Morning Report: Real Estate and economic cycles

Vital Statistics:


Last Change
S&P futures 2815 -4
Eurostoxx index 377.4 1.8
Oil (WTI) 58.12 -0.14
10 year government bond yield 2.63%
30 year fixed rate mortgage 4.28%


Stocks are lower this morning on no real news. Bonds and MBS are flat.


Initial Jobless Claims fell slightly to 224k last week.


Durable Goods orders increased 0.4% in February, driven by an increase in commercial jet orders. Ex-transportation, they were down 0.1%. Core capital goods increased 0.8% as companies continue to plow capital back into expansion opportunities. Much of the increase in capital expenditures was in machinery, which is a positive sign for manufacturing. Still, economists are cautious on Q1 GDP, with many forecasting sub 1% growth for the quarter.


Construction spending rose 1.3% MOM and is up 0.3% YOY. Residential construction was down on a MOM and YOY basis. Housing continues to punch below its weight. Since construction is seasonally affected, January numbers tend to be a bit more volatile and have less meaning than summer numbers.


The MBA released its paper on CFPB 2.0, where they list out their recommendations for the CFPB. Much of what they say is similar to what Mick Mulvaney and Kathy Kraninger have been doing – increasing transparency regarding rulemaking and giving more guidance on what is legal and illegal. The Obama / Cordray CFPB was purposefully vague in promulgating rules, which makes life easier for regulators but makes it harder for industry participants. Regulation by enforcement was the MO of the Cordray CFPB, which ended with the new Administration, and the MBA agrees.


Specific to the mortgage business, the MBA recommends that the CFPB allow loan officers to cut their compensation in response to competitive dynamics, to extend the “GSE patch” which means loans that are GSE / government eligible are automatically considered to be QM compliant, to allow mortgage companies to pass on error costs to loan officers, and to raise the cap on points and fees.


CoreLogic looks at home price appreciation and the economic cycle. The punch line: While the current expansion is just short of a record length, and home price appreciation is declining, it doesn’t necessarily mean that house prices are in for a decline. In fact, housing typically weathers recessions quite well. I could caveat that the chart below only looks at a bond bull market. The 1978 – 1982 timespan of the misery index and inflation marked the bottom of the Great Bond Bear Market that lasted from the mid 1950s to the early 80s. The Great Bond Bull Market that began in the early 80s ended a few years ago, and while a bear market probably hasn’t begun yet the tailwind of interest rates falling from 17% to 0% isn’t going to be around this time. Finally, there are a few massive supports for the real estate market: rising wages, low inventory, and demographics. It is hard to imagine another 2008 happening if the economy peters out.


corelogic home prices

16 Responses

  1. It is hard to imagine another 2008 happening if the economy peters out.

    I get your reasoning but it is hard to accept that housing could survive a deep recession given that unemployment would soar and delinquencies and foreclosures with it.


    • The 81-82 recession was the worst since the Great Depression -unemployment hit 11%. Home price appreciation slowed, but remained positive.

      The 25% – 30% decline in prices after the bubble is an exceedingly rare event, the like of which we hadn’t seen since the previous bubble (in the 1920s).

      I believe the slight decline we saw in the post gulf war recession was mainly driven by falling oil prices in TX.


  2. Anyone who says that the Green New Deal will lead to less meat consumption isn’t lying. They are paying attention.

    It’s always nice to see the occasional left wing site that admits the truth.

    “But the benefits of convincing people to eat less meat are clear. Production would decrease. Emissions from livestock would drop. Waterways would flush out pollution; aquifers would replenish. Billions of lives would be saved, human lives very much among them.

    Or, you know, we could keep eating hamburgers.”

    I’m pretty sure I know which option the majority is going to go with.


    • ” The more enlightened among us buy eggs, milk, and meat harvested from animals that have, even in death, been treated “humanely.” Embedded within such consumer choices is the assumption these creatures should have a measure of freedom, whether to forage for grass or live outside a cage—and that, in turn, can be construed as a right of sorts, even if a limited one.”

      that’s not why. it’s because it’s perceived to be a superior product.


    • i cannot wait for cow farts to be a debate question.


    • They can f*ck right the f*ck off. Meat and fats are the healthiest foods (the FDA’s polluted political opinion on the issue not withstanding) and I’m not going to eat more hyper-hybridized wheat and corn because of their imaginary religious doomsday proclamations.


      • I’ve lived through this before with the 1970’s scare over global cooling. I don’t remember quite the same level of hysteria. Mostly you got a bunch of dystopian Sci-Fi movies. Soylent Green, The Omega Man, and Logan’s Run among them.

        Liked by 1 person

      • I just finished the Obesity Code and the Diabetes Code. The science that high fat diets cause high cholesterol and heart disease was reed-thin when the government recommended reducing dietary fat and replacing it with carbohydrates in the 1970s. The government felt it “had to do something” and that decision was largely made by some LBJ-era mandarin, although globally the medical community thought dietary fat was the issue.

        Ironically, high fructose corn syrup is a big dietary issue and is a result of government policy – price supports for sugar growers. US sugar prices are artificially high, which created the competitive opportunity for HFCS. Turns out that HFCS can only be metabolized in the liver and it wreaks all sorts of havoc on the body.

        Now we are coming full circle and realizing that fat isn’t that bad and it was carbs all along..

        Government, often wrong, but never in doubt.

        Liked by 1 person

        • In five years we’ll realize smoking is a health benefit.


        • one of the best decisions I made was to stop taken statins against medical advice. advice that switched to my position about 2-3 years later.


        • I need to listen to The Diabetes Code. Obesity Code was great. Good Calories, Bad Calories is a lot longer but does a deep deconstruction of the high cholesterol and “fat bad” mythology. How just a few scientist with opinions established the “fact” that dietary fat causes high cholesterol and that high cholesterol was bad. Also does a great critique on how all the studies have and continue to ask the wrong questions. Can’t recommend it enough but it is dense.


  3. This made me laugh.

    Liked by 1 person

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