Morning Report: Seattle home prices up 13% 6/27/17

Vital Statistics:

Last Change
S&P Futures 2433.8 -2.3
Eurostoxx Index 386.3 -2.7
Oil (WTI) 44.0 0.6
US dollar index 88.4 -0.3
10 Year Govt Bond Yield 2.17%
Current Coupon Fannie Mae TBA 103.31
Current Coupon Ginnie Mae TBA 104.375
30 Year Fixed Rate Mortgage 3.91

Stocks and bonds are lower this morning as we have a lot of central bankers speaking today.

Home prices rose .5% in April and are up 5.7% YOY, according to the Case-Shiller Home Price Index. Seattle home prices rose almost 13%, while Portland and Dallas rose over 9%. They ask the question whether we are in another bubble, which we are not. Bubbles are fundamentally psychological phenomenons, where both investors and lenders view an asset as “special” and argue that it cannot fall in price. While home prices may be reaching unsustainable levels, the lending side of the business is emphatically not exhibiting bubble-like behavior. Credit is still tight for anything that doesn’t fit in the government / GSE box. In fact, the government would like lenders to take more risk than they are willing to take at the moment.

Consumer confidence rose in June, while the Richmond Fed Manufacturing index improved.

Fannie Mae’s latest Housing Outlook is out, and they are predicting 2% GDP growth for 2017. For Q2, they are forecasting 2.9%. Housing will continue to be held back by labor and land shortages, however mortgage rates will remain supportive of the housing market in general.

Senators Bob Corker and Mark Warner are working on a plan to break the Fannie / Freddie duopoly. The plan would split the single-family and multi-family lines and break the single family up into more independent firms. The broad guidelines are to increase competition, reduce barriers to entry, reduce risk to the taxpayer, and to maintain the 30 year fixed rate mortgage. The most difficult part will be dealing with low-to-moderate income support, where there are genuine philosophical differences between Republicans and Democrats.

The bloom is off the rose for the post-election surge in confidence, according to Gallup. The economic confidence index stayed at 3 last week, off of its March high of 15, but still above the pre-election level of -11. Much of this breaks down along partisan lines, with Democratic voters the most gloomy about the economy and Republican voters most confident. Before the election, this dynamic was reversed – with Democrats optimistic and Republicans pessimistic.

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