Morning Report: Washington is worried about the rise in home prices

Vital Statistics:


  Last Change
S&P futures 3857 16.4
Oil (WTI) 65.06 -0.06
10 year government bond yield   1.54%
30 year fixed rate mortgage   3.21%

Stocks are higher this morning as techs rebound. Bonds and MBS are up strong.


The percentage of loans in forbearance fell 3 basis points to 5.2%, according to the MBA. “The pace of forbearance exits increased; this continues the trend reported in prior months,” said MBA Chief Economist Mike Fratantoni. “Of those homeowners in forbearance, more than 12 percent were current at the end of February, down somewhat from the almost 14 percent at the end of January. The improving economy, the soon-to-be passed stimulus package and the many homeowners in forbearance reaching the 12-month mark of their plan could all influence the overall forbearance share in the coming months.”


While interest rates are falling this morning, we do have some risks this week with a few Treasury auctions: a 3 year bond sale today, a 10 year on Wed and a 30 year on Thursday.


The MBA is forecasting that origination will hit $3 trillion this year, and over half of that will be purchase activity. Much of this is predicated on a sharp drop in refinance volume as mortgage rates hit 3.5% and strong economic growth. The business press and the analyst community is putting a lot of weight on the prediction that the stimulus package will unleash a massive wave of consumer spending and that unemployment will fall to 4.7% by the end of the year. Of course one major risk is that higher energy and rent consume any extra income, and that won’t be supportive of a rip-roaring recovery.


Note that Janet Yellen sees full employment in 2022, based on the stimulus package. Here is what that means. The current employment-population ratio is 57.6%. Pre-COVID, it was 61.1%. Assuming the US population is 330 million, that means we need 11.6 million people to get jobs in order to get back to pre-COVID levels. With last month’s job increase of 380k, that would take 2.5 years to get back to full employment at that pace.


The rapid rise in home prices is worrying politicians and policy wonks. “The dream of homeownership is out of reach for so many working people,” said Senate Banking Chair Sherrod Brown (D-Ohio). “Rising home prices and flat wages means that many families, especially families of color, may never be able to afford their first home.”

One think to keep in mind is that the hip new lens to view everything nowadays is the “K-shaped recovery.” The K represents the fortunes of the rich and the fortunes of the poor (one goes up while the other goes down). This is how Washington will view everything and housing policy will focus almost exclusively on low-income lending. The problem is that the banks hate FHA, and non-bank servicers can get eaten alive by FHA advances. Not sure what Washington is going to do about that, but the answer is more homebuilding.



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