Morning Report: Awaiting the Fed 12/13/17

Vital Statistics:

Last Change
S&P Futures 2667.8 0.0
Eurostoxx Index 391.3 -0.4
Oil (WTI) 57.7 0.5
US dollar index 87.3 0.0
10 Year Govt Bond Yield 2.42%
Current Coupon Fannie Mae TBA 102.531
Current Coupon Ginnie Mae TBA 103.591
30 Year Fixed Rate Mortgage 3.88

Stocks are flat as we await the FOMC decision today at 2:00 pm. Bonds and MBS are up on a weaker-than-expected CPI number.

The FOMC decision is set to be released around 2:00 pm EST. The Fed is almost certainly going to hike by 25 basis points, but the economic forecasts and the fed funds forecasts (the dot plot) will be the focus. The language of the statement will come into play as well, but the dot plot will be the first thing traders will look at. Loan officers, be careful locking around then.

Mortgage applications fell 2.3% last week as purchases fell 1% and refis fell 3%. The 10 year bond yield inched up and mortgage rates hit their highest levels since March.

Prices at the consumer level rose 0.4% in November and are up 2.2% YOY. Ex-food and energy, they rose 0.1% MOM and 1.7% YOY. The Fed prefers to focus on the personal consumption expenditure index, not CPI. Energy prices rose smartly in November, and accounted for about 3/4 of the increase in the index. The core rate was a touch below expectations.

The House and Senate continue to work on reconciling their tax bills. It looks like the final compromise will result in a corporate tax rate of 21%, a mortgage interest cap of $750k, lowering the top rate to 37%, and setting the pass-through rate at 23%. Congress hopes to vote on a bill early next week, before Democrat Doug Jones, who won in Alabama last night, takes his seat.

If the mortgage interest deduction cap falls to $750,000 it probably shouldn’t make that big of a difference for home prices, and certainly not at the lower price points. Remember, the median house price in the US is about 1/3 of that number. But the bedroom communities of some of the bigger cities could see a softening, especially at the top end.

The lack of affordable housing is a critical problem in this country, and many advocates are worried about tax reform. Affordable housing is largely driven by tax benefits, and those benefits are a function of tax rates. Lower tax rates, and the value of the tax benefits fall. A second issue is that commodity prices are rising, which increases construction costs. Lumber is up almost 15% from the beginning of the year, and OSB products are up 30%.

Homeowners’ equity increased by 1.3 trillion over the past year ending in September, as the value of the housing assets rose to $24.2 trillion and outstanding mortgage debt rose to $10 trillion. Homeowner’s equity as a percentage of home value is pretty much back to pre-crisis levels. It has been mainly driven by home price appreciation, not decreasing mortgage debt, however.

20 Responses

  1. https://www.vox.com/policy-and-politics/2017/12/12/16770524/doug-jones-alabama-roy-moore-donald-trump

    He’s almost there but can’t admit the flaw is the progressive era reforms. You wanted power to the people. WTF did you expect.

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    • The other thing the left cannot contemplate: People think so little of Democrats that they would rather have a child molester…

      But they are going to do their Neon-Deion end zone dance and fantasize about a wave election in 2018…

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      • Brent;

        The other thing the left cannot contemplate: People think so little of Democrats that they would rather have a child molester…

        And that calculation isn’t obviously incorrect: at least the child molestor isn’t going to use his elected position to force the rest of us to adopt his fucked up value system.

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        • In regards to 40 year old trolling for dates half his age, that’s no doubt true. Democrats can run people whose moral failings are inconsistent with their political platform–my problems with Franken are not that he tried to legislate a force-french-kiss and grab-boobies mandate, but other stuff he felt need to be legislated.

          Generally, people’s personal failings (especially in the case of those like Moore, whose poor choices were very far in the past), the rational voter looks at their policy agenda.

          Or how much they hate the opposition. Also something to vote on, if no good political platform seems available.

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      • But they are going to do their Neon-Deion end zone dance and fantasize about a wave election in 2018…”

        While I’m not going to say a wave is impossible (and certainly, Republicans will likely lose ground, and they should, they’re all incompetent) I doubt it will be as big a wave as they hope for (but flip either house and they progressives will cheer . . . but then Ezra Klein will write an execrable column about how the victory was not decisive enough to make him feel comfortable with American Democracy).

        I think there are specific issues with a serious Democratic wave: one, the Democrats don’t have the kind of resources they through at Moore and Karen Handel in Georgia, and the attention of the progressive media will be divided . . . and not everything Republican will have a rich well of skeletons in their closets for the opposition to mine the way Moore did.

