Morning Report: Mortgage Credit Availability increases 6/13/18

Vital Statistics:

Last Change
S&P futures 2792 4
Eurostoxx index 388.99 1.46
Oil (WTI) 65.94 -0.41
10 Year Government Bond Yield 2.96%
30 Year fixed rate mortgage 4.62%

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

The FOMC decision is set to come out at 2:00 pm EST. Investors are going to probably focus most closely on the dot plot to get a sense of whether we get 1 or 2 more hikes this year. Generally speaking, the dot plots have been a bit more hawkish than the Fed Funds futures market.

Inflation appears to be picking up at the wholesale level (kind of echoes what we were seeing yesterday in the NFIB Small Business Optimism report). The Producer Price Index rose 0.5% MOM / 3.1% YOY, which was higher than expectations. Much of the pressure came from higher energy prices. Trade (which is a function of the dollar) was the other catalyst. Ex-food and energy, prices rose 0.1% MOM / 2.6% YOY. The Fed does pay attention to this number, however the PCE index is their preferred measure of inflation, and it is sitting close to their target.

Mortgage applications fell 2% last week. Both purchases and refis fell by the same amount.

Mortgage Credit Availability rose in May by 1.5% as a dwindling refi market is encouraging originators to widen the credit box. While the index has been steadily rising since 2011 when it was benchmarked it is nothing like the bubble, where credit was orders of magnitude tighter.

The business press warns that liquidity is going to dry up during the next crisis. While Dodd-Frank claims to allow market making (and not proprietary trading), there is no doubt that banks are going to be completely uninterested in sticking their necks out during the next sell-off. Even worse will be ETF investors who think an exchange traded fund gives them a liquidity risk “free lunch”. (It isn’t like I am investing in junk bonds – I am investing in an ETF that invests in junk bonds – its different!) When the underlying assets of that ETF go no-bid, so will the ETF.

Ever wonder why servicing values in states like NY, NJ, and CT are so low? The foreclosure process can stretch out for years. In this case, the occupants made their last payment in June 2010.

Speaking of the Northeast, all real estate is local as they say. While the West Coast sees sales close in weeks, luxury properties languish for years in the Northeast. The tony NYC suburb of New Canaan, CT has banned “for sale” signs, because there are too many of them (although the excuse is that people shop on line). There is definitely a bifurcation line in the NYC suburbs – below $750k you can move the property, above that good luck. And $1.5 million or more, forget about it.

From the NAHB: rental inflation is moderating. Meanwhile, home equity hits a new high.

30 Responses

  1. This sounds a bit like an Atlas Shrugged moment:

    “Then, in early May, before the council had even voted on the head tax, Amazon announced that it was halting construction on a new downtown Seattle tower. An Amazon spokesman told The Seattle Times that the company was considering subleasing space instead—implying that the company might leave Seattle if the head tax passed. The Building and Construction Trades Council then started expressing concern that the tax would kill construction jobs. This frustrated Mosqueda, who said Amazon had made requests about the format of the tax and then opposed it. “If folks are going to come to the table, and make requests, we have to make sure that they stay true to their word,” she told me.

    The Amazon announcement shifted the tenor of a campaign that had thus far won support from many of the liberal city’s council members. “That really changed things overnight,” Wilson, of the Transit Riders, told me. “People got scared.” Wilson told me that the original head tax, a $75 million proposal to tax companies at a rate of $500 per head, would have passed, had Amazon not stopped construction. “Somehow when Amazon said we are going to shut things down, they drove a new narrative and they were successful,” Mike O’Brien, a city council member who initially supported the head tax, told me.”

    https://www.theatlantic.com/technology/archive/2018/06/how-amazon-helped-kill-a-seattle-tax-on-business/562736/

    Liked by 1 person

    • Somehow when Amazon said we are going to shut things down, they drove a new narrative and they were successful

      Somehow…like it’s a mystery.

      Liked by 1 person

      • The real fear:

        “What changed council members’ minds about the head tax, though, was the tenor of the campaign to oppose it, which began to morph into a broad criticism of Seattle’s city council and its members. One ad, for example, showed a picture of council member Mike O’Brien with the headline, “Councilmember O’Brien admits that the City Council has no plan,” and was paid for by the Seattle Metropolitan Chamber of Commerce, according to The Stranger. The No Tax On Jobs campaign successfully shepherded the anger of hundreds of city residents over homelessness into anger at the city council itself. Council members and their progressive allies began to worry that not only would they lose the referendum, but they’d also get voted out of office come November. “It would be a very bad outcome if we lost horribly at the ballot, and they all get booted out this year,” Wilson told me.”

        Liked by 1 person

    • Novel way to solve the housing supply. Tax business, watch them leave, workers flee, bingo! No more demand for housing..

      Liked by 1 person

      • Better than building taller apartment complexes and ruining the view.

        As all good socialists know, the cause of problems like homelessness is economic growth and the resulting inequality, hence the need to curtail them.

        Liked by 1 person

    • Which is what they should do. Big companies who can absorb these crazy taxes and so do are a big part of what kills small businesses who can’t compete. So bully for them!

      Like

    • Just started reading but can already tell their opinion of Thomas is just more progressive “you’re stupid if you don’t think like us” BS.

      Like

      • I have no problem with Goresuch’s opinion.

        Like

        • Why not?

          Like

        • Mark:

          Why not?

