Morning Report: Inflation-adjusted home prices throughout the years 6/26/17

Vital Statistics:

Last Change
S&P Futures 2442.5 7.5
Eurostoxx Index 390.7 3.1
Oil (WTI) 43.1 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 3.91

Stocks are higher this morning on good economic news overseas. Bonds and MBS are flat.

Not a lot of important data this week, although we will have a lot of Fed-speak tomorrow. Personal Income and Personal Spending on Friday will be the biggest event.

Durable Goods orders fell 1.1% last month, as aircraft orders (which are notoriously volatile) fell again. Ex transportation, they were up .1% MOM and 5.5% YOY. Capital Goods orders (which is a proxy for capital expenditures) fell .1% MOM and is up 5% YOY.

Economic Growth slowed in May, according to the Chicago Fed National Activity Index. This looks like a bit of a reversal from a strong April reading. Production indicators drove the decrease, while employment and housing contributed.

The recent rally in the markets could provide another justification for rate hikes, according to NY Fed President William Dudley. “When financial conditions ease, as has been the case recently, this can provide additional impetus for the decision to continue to remove monetary policy accommodation.”

Note the language “remove monetary policy accommodation.” To the Fed, they are still stimulating the economy, and they are dialing back that accommodation, not tightening in the classic sense.

On an inflation-adjusted basis, home prices have been outstripping inflation for decades. In the 1940s, the median house price (inflation adjusted to 2000 dollars) was $30,600. The median home price in 2000 was almost 200k, inflation adjusted. If you look at non-inflation adjusted numbers, the median home price in 2000 was $2938, and the median income was $956, making the median house price to median income ratio 3.07x. Generally speaking, that ratio is in the 3.1x – 3.6x range historically. It did peak at 4.8x in 2005, and we are back to elevated levels again.

Speaking of inflation, while things like healthcare, college tuition have outstripped inflation, technology has driven it lower. Check out this Radio Shack Flyer from 1991. Everything on that page cost over $3,200 and all that functionality can now be found on your smartphone. (Yes, even the CB can be monitored via browser). Here is what your phone may be able to do in 10 years.

radio shack

Delinquent GSE mortgages are at the lowest level since 2008. DQ GSE loans were 1%, while DQ FHA loans were 4%. DQs overall were 2.8%.

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