Morning Report: Home prices getting toppy 8/22/18

Vital Statistics:

Last Change
S&P futures 2856 -5.75
Eurostoxx index 383.91 -0.25
Oil (WTI) 67.32 0.89
10 Year Government Bond Yield 2.82%
30 Year fixed rate mortgage 4.58%

Stocks are modestly lower this morning after Paul Manafort was found guilty and Michael Cohen copped a plea. Bonds and MBS are flat.

Paul Manafort was found guilty of fraud and tax charges and there was a mistrial on the other charges. Nothing was found on the Russian front. Ex Trump lawyer Michael Cohen pled guilty to FEC violations, which relates to the Stormy Daniels case. Whether this ends up getting legs remains to be seen. FWIW, the markets are saying it is no big deal.

We will get the FOMC minutes today at 2:00 pm. Given the lack of liquidity in the markets, we could see some market movement in what should otherwise be a non-event.

Mortgage applications rose for the first time in 6 weeks as purchases rose 3% and refis rose 6%. Overall they rose 4.2%. Mortgage rates were unchanged, so that is a surprising jump in refi activity. Given that the index is sitting at lows not seen since the turn of the century, it doesn’t take much of a bump in activity to move the index.

Existing home sales fell again for the fourth month in a row. They fell 0.7% on a MOM basis and are down 1.5% on a YOY basis. This is the fifth straight month of YOY declines. It looks like much of the decline was attributable to weakness in the Northeast. The median house price rose 4.5% to 269,600.  Current estimates of median income are around 61,500, so that puts the median house to median income ratio around 4.4x. While other measures of housing affordability remain decent, this one is flashing red for valuations overall. The MP / MI ratio ignores interest rates, which are the biggest determinant of affordability, but over time house prices correlate with incomes, and it wouldn’t be a surprise to see home prices begin to take a breather.

Median House Price to Median Income Ratio

Fed Chairman Jerome Powell assured Senator Tim Scott that the Fed remains independent despite the jawboning from Trump. Powell said in a radio interview: “We do our work in a strictly nonpolitical way, based on detailed analysis, which we put on the record transparently, and we don’t … take political considerations into account,” Powell told the radio show. “I would add though that no one in the administration has said anything to me that really gives me concern on this front.” Separately, Dallas Fed Chairman Robert Kaplan said that the Fed only needs to hike 3 or 4 more times to get to neutral.

17 Responses

    • “Anybody expecting respect for the overall government to survive current leadership unscathed is dreaming. And as somebody who considers government little more than a dangerous weapon in the hands of competing tribes of control freaks, all I can say is: More, please.”

      I think this is overly optimistic. From my perspective, it’s closer to this:

      “Americans are not freaking out about this because most of us have lost the ability to distinguish between general principles and political outcomes. So long as the “right” people are being zapped, no one cares.”

      Each tribe is happy to use the government to censor and bash the other side. Distrust of it as an institution doesn’t figure into it.

      I think the politics of the country is farther away from libertarianism than it has been in years. It’s crony capitalism on the Republican side vs crony capitalism and socialism on the Democratic side. No one cares about the deficit or any other actual public good. It’s all redistribution and political payback.

      Liked by 1 person

      • Agreed, and that’s a direct, inevitable result of governments. As they age they grow in size and power, it always becomes a club to bash one’s enemies.

        Liked by 1 person

      • It’s all redistribution and political payback.

        I’m coming around to that view. My Monday night men’s group ranges from center left to center right, and a guy who isn’t even a true lefty [he voted for McC in 2008, he’s a USN vet who served two years in ‘Nam and a retired electrical engineer] didn’t hear the idiocy in the Sanders phrasing of “income inequality.” We were discussing it when I said that my niece, a Rabbi and a self proclaimed liberal, even shudders when she hears “income inequality” pointing out that being able to get ahead is part of the American Dream, not bringing down somebody else. So four of us were in agreement that even if the Sanders types meant something not sinister like opportunity for all that wasn’t what they were saying and not what anyone else was hearing.

        But then to our surprise, Chris said “they don’t mean zero sum redistribution”. To which David1 said “yes they do” and David2 said “How could you know that?” Chris finally reluctantly agreed it was a stupid slogan, if what you meant was decent schools in poor neighborhoods or something akin to opportunity for all.

        Everybody wants to be a freaking victim with an axe to grind, it seems. As David1 said Monday night, “F-ck that.”

        Liked by 1 person

  1. Worth a read:

    “Why Do Governments Exist
    By Chris Ladd
    August 21, 2018”


  2. Thinking about it, the two motive defense [not wanting Melania to know who he was screwing being the second motive] was available to Cohen. It was smart for him to plead and throw DJT under the bus in doing so but he could have beaten the illegal contribution case if he could honestly say that one of Trump’s motives was to avoid friction with his wife.

    I’m pretty sure I am right about that and real prosecutors know that DJT could say plausibly [and probably honestly] that he didn’t want to give his wife any leverage. And that is regardless of anything he might have said to Cohen.

    Liked by 1 person

    • I presume that all Trump would have to do is show that he had routinely arranged for similar hush-payments in the past, prior to being a candidate, and that would be enough to establish that the payments were not solely for the purposes of his campaign.

      And I’ve got $100 that says this isn’t the first time he’s arranged for such payments.

      Liked by 1 person

  3. These people are sick.


  4. Come on guys, do your part…


  5. Goddamnit! I’m going to run out of tissue!

    Frankly, I’m starting to tire of all the winning!


  6. I don’t think this will haunt Warren but this really clanks against the ear.


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