Morning Report: Corelogic reports a third of US MSAs are overvalued 6/21/18

Vital Statistics:

Last Change
S&P futures 2771 -0.75
Eurostoxx index 383.16 -1.13
Oil (WTI) 65.91 0.84
10 Year Government Bond Yield 2.93%
30 Year fixed rate mortgage 4.57%

Stocks are flattish this morning on no real news. Bonds and MBS are up small.

Initial Jobless Claims fell by 3,000 to 218,000, while the Index of Leading Economic Indicators increased by 0.2%, below expectations. This index is predicting that growth will moderate in the coming months. Note that Goldman has taken its Q2 GDP estimate up to 4%, which is a torrid pace.

Mortgage Applications rose 5.1% last week as purchases rose 4% and refis rose 6%. Mortgage rates were more or less unchanged for the week.

Existing Home Sales fell 0.4% last month to a seasonally adjusted annual rate of 5.43 million. Existing Home Sales are down 3% on a YOY basis, making this the third consecutive month with a YOY decline. The median house price hit a record, rising 4.9% to $264,800. While restricted supply has been an ongoing issue, the market is beginning to feel the pinch of rising rates and prices. The first time homebuyer accounted for 31%, which is a decrease and well below the historical norm of 40%. At current run rates, we have about 4.1 month’s worth of inventory. Some realtors noted that potential sellers are pulling their homes off the market for fear they won’t find a replacement. We need a dramatic increase in home construction to fix the issue and so far we are seeing modest increases.

Speaking of home price increases, the FHFA reported that prices rose 0.1% MOM in April and are up 6.4% YOY. Since the FHFA index ignores jumbo and non-QM, this is prime first-time homebuyer territory. Home price appreciation is beginning to converge as the laggards like the Mid-Atlantic (which covers NY and NJ) are picking up steam. The dispersion a year ago was huge.

CoreLogic estimates that a third of all MSAs are now overvalued. The last time we hit this level was early 2003, just before the bubble hit its stride. It is natural to ask if we are in another bubble, and IMO the answer is “no.” The term “bubble” gets thrown around so much that it has lost its meaning. The necessary conditions for a bubble (magical thinking on the part of buyers and the financial sector) just aren’t there. China has a bubble. Norway has a bubble. The US does not.

The US coastal and Rocky Mountain areas have the most overvalued residential real estate, but aside from that it is still cheap / fairly valued elsewhere. Either the overvalued MSAs will start building more homes, or the employers in those MSAs will begin to move more operations to cheaper areas. You can see that already with Amazon.com de-emphasizing Seattle. Some MSAs become to cheap to ignore (the Rust Belt, for instance) and others become so expensive that companies cannot attract entry-level talent anymore. For a hotshot MIT data scientist, working at Google or Facebook sounds very cool, but if you can’t afford an apartment are you really going to be willing to work there?

Foreclosure starts fell in May to 44.900, which is a 17 year low. The foreclosure rate of 0.59% is the lowest in 15 years. At the current rate of decline, the foreclosure inventory is set to hit pre-recession levels later this year. The Northeast still has a foreclosure backlog to deal with, but the rest of the country has moved on.

HUD is asking for public input into its disparate impact rules, which were dealt a blow at SCOTUS. Disparate impact is a highly controversial legal theory that says a company is guilty of discimination even if they didn’t intend to discriminate – if the numbers don’t match the population the lender is guilty, no questions asked. That theory was dealt a blow with a 2015 ruling that said the plaintiff must be able to point to specific policies of the lender that explain the disparate impact. HUD is now looking to tweak the language to conform to this ruling.

Incoming CFPB nominee Kathy Kraninger is getting some static from Democrats due to her position at DHS. They are asking questions about her role in the zero tolerance policy and child separations. Elizabeth Warren is putting a hold on her nomination until she answers these questions. That may not be a disappointment to the Administration however. The gameplan may be to slow-walk a new CFPB nominee in order to keep current Acting CFPB Chairman Mick Mulvaney at the helm of the agency.

28 Responses

  1. Worth noting:

    “Leaked Internal Memo Reveals the ACLU Is Wavering on Free Speech
    “Our defense of speech may have a greater or lesser harmful impact on the equality and justice work to which we are also committed.”

