Morning Report: Credit scores back to pre-crisis levels 5/30/17

Vital Statistics:

Last Change
S&P Futures 2409.0 -4.8
Eurostoxx Index 390.1 -1.2
Oil (WTI) 49.5 -0.4
US dollar index 88.8  
10 Year Govt Bond Yield 2.24%
Current Coupon Fannie Mae TBA 102.6
Current Coupon Ginnie Mae TBA 103.81
30 Year Fixed Rate Mortgage 3.98

Markets are down on overseas weakness. Bonds and MBS are up small.

Personal Incomes rose 0.4% last month, while personal spending rose the same amount. The PCE inflation index rose 0.2%. All three were in line with expectations, and point to a recovery in the second quarter. The Fed Funds futures are pricing in an 84% chance of a rate hike at the June FOMC meeting, which is only 2 weeks away.

The Fed will also likely begin to lay out its plan to let its balance sheet shrink at the next meeting as well. It looks like they will allow a small portion of their portfolio to run off and they will keep increasing that number every quarter. Note that this could be put on hold if we get into a protracted debt ceiling fight this fall.

Home prices are up 5.8% YOY, according to the Black Knight Financial home price index. The index hit $272k, as strength on the West Coast was offset by weakness in the Deep South. The Case-Shiller HPI came up with the similar numbers as well. Meanwhile, housing demand remains strong, according to Redfin, as inventory remains tight and new listings draw in buyers from the sidelines. Despite these market dynamics, home building remains stuck at recessionary levels. It does open up the possibility of more cash-out refis though.

US credit scores hit a 12 year high this Spring as consumers continue to improve their financial situations by saving more and borrowing less. Interesting tidbit: More than 6 million families will have personal bankruptcies fall off of their credit reports over the next 5 years. Chapter 7 and 13 personal bankruptcy filings hit 1.5 million in 2010. That will be an additional source of mortgage demand in addition to Millennial first time homebuyers.

Consumer confidence slipped in May, however it remains elevated. Investor confidence rose.

Neel Kashkari discusses bubbles and the Fed. I found this part fascinating: “When I went to Treasury in July 2006, then-Treasury Secretary Henry Paulson declared to his staff that the U.S. economy was due for some form of crisis. He didn’t know where it would come from but, because markets had been stable for some time, history suggested something would happen. So he tasked his staff (including me) to work with the Federal Reserve and Securities and Exchange Commission to look for signs of trouble. We looked at a variety of scenarios, from an individual large bank running into trouble to a hedge fund blowing up. Sadly (and embarrassingly), we never considered a nationwide housing downturn. We missed it, and we were looking. It seems obvious now. This was clearly a “false negative.”” As the real estate bubble was peaking, the Fed looked for a catalyst for a crisis, and didn’t see the housing bubble. I know hindsight is 20/20, but that is an astounding admission…

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