Morning Report: Housing is still highly affordable 1/2/18

Vital Statistics:

Last Change
S&P Futures 2686.3 10.6
Eurostoxx Index 389.2 -0.4
Oil (WTI) 60.1 0.2
US dollar index 86.0 -0.3
10 Year Govt Bond Yield 2.44%
Current Coupon Fannie Mae TBA 102.375
Current Coupon Ginnie Mae TBA 103.25
30 Year Fixed Rate Mortgage 3.92

Stocks are higher to start the year. Bonds and MBS are down.

We will get the FOMC minutes this Wednesday and also the jobs report on Friday. Both have the potential to be market-moving. Other than that, we will get the ISM reports and construction spending.

Home prices continue to increase at a torrid pace, as the CoreLogic House Price Indicator has had its fourth straight month of 6% annual increases.

Given the size of the rebound in the home price indices, we are seeing all sorts of questions about affordability. In the latest issue of the Scotsman Guide, I discuss home prices and affordability questions. The article was written last fall before it looked like we would get any action on tax reform. The mortgage interest deduction will now become irrelevant for most homeowners, but that doesn’t necessarily mean that housing has become less affordable – at least not at the median home price and median income. Regardless, the biggest driver of housing affordability is the mortgage rate, not the house price. Affordability was the worst in the early 80s, when mortgage rates were double digits. The chart below looks at the mortgage payment as a percent of income over time. Note that the mortgage interest deduction moves the curve downward in a more or less linear fashion, and does not make much of a difference in terms of relative affordability.

11 Responses

  1. “The mortgage interest deduction will now become irrelevant for most homeowners,”

    Because of the increase in the standard deduction?

    Like

    • yes… the focus of the article was median house prices (~250k) and median incomes (~55k). That type of borrower is going to be insensitive to changes in the MID cap (750k) and the MID because they will be better off with the standard deduction..

      Like

      • people seem to think that mortgage of 750k is the same as a sales price. i don’t even care about that cap — i’m grandfathered in, and if you can afford a mortgage of 750k — congrats, you’re rich, even if you’re in Fairfax, MoCo, etc.

        Like

  2. Come down here and start some shit, bitchez…

    Liked by 1 person

  3. They need a Plan B if Trump gets reelected.

    Like

    • Krugman and Yglesias are all over Twitter this morning screaming “There is no proof that regulation hurts business!!!!”

      Well of course: I am sure there are all sorts of studies that fail to find something the author doesn’t want to find…

      Like

      • That’s idiotic. That’s like saying there’s no proof hammers hurt fingers. Most of the time, hammers may not hurt fingers. But when you hit your finger with a hammer, it does, in fact, hurt.

        It is possible to right regulations that don’t just hurt businesses but put them out of business completely. It’s ridiculous to say that regulation doesn’t hurt business. Some probably don’t, but almost any additional hoop adds to the burden of running a business.

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        • KW:

          Regulations hurt business pretty much by definition. If they didn’t, you wouldn’t need the government to force businesses to adhere to them. Sure, there may be some perceived benefit to imposing a regulation that outweighs the harm done by the regulation, but that the regulation hurts the businesses that would otherwise not adhere to them is obvious.

          Like

  4. The chart below looks at the mortgage payment as a percent of income over time. Note that the mortgage interest deduction moves the curve downward in a more or less linear fashion, and does not make much of a difference in terms of relative affordability.

    Chart?

    With the loss of the graduated tax brackets for C corps small C corps will see a substantial tax increase.

    An S election is a way out for some but not for others.

    New Code has defined “personal services” more broadly. This will affect many decisions. For example, [name withheld] Dell’s Austin event planner is an employee who wanted to become an independent contractor to take advantage of “pass through”. Except that her payroll tax would double if she did, because she falls into the expanded category of “personal services” provider.

    Taxes have become much more complicated – again – an accountant’s and tax lawyer’s Civil Relief Act.

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  5. Housing is still highly affordable

    Some completely flat and ready to landscape view lots are coming on the market in Santa Rosa, CA, at bargain prices.

    Like

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