Morning Report: New Home Sales beat expectations 6/23/17

Vital Statistics:

Last Change
S&P Futures 2433.0 1.3
Eurostoxx Index 387.2 -1.3
Oil (WTI) 42.9 0.1
US dollar index 88.7 -0.1
10 Year Govt Bond Yield 2.15%
Current Coupon Fannie Mae TBA 103.31
Current Coupon Ginnie Mae TBA 104.375
30 Year Fixed Rate Mortgage 3.92

Stocks are flattish after the Fed gave a clean bill of health to the banks it stress-tested. Bonds and MBS are up small.

One year ago today, the UK voted to leave the EU, which ignited a big rally in the bond market and pushed the 10 year down to a 1.37% yield.

New Home Sales ticked up in May to a seasonally adjusted pace of 610k. This was up 2.9% MOM and 8.9% YOY.  The median new home sales price was $345,800 and the average price was $406,400. There are 268,000 new homes for sale at the moment. The 610k print was pretty much the average for the US from 1965-1995. New home sales peaked at over 1.3 million during the bubble years, but we are still a long way from normalcy, given population growth and obsolescence.

new home sales fred

34 systemically important banks passed their stress tests yesterday. The banks are getting better at passing these exams, and the sense is that the Trump Administration will nominate someone to the Fed who will dial back these exams a bit. Next week, the Fed will release its comprehensive capital review, which will determine whether the big banks can increase their dividends or buy back stock.

Here is a good way to determine how tight a local housing market is: compare the ratio of new jobs to new building permits. In the Bay Area, that ratio is 6.4x: over the past 5 years, that MSA has added 373,000 new jobs, but has issued permits for only 58,000 new units. Lack of land, along with regulatory issues are holding back building there. In less constrained MSAs (both land and regulation) like Houston, the ratio is 1.3x. For the whole US, the country added just about 2.2 million jobs in 2016 and building permits totaled about 1.2 million, or a ratio of 1.8x.

The Canadian housing bubble continues to defy gravity, but the signs are there that its days are probably numbered. Warren Buffet took a 38% stake in troubled Canadian lender Home Capital and agreed to provide a $2 billion line. You can see from the chart below how far the Canadian bubble has exceeded the US one: Note that these are inflation-adjusted indices which is why US prices appear to have not recouped the losses from the bubble years. They have on a nominal basis, but not an inflation-adjusted basis.

canada real estate

The current median house price in Canada is about 520k and the median income is about 76k, putting the median house price to median income ratio at 6.8x. The US ratio peaked at 4.8x, which gives you some idea of how far prices have gone up North. Once the bubble bursts, it is bound to have some knock-on effects in the US, especially at the high end of the market which is probably more linked to China’s bubble than people care to admit.

The US Government has recommended that the new benchmark short term rate become the Treasury repo rate instead of LIBOR, which is subject to manipulation (as we saw in the UK). Not sure how this will affect current adjustable rate mortgages, but new ones will probably lose LIBOR and will use constant maturity treasuries or some alternative index.

31 Responses

  1. Don’t help your kid. Because equality. Or something.


    • Thought the argument on the left was that Trump was totally wrong when he said that things are zero sum.

      Yeah, people are going to chose the left’s social engineering projects over their own kids. Someone should tell all those liberals with kids in private school to get with the program.


    • Brent:

      Don’t help your kid. Because equality. Or something.

      Truly sickening.


    • i’m awesome at this game!

      your kid is supposed to get to the top, first, right?


    • This game is fun. I lost points for not donating to my alma mater. I’d be happy to use my legacy status, but I’m not donating to those leeches.

      I still ended up a dream hoarder. Yay! My family wins.

      As it should be.


      • And when you win you’re rewarded with a video of some scold lecturing me that my kids shouldn’t be as awesome as they are. Sheesh, that game sucked at the end. Way to not stick the landing.


    • The funniest part is the ending video where some brit lectures us about “hoarding tax expenditures.”

      What the hell does that mean? Taking the mortgage interest deduction is “hoarding it?” Can I donate my state income tax deduction to someone else?

