Morning Report: Existing Home Sales fall 7/24/17

Vital Statistics:

Last Change
S&P Futures 2468.0 -1.3
Eurostoxx Index 378.9 -1.3
Oil (WTI) 46.1 0.3
US dollar index 86.4 -0.1
10 Year Govt Bond Yield 2.24%
Current Coupon Fannie Mae TBA 103.31
Current Coupon Ginnie Mae TBA 104.375
30 Year Fixed Rate Mortgage 3.96

Stocks are lower this morning as earnings continue to come in. Bonds and MBS are flat.

The big event this week will be the FOMC meeting on Tuesday and Wednesday. No change in rates is expected, however the language in the statement always has the potential to move markets, so just be aware. We will have some important data, especially in housing, as well as GDP this Friday. No data this morning, however.

Affordable housing advocates will be spending the week marching and discussing the need for more affordable housing, as well as advocating for no cuts the HUD’s budget. The biggest proposed cut to HUD involves the Community Development Block Grant program, which famously funds Meals on Wheels, but is in reality just funds pet projects in various districts, especially in the counties surrounding DC.

The Fed will probably discuss tapering this week, which concerns letting its portfolio of bonds bought during quantitative easing to mature. The European Central Bank is also contemplating doing something similar. While there is concern that tapering will push up longer-term interest rates, these are probably overblown. Certainly QE did not affect mortgage backed spreads much at all, and tapering will be a fraction of what full-blown QE was.

Existing Home Sales dropped 1.8% in June as tight inventory is driving up prices and affecting affordability. The median home price increased 6.5% to $263,800. This puts the median house price to median income ratio at about 4.4x, which is elevated. That ratio peaked at 4.8x during the bubble, and fell to 3.3x during the bust years. Historically that number has been in the 3.2x-3.6x range, although you have to correct for interest rates, which does affect affordability. You can see the index of home prices versus incomes diverging again.

Total housing inventory fell to 1.96 million units, which represents a 4.3 month supply. A balanced market is usually around 6 month’s worth. Affordability concerns also hurt the first time homebuyer, who fell to 32% of sales, down from a 33% the prior month. All cash sales were down to 18% from 22% the year prior. The REO to rental trade might be driving that as professional investors stop buying. In fact, pros should be looking at selling – prices are elevated.

11 Responses

  1. Ahhhh. Frist!

    Liked by 1 person

  2. Vox going full-on Vox:

    This need for planning runs counter to the persistent strain of anti-government, anti-regulation ideology in the US. The whole notion of designing a future, rather than trusting “the market,” sticks in many Americans’ throats.

    But as a new study makes clear, we’re going to have to get over that.


    • “as a new study makes clear”

      Their condescension to the “market” (the collective result of everyone’s individual choices) is only exceeded by their non-questioning faith in “studies” by “experts”.


    • Which of these two futures comes to pass, or what mix of the two, does not depend on technology. It depends on us — our willingness to discuss, debate, and plan for the future we want.

      They aren’t talking about planning for the future “we” want, they are talking about planning for the obviously superior future they want, and what to do about the ridiculous people who don’t just agree that their experts and everybody should live the way they tell us to.

      It’s a nice vision. But to be realized it must overcome two barriers. One is US aversion to active government.

      “Active” is a nice euphemism for dictatorial. 😉


  3. The “Better Deal” unveiling:

    Same old wine, new Papa John’s tagline…


    • a life preserver? really?


    • It’s an improvement. I think, branded correctly, it could work. Way better than the “Make America Sick” again. Although the NYT, who I assume came up with the graphic, apparently hasn’t got the message. Their strategy should be to frame their policy goals in terms of benefits to the people who are going to get them, or those people getting what they are owed, or a fair shake, etc.

      “We’re going to come rescue you because you can’t be trusted to help yourself” is the message the Democrats have tended to be losing on.

      Which is not the Better Deal message, as I read it, but is the graphic the NYT decided to slap on the article.

      While it’s apparent Schumer and/or other Democratic strategists have been consulting with people who understand branding and advertising, they may have trouble getting the press on the same page. I think this particular bit strikes exactly the right tone for winning in 2018, but the press will continue to obsess over Trump, leaving the Democrats little air to breathe in the flyover-country news cycle. And when the races start in earnest, the same-old/same-old “a vote for my opponent is a vote for racism and bigotry” will start, and they’ll forget most of the “here’s what we’re going to give you/do for you” message.


    • They are pushing for single payer as well. Hello! Obamacare is a hot mess and they are pitching more government involvement in health care…

      Liked by 1 person

      • Obamacare is evidence that trying to keep private insurance in the mix and markets just doesn’t work. The government needs to manage all of it! That’s the problem: too much private insurance!


  4. The NYT frets over why Brighton Beach isn’t taking their marching orders…


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