year for existing home sales since 2006. The median home price was $232,200, up 4% YOY. Tight inventory remains a problem, with inventory dropping to a record low of 1.65 million homes for sale. This represents a 3.6 month supply, which is well below the 6.5 month supply which represents a balanced market. NAR estimates that housing starts need to be at 1.5 – 1.6 million to keep up with demand and demographic changes, which are historically normal levels. We have been at recessionary levels for the past 8 years. After recoveries, it is not unusual to see starts approaching 2 million. The first time homebuyer accounted for 32% of sales – historically that number is closer to 40%.

Ben Carson has his work cut out for him in terms of easing the regulations that are preventing home construction. Many regulations are local, however which the Federal Government can’t really do much about.

Manufacturing is improving in January according to the flash PMI.

The US dollar hit a 6 week low after Treasury Secretary nominee Steve Mnuchin said a too-strong dollar could hurt the economy. The response was to a written question about a hypothetical 25% rise in the value of the dollar, so don’t read too much into it. That said, the early indication is that the Trump administration wants to talk down the dollar a little. That ultimately will make imports more expensive and exports cheaper however it is unclear what it means for Fed policy. That will depend on a lot of things, particularly whether wages increase or not.

The new administration is going to begin to tackle a re-negotiation of NAFTA within the next 30 days. Here are the different negotiation points. Essentially, Canada wants to stay out of the way, and Mexico wants to keep tariffs out of the equation. Separately, Trump will meet with automotive executives today. It is important to remember that trade barriers weaken the economy by definition, assuming that trading partners retaliate with tariffs of their own. This could lop 25-50 basis points off GDP, which will have implications for the Fed and their tightening plans. If Trump imposes new tariffs, and our trading partners retaliate with tariffs of their own, we will need some sort of fiscal stimulus to offset that drag. If that happens, expect the Fed to go more slowly, which which should be beneficial for interest rates. A lot of moving parts for sure, but uncertainty keeps the Fed on the sidelines. Separately, Trump also officially pulled the US out of the TPP, which probably wasn’t happening anyway.

Any sort of change in trade policy could be accomplished either directly via tariffs or hidden in corporate tax reform. Congress prefers to go the latter route, and that also ensures that any sort of stimulus via the tax code is married to trade barriers.

One of Trump’s first acts was a regulatory freeze, which gives the incoming administration time to review any last-minute edicts from Obama administration. This is something that pretty much every incoming president does, especially if there is a change in party. The MIP reduction probably fell under this freeze, so it may well survive, depending on the state of the FHFA insurance fund and FHA delinquency rates.

Despite all of the uncertainty in Washington, economic confidence is at a post-recession high, according to Gallup. Current conditions and the outlook both improved, making this a little more durable. Confidence goes a long way towards improving the economy and can prove to be elusive.

As the economy strengthens, Fed officials are now thinking about what to do with their $4.5 trillion of Treasuries and MBS, which are a legacy of the QE days. As of now, they are re-investing maturing proceeds to maintain their assets at approximately $4.5 trillion. Normalization of monetary policy certainly includes returning the balance sheet to its pre-QE levels of under $1 trillion, but that may turn out to be a 2018 event.

iServe’s own Mike Macari, Chief Communications Officer, wrote an article for the Scotsman’s Guide with John McDade, discussing VA loans, and why they are so important to our country.

Employment for residential construction remains healthy, according to the NAHB. The number of open construction jobs was 184k in November, according to the JOLTs report, however hiring is seasonal. That number peaked at 225k in July. The spring selling season is just around the corner, beginning in early / mid February. Getting homebuilding back to a sense of normalcy would go a long way towards improving the economy for both buyers and workers.

41 Responses

  1. Despite all of the uncertainty in Washington, economic confidence is at a post-recession high, according to Gallup. Current conditions and the outlook both improved, making this a little more durable. Confidence goes a long way towards improving the economy and can prove to be elusive.

    Thanks, Obama.



    • Optimism shot up after the election, not before


      • Actually, the curve has been trending up since 2008.

        But whatever helps you sleep at night. 🙂


        • Not according to the linked graph.

          There’s a clear jump after the election.


        • “There’s a clear jump after the election.”

          They must poll outside of New York and California and the major urban centers, where the only people who matter live. So: #fakenews!

          It’s interesting that the current conditions has been trending up since mid 2009 with occasional dips, but after the election the outlook index jumped up to meet the current conditions. Gallup attributes it to a change in attitude by Republicans, but Democrats haven’t scaled their outlook back?

          Ultimately, I don’t give a sh¡t. I’m just confidence is back. I agree with Brent that confidence is the best stimulus an economy can have, whether or not it’s based on something rational or something completely imaginary (hint: it’s usually the latter).


        • Oh, for pete’s sake, jnc. Do I need to define “trend” and “curve”?


        • jnc:

          For the record, the Trump jump seems pretty obvious to me, too, whatever trend may have preceded it.


        • You can define whatever you want. It doesn’t negate the original point.

          This isn’t due to Obama.

          But if you want to adopt the Cons approach of being intentionally obtuse here, then there’s no point in discussing anything anymore.


    • Hard to square that with the utter despair that progressives voice on a daily basis.

      Liked by 1 person

    • “Despite all of the uncertainty in Washington, economic confidence is at a post-recession high, according to Gallup. Current conditions and the outlook both improved, making this a little more durable. Confidence goes a long way towards improving the economy and can prove to be elusive.
      Thanks, Obama.”