    Robby Soave|Jun. 21, 2018 8:25 am”

    https://reason.com/blog/2018/06/21/aclu-leaked-memo-free-speech

    Like

  2. This is significant:

    “Supreme Court rules that states may require online retailers to collect sales taxes
    by Robert Barnes June 21 at 11:18 AM”

    https://www.washingtonpost.com/politics/courts_law/supreme-court-rules-that-states-may-require-online-retailers-to-collect-sales-taxes/2018/06/21/a24e0100-755e-11e8-b4b7-308400242c2e_story.html

    Like

  3. Good piece on the merit, or lack thereof, of a separate military branch dedicated to outer space.

    https://slate.com/news-and-politics/2018/06/trumps-space-force-idea-is-a-terrible-solution-to-a-real-problem.html

    Like

  4. Ouch.

    Like

  5. http://reason.com/volokh

    Kennedy has written about his Chevron concerns, which I share.

    On this page Volokh and Somin chime in. Volokh’s view is more persuasive to me, and I predict Somin’s will be more persuasive to Scott, but we will agree that Chevron is used poorly in any event.

    The short version is that I and Volokh think Chevron must be limited to deferring to the agency only when the decision is within the agency’s purview as delegated by Congress, only when the statutory authority is completely muddy or at odds with itself as it often is in long and untested statutes, and only when there is no constitutional issue involved.

    The short version for Thomas and Gorsuch and Somin is that laws are for Congress to make and Courts to interpret if unclear or ambiguous, but not for regulators to define, because that is an abdication of judicial responsibility [no deference]. And Scott is closer to the second camp because he is skeptical of most [all?] regulatory rule making under the Constitution.

    But the two short articles are worth your attention.

    Like

  6. This would be interesting:

    “Can this libertarian restore conservatism?
    by George F. Will
    June 20 at 6:36 PM

    “This,” exclaimed Margaret Thatcher, thumping Friedrich Hayek’s 500-page tome “The Constitution of Liberty” on a table in front of some Conservative Party colleagues, “is what we believe.” It also is what Bill Weld believes, which is why he aspires to be the Libertarian Party’s 2020 presidential candidate.”

    https://www.washingtonpost.com/opinions/can-this-libertarian-restore-conservatism/2018/06/20/ed158304-73ef-11e8-b4b7-308400242c2e_story.html

    Like

  7. The left has been throwing their toys out of the pram 24/7 since DJT was elected. They are already at 10. Does 11 even exist?

    If you guys don’t let us take Congress, Samantha Bee and Keith Olbermann are gonna have something to say to you guys!

    https://www.bloomberg.com/view/articles/2018-06-21/democratic-rage-would-look-something-like-this?cmpid=socialflow-facebook-business&utm_campaign=socialflow-organic&utm_source=facebook&utm_content=business&utm_medium=social

    Like

  8. This email went out to Pfizer US employees this morning, it’s from Ian Reed, the CEO.


    With the increased attention being given to the heartbreaking stories resulting from the current situation at the U.S.-Mexico border, I wanted to reiterate Pfizer’s commitment to upholding human rights in all that we do.

    This commitment is inherent in our mission as a biopharmaceutical company. We work to advance human rights by improving the health of people all around the world. We do this not only through the discovery and development of innovative medicines and vaccines, but also by advocating for policies – and working with public and private partners around the world – to enable affordable access to our life-changing and life-saving treatments.

    Our commitment also is consistent with one of our stated corporate values, respect for people, which unequivocally defines our expectations for how we treat our colleagues, customers, partners and patients and guides how we conduct all of our operations, including running responsible clinical trials, ensuring safe working conditions, and engaging with our supply chain partners.

    It is for these reasons that Pfizer will always stand behind the right of all people – without exception – to enjoy basic freedoms and to be treated with dignity, respect and compassion.

    Best regards,

    I found it nauseating and representative of PR flacks and Corporate Officers living in a bubble.

    I’ll still cash their checks mind you.

    Like

  9. The DNC has decided it’s not going to have any more Sanders candidates in the future:

    “DNC panel adopts rule requiring candidates to run, serve as a Democrat
    By Morgan Gstalter
    06/08/18 08:20 PM EDT”

    http://thehill.com/homenews/campaign/391459-dnc-panel-adopts-rule-requiring-candidates-to-run-serve-as-a-democrat

    Like

  10. The Professional Left thinks that attending a rally should be a firing offense…

    http://www.newsweek.com/boston-celtics-great-kevin-mchale-trump-supporter-988281

    Like

  11. Gaia weeps at the fact that none of it EVER HAPPENED BEFORE!

    Like

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