Morning Report: NAR studies the drivers of the low homeownership rate 6/11/17

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Stocks are lower this morning amidst a global tech stock sell-off led by Apple. Bonds and MBS are down a tick or two.

The big event this week will be the FOMC meeting which starts Tuesday. The announcement will come at 2:00 pm on Wednesday. The Fed Funds futures are pricing in a 96% chance of a 25 basis point hike in the Fed funds rate. We will also have a Bank of England and a Bank of Japan meeting this week.

Merrill Lynch is looking for the Fed to hike 25 basis points, but they think the focus of the press conference will be on balance sheet normalization. While there is the possibility that weak economic data on Wed morning (CPI and retail sales) could prevent the Fed from hiking that is a long shot. Merrill is also looking for the Fed to cheat down their inflation projection for 2017 to 1.7%, although they expect 2018 to be unchanged at 2%. They also note that inflows into bond funds have been elevated as bond bears throw in the towel on the Trump reflation trade.

A group called “Fed Up” which includes liberal economists like Joseph Stiglitz and even includes former Fed President Narayana Kochlerakota is urging the Fed to increase its inflation target from 2% to something higher. The group notes that fiscal policy is almost impossible in this political environment, so higher inflation could act as a buffer against recessions. They are also concerned that the Fed’s tightening could send the economy into a recession. Note that Barack Obama stacked the Fed with doves already, so if the Fed is reticent to do this now, it probably isn’t going to happen as Donald Trump starts replacing members.

Market strategists have been cheating down their end of year target rate for the 10 year bond yield, and it now stands at 2.7%, about 50 basis points higher than it is currently. The lowest forecast in the data set is 1.9%. China is prepared to buy more Treasuries to stabilize the yuan market, and developed market bond fund managers are finding relative value in Treasuries, which have sold off more than other developed countries.

The NAR wrote a white paper detailing the barriers to homeownership and many of the reasons are pretty well-known. The biggest constraints are tighter mortgage lending, student loan debt, affordability issues, and a lack of supply. They take a look at the QM and ATR rules and conclude that these rules are actually hurting mortgage availability when they were intended to ease the burden on lenders:

“Though each individual provision included in the new regulations that banks must adhere to may not cause much burden for lenders in isolation, the combined impact of the numerous regulatory changes generated a multiplicative effect that is contributing to an environment of extreme caution among mortgage lenders. One such regulation that contributes a number of strenuous lender requirements is the ability-to-repay rule, detailed in the Dodd Frank Act and enforced by the Consumer Financial Protection Bureau (CFPB). The rule stipulates that lenders must ensure that borrowers are able to make timely monthly payments. While the intention behind the rule is to ensure borrower credit-worthiness and avoid the worst abuses that led to the housing bubble, the rule essentially requires lenders to document every potential element of borrower risk, no matter how small. Effectively, many lenders are forced to document issues that have little to do with lending risk, simply to remain in compliance. Additionally, the rule makes the lender liable for issues that may cause a borrower to not repay a mortgage in the future, exposing lenders to potential future litigation, the risk, scale and cost of which are largely unknown”

The paper then goes on to look at other regulatory costs, and concludes that regulatory costs and uncertainties have combined to increase average credit scores, which is shutting many creditworthy borrowers out of the market because their loan circumstances don’t “fit inside the box.” I would add that the private label MBS market is still a shadow of its pre-crisis self, which means that these loans have to be retained on a bank’s or REITs balance sheet. This limits the available credit, however the most puzzling aspect is that a lot of lenders want to get into the non-QM business, but the demand for non-QM credit has been disappointingly small. People are ramping up the non-QM product, but the loans just haven’t been there yet.

20 Responses

  1. I am sure that I am late to the party, but I thought Comey’s testimony was straightforward and credible.

    Did it, by itself, prove anything? That’s a different question.

    Do we think DJT has tapes? I don’t.

    Do we think Mueller will be any less dogged than Fitzgerald or Starr? I don’t.

    Do we think DJT is hiding stuff? I do, but to what end and how relevant it is to his Presidency, I have no clue.

    Do we think the lawyer he is now using, the one who represents that Russian bank in the USA, is worth a damn in this situation? I don’t.

    Do we understand the difference between leaks and unlawful release of proprietary or classified information? I do. In fact, DJT’s lawyer suggesting that Comey be prosecuted for “leaking” his notes may have violated a federal criminal statute, himself. See Department of Homeland Security v. MacLean
    , Roberts’ op., 7-2 vote, Sotomayor and Kennedy dissenting.

    Like

    • Do we think DJT is hiding stuff? I do, but to what end and how relevant it is to his Presidency, I have no clue.
      Hiding stuff in relation to what?