      You make a funny, but it’s interesting how people’s take seems to be in spite of the present predictions of (and, pre-election, the warning of) economic doom that Trump is sure to bring from both the MSM, Democrats, and the respected conservative publications. And Donald Trump’s own “worse economy in 50 years” “America is a wreck” pronouncements during the campaign.

      Also says something either (a) about the confidence in a new administration (I’m dubious) or that more people than you think really don’t think who the president is is a critical factor in the economy.


      • I think that it’s confidence despite Trump, not because of him.


        • Except that’s not what the graph shows.

          The reasonable counterargument is it could be due to the election being over (or HRC losing as opposed to Trump winning, but that’s more of a stretch).

          But saying Obama is responsible for the post election jump is absurd.

          Gallup gives the reason explicitly:

          “Americans have viewed the economy more positively since President Donald Trump’s election in November than they did in the nine years prior — largely attributable to improved confidence among Republicans.”


        • When I say “despite Trump” I don’t mean that it’s due to Obama (post-election, although the trend from 2009 on is upward–which was my original point), but rather that Americans don’t see it as getting worse in the near future.

          It’s going to keep increasing for a certain amount of time just because. Now if it’s still increasing in a month, then that will be because of Trump.


        • I think Democrats thought it was pretty decent already and Republican expectations have gone up because they now control everything at the Federal level.

          Presumably Democratic despair will kick in at some point soon.


  2. I laughed, and I believe in forced abortions in certain circumstances.


  3. Worth a read:

    “Why did pollsters like me fail to predict Trump’s victory?
    Tuesday, November 15 2016

    American voters were desperate for change, so Hillary Clinton’s late focus on continuity and incrementalism shifted the balance – ultimately producing a reactionary result

    By Stanley Greenberg”


    “Was Barack Obama Bad for Democrats?

    Friday, December 23 2016

    By Stanley Greenberg & Anna Greenberg”


    • First Greenberg article is funny, has a real “the voters really let HRC down” feel to it. Left unaddressed is why minorities weren’t enthusiastic about HRC?

      Once they’ve seen Paris, can white Democrate get AA’s to turn out in enough numbers to beat the Republican white voter advantage?

      If you’re a white male with national political ambitions, is the Democratic Party your best vehicle?


      • Nah, he blames her, but soft pedals it:

        “As President Obama campaigned for her at the end, Clinton urged voters to “build on the progress”. She closed her campaign with a call for continuity and incrementalism. That turn is why the polls turned out to be so wrong.”

        There’s a couple of other pieces where he alludes to it, while also throwing in a jab at Obama:

        “In the final weeks, the Clinton campaign conceded the economy and change to Trump, while seeking to make him personally unacceptable. Frustratingly, it closed the campaign appealing for unity, promising to promote opportunity and to “build on the progress” of the Obama presidency. That is why key groups of voters moved to Trump in the Rust Belt and why the turnout of many base groups was so disappointing in the end.”


        “While the Obama campaigns of 2008 and 2012 were models of innovation in online organizing and microtargeting, they did not translate into success in the midterm elections or in Hillary Clinton’s campaign. Democratic turnout dropped in 2010, 2012 and significantly in 2014. Models, it appears, do not substitute for the hard work of organizing and engaging voters in nonpresidential years; models that apparently drove nearly every decision made by the Clinton campaign are no substitute for listening to voters.”


        • What’s it take to drive AA voters, short of an AA being on the top of the ticket?

          If AA voters don’t turn out like they did in 2008 and 2012, what happens?

          One answer is the D’s lose to the most unpopular candidate in American history. If you’re O’Malley or Hickenlooper, what’s the point?


        • They’ll have every opportunity to reclaim the Whitehouse against whatever lame warm body the GOP finds to prop up after 8 years of Trump (who will not benefit from the numerous critical tweets that will start coming out during and after the primaries). The cycle is general 8-12 years that one party holds the house. Although the president that wins on the coattails of his or her predecessor is way more likely to lose the Whitehouse after only 4 years than an incumbent president whose party is freshly back in power.

          But they will get the Whitehouse back. It flips back and forth like a pendulum, more so in the modern era than almost any time in history.

          They need to worry about the governorships, the legislatures, the house and the senate. That’s where they need to focus their energies, because that’s where they’ll actually make a difference.


    • I love journalists. Obama won twice, when Democrats generally were having trouble winning elections all over the place (outside of major urban centers). But they are asking: was he bad for Democrats?

      Hillary might have been. That’s a better question.

      Or an even better question: is the DNC bad for Democrats?


      • is the DNC bad for Democrats?


        Where have you gone, Dr Howard Dean?
        A lonely party turns its eyes to you. . .

        Ooo ooo ooo



      • KW:

        Or an even better question: is the DNC bad for Democrats?

        How about: Are Democratic policies bad for Democrats?


  4. Like

    • Hah! That’s funny.

      More boring is the fact that, no, they aren’t studying their playbook. Not really. For one thing, whenever the Tea Party folks had a huge public gathering, they cleaned up after themselves when they were done.


  5. Meanwhile, back at the ranch.

    “How Trump’s White House Is Driving a Wedge in the Pipeline Debate
    They’re pitting labor against environmentalists.
    By Charles P. Pierce
    Jan 24, 2017”

    Liked by 1 person

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