        And people get inured. Enough accusations about gropey dating habits of candidates back in the 90s and 80s and the magical talisman will lose its power as far as the electorate is concerned.

        I think the narrow win for Handel in Georgia and the narrow loss for Moore in Alabama may have a “oh, we’ve got this” effect, and keep millennial progressive voters from showing up, assuming some “adult” somewhere will handle all the voting and get it done for them. And then be surprised when half the seats that were definitely going to flip to the Democrats didn’t actually do so.

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    • Donald Trump was caught on tape bragging about sexual assault

      No, as unseemly as it was, he said that women let you kiss them and grab their pussies. They consent because of fame and wealth. That’s different that an accusation of rape. I think it’s irrational to argue that proximity to fame and wealth subordinates another human being, being around someone rich and famous doesn’t make me beholden to them as those things are not a cloak of authority. To think that says more about the accuser.

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      • You corked me on that. But the reason all news is pretty much #FakeNews is just this kind of ideological, partisan, or cultural shorthand. The press trades in memes. Any casual reference to previous story or controversy will be the Facebook, comment-section meme version of it, not a datapoint.

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    • Why Doug Jones’s narrow win is not enough to make me confident about American democracy

      Why the f**k should I care if Ezra Klein is confident about America? Why should anyone?

      Thank God for the Internet. I hate to think of the innocent trees that might die reprinting the vacuous garbage that appears on Vox if that were a print magazine.

      That’s not the highest bar I can imagine for a democracy to clear, but I’m glad we cleared it.

      Why do I care what you think? Why should anyone? You are just one voice amongst millions. Hundreds of millions. And not a particularly compelling one.

      Donald Trump was caught on tape bragging about sexual assault.

      Sexual assault by the new definition, anyway. And not bragging about having committed one, just that it was possible. Any commission of wanted or unwanted grabbing was implicit, not explicit. But none of that matter because the press, these days, trades in memes, not facts and details.

      We can’t trust that all unfit demagogues will turn out to be predators.

      Almost all politicians are predators of one kind or another. That’s why they want their hands on the reigns of power. Not quite there.

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  2. Fed revises 2018 GDP estimate UPWARD (first time in memory) from 2.1% to 2.5%. Unemployment estimate taken down to 3.9%.

    Markets likey….

    Fly in the ointment for democrats: strong economy….

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  3. We’re long past the time we should
    Sending these douchebags money.

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    • So is NPR…. is almost as if it is all an act….

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    • McWing…you might be interested in this story about Houston:

      https://www.city-journal.org/html/doing-houston-wrong-15604.html

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      • Thank Scott, it’s an interesting article. I love the fact that there is very little zoning here, this city exudes commerce like nobody’s business. I’ve never been to Hong Kong (pre China reunification) but I suspect that we parallel them in business friendliness. When you consider the flooding from Hurricane Harvey you have to keep a couple of things in mind, Houston was on the “dirty side” of the storm, that means that gulf water was driven inland as the storm came onshore, any rainfall that would/did occur inland therefore had no where to go. The other thing to consider is that it rained over 50 inches over about 36 hours, it was a massive amount of water that essentially had no where to go. It’s a testament to something that there wasn’t more flooding. Also, like the article says, roadways are reservoirs and rivers during flooding, it makes travel difficult but keeps a lot of places dry that otherwise would flood.

        The one thing that made me laugh though was the earnestness the authors expressed over the “reality” of climate change. I don’t even know what that means anymore, but these people sure seem to believe it!

        Liked by 1 person

        • Houston will continue to deal with its waterway issues in a constructive way. I foresee a time when there are no buildings along Braes Bayou for a thousand yards on each side, upstream from the Medical Center, say from Meyerland, and it becomes a huge waterway and park and designed flood plain. I could see most of Meyerland leveled. That would be consistent with what Houston has already gradually undertaken, especially on Buffalo Bayou, which has a lot of green belt around it.

          Are there plans to raise levees around Addickes Reservoir?

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        • They’re supposed to make the homeowners raise their houses but they keep issuing waivers and providing flood insurance, so…

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  4. Trump has the best opponents.

    The Strzok texts, which he exchanged with Lisa Page, his mistress and an FBI lawyer, were discovered as part of the inspector general’s investigation into the FBI’s handling of the Clinton email investigation.

    Ironically, Democrats pushed for the investigation. Many Clinton supporters blamed then-FBI Director James Comey’s actions during that investigation for Clinton’s election loss.

    The dude has a horseshoe up his ass.

    http://dailycaller.com/2017/12/13/new-details-emerge-about-discovery-of-fbi-agents-anti-trump-texts/

    Like

  5. Like

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