Morning Report: Awaiting the Fed 9/20/17

Vital Statistics:

Last Change
S&P Futures 2504.5 0.0
Eurostoxx Index 381.8 -0.4
Oil (WTI) 50.0 0.5
US dollar index 85.1 -0.2
10 Year Govt Bond Yield 2.24%
Current Coupon Fannie Mae TBA 103.24
Current Coupon Ginnie Mae TBA 104.21
30 Year Fixed Rate Mortgage 3.85

Stocks are flat as we await the FOMC decision. Bonds and MBS are down small.

The FOMC decision is due out at 2:00 pm EST and Janet Yellen will hold a press conference at 2:30 PM. While no changes in interest rates are expected, there could be some market movement, especially if we see surprising changes to the economic forecast or the dot plot.  At the June meeting, the FOMC was predicting GDP growth of 2.2% for 2017, unemployment of 4.3% and PCE inflation of 1.6%. GDP growth averaged a touch over 2% for the first half, so the Fed is clearly anticipating a stronger second half. The markets are also looking for some guidance on tapering MBS and Treasury purchases. Given how much rates have risen over the past couple of weeks, we could be due for a bit of a “buy the rumor, sell the fact” rally post event.

Mortgage Applications decreased 9.7% last week due to an increase in rates and the effects of Hurricanes Harvey and Irma. Purchases decreased 11% and refis fell 9%. Treasury rates increased 11 basis points. The hurricanes were a big driver of the drop: ex-Florida and Texas, applications increased 13%, however there are all sorts of seasonal adjustments, along with the effect the Labor Day comparison that come into play as well.

Existing Home Sales came in at 5.35 million in August, a drop of 1.7% from the July reading of 5.44 million. SFR sales fell while condos rose. Hurricane Harvey probably had some effect on August sales, however the overriding concern is lack of inventory which fell to 1.88 million homes, which represents a 4.2 month supply at current rates. The median home price rose to 253,500, an increase of 5.6% YOY. The first time homebuyer accounted for only 31% of sales, the lowest in a year. Historically, that number has been closer to 40%.

Hurricane Maria is expected to hit bankrupt Puerto Rico and then move up the East Coast. Most of the spaghetti tracks predict it won’t hit the US East Coast, but it is still very early.

Looking to buy your first house? Trulia advises you to start looking now, as starter home inventory peaks and prices bottom in the seasonally slow period. They find that inventory for starter homes actually rises 7% in fall months and prices are 3% – 4% lower compared to the spring and summer seasons. Separately, tight inventory remains an issue. On a year-over-year basis, starter home inventory is down 20% this quarter, while move up is down 12% and luxury is down 2%. Overall, inventory is down 9% YOY nationally.

In response to Hurricanes Irma and Harvey, HUD, Fannie, and Freddie have provided some disaster relief for borrowers in areas affected by the storms. There will be a 90 day moratorium on foreclosures, as well as increases in SBA loans and 203k loans to help people rebuild homes destroyed in the storm.

Credit card delinquencies are on the rise as consumer borrowing is outpacing income growth (again). Note subprime auto DQs are on the rise too. Mortgage delinquencies are still falling, which is good news.

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