          I found Gorsuch’s argument compelling. He wasn’t arguing that the law in itself is a violation of the Contracts Clause. He was arguing that the retroactive application of it to a contract entered into before the law was passed is a violation of the Contracts Clause. From my reading Kagan’s opinion spends pretty much the entire time explaining why the law in itself is not a violation, and ignores the fact that it is being applied retroactively.

          I also thought Gorsuch’s point about the contradiction in the majority’s approach was a good one. It claims that the law is needed because of the natural inattentiveness of people to such things, but that it doesn’t substantially impair the contract because an attentive person will know that he simply has to file a piece of paper in order to keep the contract the same.

          Ultimately, Kagan’s opinion seems to rest entirely on her determination that the contract was not “substantially impaired”. But I think Gorsuch is right….the whole point of the contract is the person designated as the beneficiary. If altering that doesn’t represent a substantial impairment, I don’t know what does.

          Like

  2. Interesting document from Harvard, on its defense against the lawsuit accusing it of race discrimination against Asians in its admissions process.

    https://projects.iq.harvard.edu/diverse-education

    Try to square these two sentences, coming 3 paragraphs apart:

    Harvard College does not discriminate against applicants from any group in its admissions processes.

    and (emphasis added)…

    …the admissions committee looks at the whole person and considers each applicant’s unique background and experiences, alongside grades and test scores, to find applicants of exceptional ability and character, who can help create a campus community that is diverse on multiple dimensions (including on academic and extracurricular interests, race, socioeconomic background, and life experiences)

    How can it possibly do the latter, without doing the former?

    Like

    • They can’t discriminate against anyone for race, however they are allowed to discriminate for someone based on race…

      Like

    • It would be easy for an Ivy to drop race from its diversity claims and still have the same result. Even innocently.

      The Ivies do not choose the same way MIT and CalTech do. Part of this is purely self-perpetuation – to have alums of all backgrounds in every community LEADING every community. That is how that good ole boy network gets so powerful over time.

      I am sure that I have told the story of the Dean of Admissions assembling all 30+ National Merit Finalists in Austin to explain the admission process. It was truly fascinating. Suffice to say a high academic standard is set but only one in ten who meet that are accepted. However, they are not the top tenth. They are people who meet that year’s perceived recruiting needs – by major, by sport, by part of the country, etc. But also by race and gender. All girls who apply should apply to be engineers, as they seek to balance gender in each department. Etc.

      From their view, everyone who was an “A” HS student with 1400+ SATs can do the work. So it isn’t like CalTech, where maybe a third of the class made 1600 and more than half made 800 on their math and a Westinghouse Scholarship was a ticket, not a mere National Merit one.

      Just saying I think the problem will continue from the Asian-American perspective even after race is removed from the list.

      Like

      • Just saying I think the problem will continue from the Asian-American perspective even after race is removed from the list.

        Is it your position that hat Asians are treated fairly in the process?

        Like

      • Mark:

        It would be easy for an Ivy to drop race from its diversity claims and still have the same result.

        It seems strange, then, that they don’t.

        They are people who meet that year’s perceived recruiting needs – by major, by sport, by part of the country, etc. But also by race and gender.

        Sure. But it is actually illegal to do so by the last two.

        All girls who apply should apply to be engineers,…

        I know. I told my youngest this is exactly what she should do. She didn’t listen to me. (Not that it really hurt her…she had plenty of good choices anyway.)

        Like

        • I think we agree on this. There might be some value to implicit inclusion of race and gender for an Ivy – they need the nextgen of politico and biz leaders to be beholden alums, too. I think they are playing into current campus PCness by being explicit. The Supremes have warned them that while they will allow this, it is on narrow grounds that may shift quickly.

          Smart girl who goes to G’town [we know one] will probably network higher up the food chain than same smart girl at UConn, all else considered. Because TEXAS, that really doesn’t apply here, to the same extent it does in the east.

          Half the engineering school at UT is demographically Asian-American. Ivies’ loss, so to speak.

          Like

        • Mark:

          Smart girl who goes to G’town [we know one] will probably network higher up the food chain than same smart girl at UConn, all else considered.

          She better, given the cost differential.

          Like

    • And now it’s a fight in New York schools as well:

      https://www.washingtonpost.com/opinions/new-yorks-mayor-wants-to-demolish-a-school-system-that-lifts-kids-out-of-poverty/2018/06/11/42168d6c-6dab-11e8-afd5-778aca903bbe_story.html

      https://www.vox.com/2018/6/14/17458710/new-york-shsat-test-asian-protest

      The self flagellation required by the author in the Vox piece is telling.

      Spending hours studying to get in only to also have to bow before the progressive mantra that merit is a fiction constructed by white people to perpetuate racism.

      There’s a real easy way to prove De Blasio right or wrong, which is have everyone take the test, even if he still divies up the admissions via middle school and then track the performance. If the test isn’t predictive, well, then it shouldn’t predict the results. The ones who don’t do good on the test should do just as well in the school as those who do score well.

      But of course they won’t do that because they don’t want that information.

      Like

  3. Heh

    Like

    • Assume that opening new discussions with NK is good. I do.

      Is it also good to have POTUS say NK is no longer a nuke threat?

      I realize that some of his voters might believe him and that it is therefore a wonderful sound bite for him. But since it is completely unmoored from reality, is it a good thing for the President to say? In this case, I assume he is selling, and not deranged. But selling something as dangerous as underestimating completely an adversary’s military, sounds more like Chamberlain than like Churchill.

      Like

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