Morning Report: Home prices rise 12/27/17

Vital Statistics:

Last Change
S&P Futures 2689.8 2.8
Eurostoxx Index 390.1 -0.1
Oil (WTI) 59.5 -0.4
US dollar index 86.6 -0.2
10 Year Govt Bond Yield 2.46%
Current Coupon Fannie Mae TBA 102.375
Current Coupon Ginnie Mae TBA 103.25
30 Year Fixed Rate Mortgage 3.97

Stocks are higher this morning on no real news. Bonds and MBS are up as well.

Home prices rose 0.7% MOM in October and are up 6.4% YOY, according to the Case-Shiller Home Price Index. Seattle, Las Vegas, and San Diego led the charge with 12.7%, 10.2%, and 8.1% gains respectively. Inventory fell to 3.4 month’s worth of supply, although some of that is probably seasonal. With home prices accelerating so fast out West, renting could be more attractive than buying in some MSAs.

Manufacturing continued to be strong in in December according to the Richmond and Dallas Fed.

Pending home sales rebounded in November, according to NAR.  This is the first YOY gain since June, and is being driven by a strong economy. There might have been some hurricane elements at play however.

What trade worked in 2017 (aside from Bitcoin and the stock market?) Credit risk transfer securities issued by Fannie and Fred. These are meant to offload some of the credit risk that the GSEs hold on their balance sheets. They take the first losses when borrowers default. The subordinate tranches of these securities made over 11% last year. outstripping high yield bonds and MBS by a wide margin. If there is more of an appetite for these securities, it will go a long way in helping establish the framework for competition to Fannie and Fred.

The current state of affairs over who runs the CFPB: Mick Mulvaney (appointed by Trump) or Leandra English (appointed by outgoing director Richard Cordray).

Tax reform will probably cause more migration from the high-cost states like NY, NJ, CT, IL, and CA to cheaper states like NC and TX. These states are hit with the double-whammy of high housing costs and high state taxes. The difference probably isn’t going to be enough to cause a massive migration, however it could nudge those who are on the fence.

Bond funds have been seeing outflows since tax reform has passed and investors are making changes to their asset allocations. Bond funds saw a withdrawal of $3.3 billion in the week ending Dec 20, which may account for the big increase in the 10 year’s yield that week. It isn’t just US Treasuries – the German Bund yield is up big this year as well. As investors become more constructive on the economy, they are shifting to emerging market sovereign bonds, which pay more and are more levered to global economic growth and out of Treasuries and Bunds, which are largely looked at as safe haven assets. Developed market stock funds also saw outflows as investors rang the register after a great year.

14 Responses

  1. Hope Lulu drops in and sees this Sign of the Apocalypse.

    https://la.eater.com/2017/12/18/16791842/cracker-barrel-victorville-coming-february-update-tracking

    There are few chains that serve worse fare, IMHO. I hate eating on the Interstates in the SE because this cancer metastisizes along them.

    Texas has them behind the Pine Curtain, but I think their spread has been stifled elsewhere.

    If you have never been to Victorville, CA [I have been] this is just another reason to avoid it. People actually commute 100 mi each way from there to work in LA County. A lot of tired folks.

    Addendum: these pits of lard are actually spreading along IH 35, IH 20, and IH 10 in Texas. I hope they all fail.

    Like

    • The best part is that you can’t leave without spending something for a noisy toy for your little one, just to annoy you with for the next few hours in the car…

      Like

    • Many years ago I and the family got stranded down in Florida when a snow storm hit the Northeast and our flights back home got cancelled. After staying an extra night and spending 6 hours in the airport the next day waiting for our rescheduled flight to take off (which it never did), I finally had had enough so I rented a car and drove back home. That was when I got acquainted with Cracker Barrel, and it was a life saver.

      Since we had planned to fly back home, we were totally unprepared for the 2-day trek in the car, especially with 3 kids between 6 and 11 years old. But it turns out that at Cracker Barrel you can rent audio books on tape at one store, and return them to any other Cracker Barrel store in the country, which was exactly what I needed to keep the kids entertained in the car for 2 days. It was extremely useful.

      Having said that, I have never actually eaten in one, and in fact have not set foot in one since that trip. (It was on the same drive that I was introduced to the wonders of the Waffle House, now a staple on every trip I make south of Virginia.)

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  2. Interesting observation that’s probably true:

    “Ezra Klein

    So tell me where the election was, in your estimation, before the stories about Roy Moore’s predations.

    Joe Trippi
    Oh, we know [where the election was]. We know exactly. The day before the Washington Post story came out, we were behind by 1 point, 46 to 45. And the day before the election, we were ahead in our own survey by 2 points. We ended up winning by 1.8. So as far as we’re concerned, all those other polls that were all over the place, showing 11-point and 8-point margins, we feel we were always on top of the pulse of what was happening, and it was a dead heat the day before the allegations came out.

    The key to us having a chance was to detribalize the politics of the state. If Alabama was reacting to the tribal politics of our times, there was no way for us to win. And in a weird way, the allegations created tribalism again. You either believe the charges or you don’t believe the charges. Suddenly, we’re back into Republicans who don’t believe the charges; it’s the media out to get Roy Moore. He’s able to start tribalizing the race. Trump begins coming in with him. And every time that happened, Roy Moore would open a lead.

    Ezra Klein
    So you’re saying the allegations, in some ways, helped Moore in your polls.

    Joe Trippi
    In a weird way, yeah. A lot of what people didn’t like about Moore was the fact that he’d been removed from office twice, the fact that he had started a religious charity and taken a million dollars from it after he’d told everybody he wasn’t making any money on it. Those things were totally knocked off the charts by the allegations. And those other allegations, the other problems that people had with him, cut across party lines. If you take a million dollars and lie about it, there’re plenty of Republicans who are scratching their heads.

    But when it comes to the [sex] allegations, suddenly there’s a fake yearbook. He’s able to create all this doubt, push against the mainstream media. He’s literally playing right into the Trump handbook.”

    https://www.vox.com/policy-and-politics/2017/12/26/16810116/doug-jones-alabama-polls-roy-moore

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    • Would Luther Strange or Mo Brooks have won that special election?

      If so, what’s that say?

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    • jnc:

      Interesting observation that’s probably true:

      So if I understand it correctly, the day before the sex allegations came out, Moore was up. After the allegations, Moore went down, and ended up losing by almost precisely that down margin. And somehow this indicates that the sex allegations helped Moore? Someone is going to have to help me out with that logic.

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      • I think the allegations and especially the timing and manner of the reporting about them allowed Moore to frame it as him vs the media.

        I think Strange would have won the seat.

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        • Do you think It would have been a close race if Strange (or Brooks) were the nominee?

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        • jnc:

          I think the allegations and especially the timing and manner of the reporting about them allowed Moore to frame it as him vs the media.

          Sure, but being able to do so obviously didn’t blunt the negative effect of the allegations. So the claim that the allegations helped him seems to me absurd on its face. Only if one thinks the D’s would have won by an even larger margin in the absence of the sex allegations does the claim make any sense, but Trippi never give us any reason to think such a thing, and he even explicitly says that even he had Moore ahead before the allegations came out.

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        • “Do you think It would have been a close race if Strange (or Brooks) were the nominee?”

          Strange I think would have won pretty easily. I have no idea about Brooks.

          But as the piece notes, Moore had more baggage than just these allegations.

          Like

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