      Liked by 1 person

  2. so true:


  3. The Post goes to 11.

    “Obama’s secret struggle to punish Russia for Putin’s election assault
    By Greg Miller, Ellen Nakashima and Adam Entous
    June 23, 2017”


  4. How to lose credibility:

    “Rev. William Barber: Obamacare repeal would be the greatest moral failing since slavery
    Updated by Jeff Stein
    Jun 23, 2017, 12:10pm EDT

    “We’re really talking about, in a sense, political murder. I know that’s a strong term, but it comes out of the bible,” Barber said. “The bible talks about in Ezekiel 22, when politicians become like wolves devouring the people and do not care for the needy.””


    • And I thought the Republicans were moving to a point where the spoke to exclusively to the base.

      These folks are speaking only to a tiny sliver of people within a very modestly sized bubble. I don’t think 2018 is going to be as awesome for them as they think, mostly because of them.


      • Someone gets it:

        “Trump 2020 Is No Joke

        Roger Cohen
        JUNE 23, 2017”

        Liked by 1 person

        • Noise is the thing — and adrenaline and suspense. There is no content, meaning, history or gravity. Can the president, less than six months into his first term, really hold a 2020 fundraiser in his own Washington hotel? The Oval Office has become the Oval Adjunct. It provides, at taxpayer expense, an ancillary service to Trump properties.

          I have difficulty why it is so different from so many people to grasp. Or understand the significance of it. If I was a strategist wanting to win in 2018 and 2020, and I would be trying to find ways to blunt it. Not poo-poo it and move on, or ignore it, or–as so much of the press and critics seem to do–actively take it seriously.

          It is founded on the principle that velocity trumps veracity — perfect for the president’s manic personality. It reflects the president’s intuitive sense — through his own acute experience — of limited attention spans.

          Exactly. This was in the NYT? I’m surprised it got through. I guess it was seen as being critical of Trump, so why not?

          And to Trump saying of President Andrew Jackson that “he saw what was happening with regard to the Civil War. He said, ‘There’s no reason for this.’”

          In fact, Jackson had been dead for 16 years when the Civil War began. He said nothing.

          That was good. But still, nothing on how to counter it. Observational, but no concept as to how to actually address it.


    • None of this speaks to what the politicians are going to do for the people. The old way was: I’ll give you this, we’ll do this for you. Elect me, and I’ll improve your life in this way. Now it’s all kind of abstract “the other guy hates babies and rainbows” stuff.


  5. I think the left’s argument re: the AHCA fails the “this is about me” test. For most voters, even some of those on Obamacare, I don’t think this feels like it’s about them. Most insured people who really want and need their insurance consider their insurance part of the work arrangement, irrespective of any influence the ACA had.

    So they feel like they are talking to the vast majority of Americans, when they are only talking to their own hardcore partisans. Again.

    The Republicans used to have this problem. Which is one of the reasons they were the minority in the house for 40 years. I think it has a lot to do with why McCain and Romney lost (not all of it, of course). I think it’s why Reagan won. His message was: this is about you. This is what we’re going to do for you. We’re going to get government off of your back. But we’re not going to do much of anything to the things that government actually does for you.

    Even Dubya had a serious “I’m going to protect you” vibe going on that blew Kerry’s Lurch-with-a-heart-of-gold schtick away.

    I get the sense that most Americans, certainly those with a swinging vote, have no sense that Obamacare is something that is for them, or does something for them. And the Democrats aren’t doing anything to change that. I’m not sure they could if they wanted to.


  6. Interesting bellwether:

    “Michael Bloomberg says Democrats should “get behind” President Trump
    Publishing magnate Bloomberg says Dems are too divided to defeat the president, and should work with him instead
    Friday, Jun 23, 2017 01:46 PM EST

    Michael Bloomberg, the former mayor of New York City and owner of several media outlets, thinks it’s time that Americans “get behind” President Donald Trump and “make it work.”

    Democratic opponents of Trump need to get over themselves, Bloomberg argued during an interview on ABC’s “The View.” “The public has spoken, whether you like the results or not,” he said.”


