Morning Report: Home Prices are looking stretched versus incomes

Vital Statistics:

S&P futures4,2403.8
Oil (WTI)73.660.84
10 year government bond yield 1.49%
30 year fixed rate mortgage 3.23%

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

As the economy recovers, the number of loans in forbearance continues to fall. According to the MBA, the share of loans in forbearance fell below 4% last week. Fannie and Freddie loans are now 2.05%, while private label and portfolio loans are 7.98%. Ginnie Mae loans fell to 5.15%.

Mortgage Applications increased by 2.1% last week as purchases rose 1% and refis rose 3%. “Despite the jump in rates, refinances increased for the second consecutive week, pushed higher by a 4 percent bump in conventional refinance applications,” said Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting. “Purchase applications have regained an upward trend over the past few weeks. Activity was slightly higher for the third straight week, but remained lower than the same week a year ago. Government purchase applications drove most of last week’s increase, which also contributed to a slightly lower overall average purchase loan size.”

Existing home sales fell 0.9% in May, according to NAR. They came in at a seasonally-adjusted annual rate of 5.8 million. Lack of supply remains the biggest issue, however first-time homebuyers are bumping up against affordability constraints. The median home price rose 23.6% (!) to $353,300. While that growth rate is exaggerated by the COVID-19 lockdowns of a year ago, home prices are rising at a rapid clip.

There were 1.23 million units for sale at the end of May, which represents a 2.4 month supply at the current run rate. This is barely above the record low established in April. Homes sold in 17 days. First time homebuyers were 31% of total purchases, down from 34% in April.

Historically, home prices have tracked incomes pretty closely. If you look at the median home price divided by median income, it tends to stay in a range of 3.5 – 5 times or so. Note that Census data ends in 2019, so the graph is somewhat dated.

With the current median home price at 353k and the latest estimate of median income at $66.8k, that puts the ratio at 5.3 times, which according to the graph above is a record. Now to be fair, median incomes and home prices don’t tell the whole story because interest rates matter. The better calculation would be to look at the the percentage of median income the 30 year fixed rate mortgage payment would be. That said, we have pretty strong evidence here that home prices are stretched vis a vis incomes.

JP Morgan is making an investment in Maxex, which is trading $1 billion in mortgages a month. It is focusing on private label securitizations, which have been coming back as Fannie and Freddie restrict their purchases of investment loans.

I find it surprising that Intercontinental Exchange, which owns the New York Stock Exchange, Ellie Mae and MERS doesn’t have a mortgage exchange. It seems like a natural fit.

32 Responses

  1. Worth noting:


    • I forgot what a hack Waldman is.


    • Back in the 1990s, Biden was a leader of his party’s shameful embrace of Republican-style crime policies.

      I’m not saying they were perfect or free of racism–I don’t think they were, especially in the advocacy–but it’s just journalistic malpractice to say that and then not mention crime levels in the 90s.

      That is, crime peaked in 1991 and was on a decline, year-over-year, basically until 2020.

      But this time around he seems less likely to take the GOP’s bait.

      Biden was an advocate and was prone to use racially charged (by today’s standards) language in his pursuit of the crime bill, as were many Democrats at the time. He did not just “take the GOPs bait”.

      Overall crime actually fell in 2020, even as homicides spiked.

      Oh, well, as long as it is just murder that’s up, but jaywalking was way down, that’s great.

      And how is overall crime in the most blue cities with the most “defund the police sentiments”? Is shoplifting down, are car thefts down, are break-ins down? And are they underreported, given policies where low-level crimes are not pursued or prosecuted?

      Democrats want to take steps to limit gun proliferation, which would probably help to at least a degree.

      There is literally no reason to think this. And unless you can go back in time and impose draconian gun laws in the 1900s and do it across the country . . . it’s just nuts. And the number of guns in circulation doesn’t matter. They highlight gun nuts with 100 guns to make guns seem scarier but if you’re going to commit murder, you only need one gun. And it doesn’t have to be legally purchased.

      What they don’t do is offer any thoughts about what might bring the homicide rate back down.

