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%.

19 Responses

  1. The victimhood totem pole in action: “We’re higher up on the pole than you! Get lost!”


  2. “Inflation” is like the common cold in the sense that cold symptoms are a function of one or another virus attacks and the inflation measure is merely a function of a very large number of variables.

    We tend to think of it in terms of Weimar or Venezuelan money printing, but it is, for a healthy economy, so much more complex. As you note, electronic technology is flat out cheaper and better. Housing is more expensive, but also better, in many ways [no lead paint, no asbestos, insulation, efficient heating and cooling, triple pane windows that don’t leak, better plumbing, engineered hardwood, trusses, hardie fire resistant siding, hardie backer for wet rooms, subflooring that doesn’t creak, and a hundred other improvements that become very notable when you try to “modernize” an old house, even one with good bones], medical care is far more expensive but better, higher education has a greatly increased sticker price for better STEM but essentially the same humanities, social sciences, liberal arts, fine arts, law, and business offerings.

    Military hardware is hugely more expensive. Considering that much of the improvement in it is electronic tech advances, which are cheaper, that seems anomalous.

    Brent, what is the comparison on food pricing?


    • Here is the CPI subindex for food prices:

      At the end of the day, the difficulty with hedonic adjustments is evident in that ad. What does the PC cost? About $1,600. What does a good PC at Best Buy cost? $1,600 is not unreasonable. Yet the techological improvement from 1991 is exponential.


      • Thanx, Brent.

        Food prices seemed to sharply rise with energy pricing.


        • Both are commodities on a global market and are denominated in dollars. So if the US dollar takes a dive, food and energy inflation happens.


    • “Military hardware is hugely more expensive.”

      Increasing complexity, highly vertical customization. Recouping r&d and especially testing. Every piece of hardware has all sorts of expenses embedded in it beyond that, including cost of producing bid responses, lawyers, junkets and conferences, and so on an so forth. An honest effort to drive the price down and increase the quality could reduce the cost tremendously, but isn’t going to happen. There’s an argument that a lot of the military hardware being purchased is far more expensive than the hardware we actually need. Even so, a lot of it is the $500 toilet seat scenario . . . and it’s a lot easier to hide the irrationality of the expense when you’re talking about custom chips or software or memory.

      There’s also military specs. That is, the specs are, as I understand it, highly specific–to the point where certain things use out-of-date chipsets, memory, and other components that can be produced better and cheaper, but don’t match the specs. So certain companies make cash by producing and fulfilling orders for much more expensive, much less optimal, components that have only one feature to justify their outrageous cost: they meet the specs. And there’s no market reason to produce the components for any other reason than to meat the specs. I know that’s been true of things like desktop computers and laptops and simple field gear, so I highly suspect it’s true of the big weapons systems, too.

      That being said, there’s a PC in that Radioshack ad for $1599. The reality is, your average smart phone can do many things that PC never could, and features processing power that is orders of magnitude beyond that PC. To have that kind of processing power–that is, what’s in your iPhone 7–with PCs you’d have to have purchased a hundred of them (paying $159,999 dollars). Now that processing capacity is in a handheld device that is always on a global computer network.

      Human nature tends to be not to emotionally count the insane increase in purchasing capacity allowed by innovation into their impression of inflation or deflation.


  3. Interesting read:

    “Commerce Is Replacing Politics At The Center Of Our Democracy
    Chris Ladd ,
    Jun 26, 2017 @ 11:13 AM 191”


    • “By traditional logic, buyers will happily purchase a cheaper roll of paper towels manufactured by exterminating an entire species rather than paying more for paper towels of equal quality that cause no social harm”

      can i pay more to eliminate a species? can i pick which one?

      Liked by 1 person

    • Communication is easier, so some boycotts work better. Especially when the price of the boycott is deleting one free app from your phone and installing another free app. In that kind of environment, the consumer is always a single twitch away from going to your competitor.

      The Uber example is not a great one. Ride-sharing is dominant in blue, urban environments, and primarily used by the under-40 crowd. That is, the people more likely to want to make a cost-free change to their purchasing habits and switch to the competition. I think that’s worth mentioning. It’s not just friends-telling-friends and posting to Instagram, it’s the nature of the consumers in question, where the product is most popular, and the cost-free nature of making a “statement”.

      If Lyft had not been available, it’s unlikely that Uber would have felt the pinch quite so bad. It’s one thing to make a painless switch to a competitor, quite another to go without.

      Still, I must be an outlier. I’m not going to delete an app or not go to a store because I disagree with the politics of someone at that corporation that runs the store. That’s not what I’m shopping for. I suppose with the more entitle millennial generation, that’s part of their brand identification: is the company populated by the “right” people with the “correct” ways of thinking? I just wanna know if they’ve got the stuff I want at a decent price.


      • This seems likely:

        “As our purchases and our votes merge toward a unified moral fabric, we may miss the days when a chicken sandwich carried no personal statement about sexual freedom.”


  4. Womyn are sexist pigs.

    Dude’s are just wallets with dicks.


  5. Like

  6. This story is amazingly sourced.

    Republicans are growing concerned

    Which ones?

    A half-dozen Republicans, including four who advised or worked for Trump’s campaign or transition and are still in contact with their former colleagues, said

    These could be volunteers in Alaska who are contact with people who have never spoken with anybody high-level.

    a former Trump adviser said.

    Defined as?

    Republicans say

    Why can’t we know?

    Republicans say,

    Which ones?

    some of the vice president’s aides

    There are a lot of aides, how close to the principals?

    Spokespeople with the White House and the vice president’s office

    Such as?

    Members of the two staffs meet together regularly, they say.

    Why can’t we know who the “they” is?

    some of those who worked on the campaign said

    according to a second former adviser in contact with both the Trump and Pence staffs.

    a former campaign official said.

    Republicans say

    but they say

    a second former campaign official said

    the same Republicans say

    aides say

    the first campaign aide said.

    A second former Trump adviser predict

    the former adviser said

    Others say


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