  7. Good insight:

    “That’s really a problem, because the only rule of branding is that you need to be true to your brand. You need to repeat your brand, you need to stay true to it, and so brands like Nike that have sort of presented themselves as being about women’s empowerment, revolution, that have this kind of New Age feel to them, they are vulnerable to exposures that show that young women are being paid abusive wages under abusive conditions to make their products. That’s a problem. Disney has this family-friendly image. You can hold them to account to it to some extent if you find that they are treating their workers poorly, for instance.

    The problem with Trump’s brand is that his brand is being the guy who can do whatever he wants. He said it on the campaign trail: “I could stand in the middle of Fifth Avenue and shoot somebody and I wouldn’t lose voters.” Or the on the Access Hollywood tapes: “And when you’re a star, they let you do it.” That’s his brand, and this is a problem. All of these scandals are not doing all that much to cause Trump’s core base to desert him, because what they see is they see their guy and he’s getting away with it. They identify with him, and if he’s attacked, they feel attacked.

    Where I think Trump is vulnerable, and I’ve talked about how to culture-jam the Trump brand, and I think there are obviously things you can do to Trump’s brand, like present him as a puppet, not a boss. You can try to make him less rich, but that’s hard, because there are all kinds of ways that the Trump family is monetizing the presidency, and it seems to be working for them.

    The brand that I think is most vulnerable is his political plan — that is, “Make America Great Again.” He devised a political brand, and he thinks he can apply the same roles to Make America Great Again as he has applied to the Trump brand, but he made some serious promises with that brand. One of those was how he was going to bring back jobs that pay a middle-class wage. He promised a return to an economy that is going to be very, very difficult to return to, and he promised to protect Social Security, protect health care, and renegotiate trade agreements in the interest of workers.

    I think he is very vulnerable, and one of the things that really concerns me is that the Trump show, the endless show that surrounds this president, some of which he’s directing, some of which other people are directing, is so addictive to particularly TV media that there is barely any time left to focus on the betrayals of the Make America Great Again brand.

    You can see it physically pains news anchors when they have to spend two minutes on what the Senate is trying to do with health care, because it takes them away from the investigations around Trump. News media ratings have never been so high. They are still addicted to the Trump show, just as they were during the election, and it’s coming at the expense, I think, of the kind of journalism that is much more likely to peel away some of Trump’s support. I think it’s the economic betrayals that are more likely to do that. ”


    • Clearly, what the Democrats intended all along. To kill millions of innocent Americans. Truly, it’s treasonous. They should all be impeached.

      … I think I’m getting the logic of this debate, now. 😉


    • “these claims describe an imaginary health-care reform that works”

      It also describes a world in which the mere possession of insurance coverage improves your health. Which I don’t think has ever been demonstrated. Ultimately, the impact on longevity has to be minimal. Most longevity gains have been due to antibiotics and sanitation (or germ theory: we eventually got to the point where medical care was not automatically more fatal than doing nothing). Nutrition probably plays a role. While decent medical care (and insurance coverage for it) no doubt helps improve quality of life, I don’t think there’s a lot of evidence that more widespread insurance coverage can do anything except perhaps create fewer medical bankruptcies. Most expensive healthcare (heart surgeries and cancer treatments near end of life for most folks) doesn’t actually do much to improve longevity in a statistical sense.

      There will be anecdotal cases where it makes all the difference. But 36,000 people a year dying because of mild tinkering with Obamacare and Medicaid? Seems unlikely. I would expect Medicaid cuts could result in making nursing home access a lot harder for poorer Americans . . . that should probably be the focus of the attack.

      “Had mortality continued to decline during ACA implementation in 2014 and 2015 at the same rate as during the 2000–13 period, 80,000 fewer Americans would have died in 2015 alone.”

      I’d bet money insurance coverage is not the problem here, at least not directly. Certain drug prescriptions that do more harm than good may have played a role. Nutrition. Lifelong habits of an aging population. Insurance isn’t a frickin’ magic elixir.


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