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      • McWing;

        Hiding stuff in relation to what?

        That, to me, seems to be the relevant question. All presidents “hide stuff”.

        Like

      • Hiding stuff in relation to what?

        I don’t know. And it may be irrelevant to his presidency. Someone with as litigious a past who has lost so often and been through 4 major bankruptcies and who has been caught dissembling in depositions so many times is sure to have more stuff behind the curtain than your average elephant or donkey. I don’t think that being a bent con artist would usually rise to impeachability or 25th A status, because we elected him knowing he was a snake oil guy. His incompetence won’t get him unless he is visibly going demented, in the eyes of his Cabinet. But the investigations will proceed and take all the available oxygen. Get popcorn, sit back, enjoy.

        He said he wants to testify under oath? I’ll believe that the minute after Mueller’s two day long deposition of him begins.

        Look, I don’t feel sorry for the guy. He makes up shit and invites scrutiny. But special counsels do what special counsels do. If there is no garbage in Whitewater they move right along to interns after a couple years. So there will be stuff going on for the duration. It kept lots of lawyers in business in the late 90s and it will now.

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  2. Corporate sponsors are pulling out of supporting Shakespeare in the Park over the mock Trump assassination…

    I hate the targeting of advertisers to punish speech you don’t like to begin with, but it is nice to see the left finally reaping the whirlwind of the new set of rules they imposed on everyone..

    Like

    • Comparing Trump to Gaius Julius Caesar gives Trump way too much credit. It also equates the “Resistance” with the Roman oligarchs (the Optimates).

      Like

  3. I laughed.

    Like

    • damn.. the only ones that hit on me in high school were homo Jesuits and the 250lb driver’s ed teacher who had me drive her through all the fast food drive-thrus..

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    • Good article, George. Affirms my point on special counsels and their wandering agendas. And while I think Comey was a credible witness, I also know that he has over-reached before when “certain”. His explanation of why he did not trust Loretta Lynch is consistent with both his rogue solo conduct in the HRC investigation and ultimately his caution and public posture. His take on his conversations with DJT would be mine, as well, if I were FBI chief and POTUS kept calling me.

      I also think Lynch will be hearing from some Committees soon.

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  4. Interesting read:

    “‘Y’all Sent Me to Washington at an Interesting Time’

    A freshman Republican lawmaker tries to stay on the right side of his constituents—and his principles—deep in Trump Country.

    Molly Ball”

    https://www.theatlantic.com/politics/archive/2017/06/yall-sent-me-to-washington-at-an-interesting-time/529944/

    Like

  5. I liked the new Wonder Woman movie, but making it the new vehicle for the advancement of women’s rights is absurd.

    “Why Wonder Woman’s second-weekend sales are so extraordinary — and important
    Wonder Woman’s second weekend was better than those of Batman v Superman and Suicide Squad.
    Updated by Alex Abad-Santos”

    https://www.vox.com/culture/2017/6/12/15782354/wonder-woman-box-office-second-weekend

    Like

  6. Hmm, may need to move:

    “The Oligarchs’ Constitution
    Sopiko Japaridze

    Georgia’s elites are changing the country’s constitution to forever foreclose the possibility of taxing the rich.

    However, opposition groups are yet to comment on Paragraph 94 of Georgia’s constitution. This particular paragraph forbids the raising of taxes by parliament without holding a special referendum, which can only be initiated by the government. This paragraph is part of Georgia’s Liberty Act, which former president Mikheil Saakashvili pushed through in 2010 in order to severely weaken future governments by limiting their sources of budget revenue and strangle the prospect of progressive taxation in the name of “freedom” for enterprise and market. In doing so, it entrenches libertarian ideology in the country’s constitution, to the detriment of desperate, working Georgians.

    After Saakashvili’s Rose Revolution began in 2003, Georgia’s tax system was reformed to be one of the simplest — and most regressive — tax systems in the world. There are only six types of taxes: a 20 percent flat income tax, a profit tax (which has now been abolished if the company reinvests, then they pay no taxes), an excise tax on a few selected goods, VAT at 18 percent, an import tax that ranges from 0 percent to 12 percent, and a property tax which is up to 1 percent. There is no progressive taxation, no inheritance tax, and there are no social security taxes.”

    https://www.jacobinmag.com/2017/06/georgia-constitution-georgian-dream-taxes-article-94

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    • I guess this means that white transgender males are above black cis dudes on the victimhood totem pole…

      Like

      • Brent:

        transgender males

        I am genuinely confused…was the person in the video a woman trying to be a man, or vice-versa?

        Like

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