      Um, increase police presence and funding? I’m pretty sure I’ve heard that. Return to a more preventative policing strategy? I’ve heard that, too.

      we should stop assuming that if crime becomes more salient the issue will always benefit Republicans

      Well, it’s not going to be a huge help to the party in power and arguably presiding over the increase murder rate.

      the setting aside of civil liberties, especially those of Blacks and Latinos

      What? Unclear where the came from. It’s just like a gag-reflex with some of these folks now.

      But yeah. Though he’s always been a hack.


  2. Good analogy:

    “Let me draw an analogy to another kind of education. In Catholic kindergarten, kids are not taught Aquinas, the debates about the Trinity in the early church, or the intricacies of transubstantiation. But they are taught that they were created by God, in his image, and that they should love one another. All of this is part of Catholicism. But the former is abstract and esoteric; the latter is the practical, downstream application of these truths — accessible to children, to direct their morality. As they grow up, they will learn more. But it is all part of the same system of faith and thought. Its words and values resonate throughout it all: love, compassion, sin, forgiveness, dignity, God, heaven.

    Similarly with CRT, impenetrable academic discourse at the elite level is translated to child-friendly truisms, with the same aim — to change behavior. And so the notion that the most important thing about a child is that she is white, and this makes her part of an oppressive system purposely designed to hurt her new friend, who is black, is how this comes out in an actual real-life scenario. And she has to account for her indelible “whiteness”, just as Catholic kids have to account for their sins. CRT has its own words and values, and they are instilled from the beginning: racism, systems, intersectionality, hegemony, oppression, whiteness, privilege, cisgender, and “doing the work,” as CRT convert Dr. Jill Biden would say.”


    • The thing with Catholic school was that Adam and Eve were taught in religion class and evolution was taught in biology class.


      • And biology class was mostly what was generally understood to be true, facts where available and actual consensus where it wasn’t.

        For a certain segment of the society, both hard and softer sciences are being contaminated with fashion. It’s not what is true or even generally agreed upon but what is fashionable–i.e., what signals virtue in the present moment.

        Science and expertise has always been corrupt, where it intersects with politics and activism. I think the issue is that it intersects so much more often, in so many more placces, than it used to. But I might just be looking at the past with rose-tinted glasses.


    • While true, and some defenses of CRT recently mounted have been of the “oh, its been around forever, everybody knows it, it’s the same thing it always was” it is my contention that not only is it a religion of inverted morality (and thus prone to corrupt thinking as well as produce a congregation full of fire-and-brimstone accusers and constant-self-flagellators) it’s also highly malleable, and typically not in good ways, so is more comparable to the kind of religion that gave us the Spanish Inquisition or the Salem witch trials than, say, the Presbyterian Sunday service structure.


    • I think the point about CRT being an overarching ideology/theology that informs the entire educational experience is valid as a comparison to Catholic school.

      Catholic school is not neutral on Catholicism.


    • jnc:

      Good analogy

      Agreed. The primary difference is that Catholicism is relatively benign, and CRT is evil.

      Liked by 1 person

  3. And another extension:

    “U.S. officials expected to extend eviction moratorium by 30 days as fears about renters mount

    The federal moratorium, put in place by the Centers for Disease Control and Prevention, is set to expire June 30.


    • The federal moratorium, put in place by the Centers for Disease Control and Prevention, is set to expire June 30.

      The CDC should not be able to issue renter or mortgage moratoriums. Or any moratoriums that aren’t about virus research or international shipping of biological samples or maybe something the USDA or FDA normally does, like fruit importation or animal importation.

      There is no rational reason or excuse for the CDC to be setting economic, tax, or welfare policy.


    • Ah, what do we need property rights for anyway? That’s not progress


      • As we know from CRT, property rights are simply another aspect of White Supremacy.


        • And that is the ultimate game plan. The Left couldn’t do it via class, so they are giving identity politics a go.

          I don’t think they are going to like how this turns out.


        • Class made a lot more sense. As a result, they are teetering at the edge of a tipping point where they potentially all the private labor union workers and a huge number of traditionally reliable minority voters because of abandonment of the working classes. And frankly, the middle class outside of maybe the upper-middle-class.

          I’m guessing they won’t like how it turns out, either. One way or another.


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