Morning Report: Housing affordability declines.

Vital Statistics:

S&P futures4,357-2.8
Oil (WTI)73.76-0.85
10 year government bond yield 1.34%
30 year fixed rate mortgage 3.09%

Stocks are flattish this morning as investors fret about global growth. Bonds and MBS are down small.

Earnings season kicks off this week with many of the big banks reporting. The first report will be JP Morgan on Tuesday, followed by Wells and Citi on Wednesday. Last year, the big banks were taking huge COVID-19 and CECL provisions for loan losses, so year-over-year comparisons will be quite strong.

In terms of economic data, we will get the consumer price index and the producer price index and quite a bit of Fed-speak.

The Atlanta Fed’s GDPNow model is predicting 7.9% growth for the second quarter. You can see the estimates from this model have been falling rapidly, especially compared to the Blue Chip Consensus which is based on Wall Street research. The Blue Chip consensus is perhaps a good indication of what has been driving the stock market higher, while the GDPNow forecast is pushing bond yields lower.

Janet Yellen is agitating for a global tax system to prevent corporations from playing low tax jurisdictions against each other. “We need sustainable sources of revenue that do not rely on further taxing workers’ wages and exacerbating the economic disparities that we are all committed to reducing,” Yellen said in remarks prepared for delivery to Eurogroup finance ministers. EU countries like Ireland which attract capital due to lower taxes are lukewarm about the proposed system, which presumably would require legislation in the US and possibly elsewhere.

Housing affordability is falling as real estate prices rise. The NAR Housing Affordability Index has fallen from 180 last year to 151.7 now. This is a function of a 1.2% increase in income versus a 20% increase in mortgage payments. FWIW, I would take this index with a grain of salt given that YOY comparisons are being heavily distorted by the lockdowns of a year ago. That said, rates and home prices have risen while incomes have been relatively stagnant.

The West is by far the least affordable, while the Midwest is the most affordable. I wonder if the South is going to become less affordable than the Northeast at some point, as housing prices are soaring in places like Austin and Nashville.

I would add that housing bubble questions are back in the press along with Google searches. We do not have a housing bubble. Bubbles are extremely rare events and the memories of 2008 are simply too fresh that we won’t see another. We have a supply / demand imbalance which was exacerbated by COVID-19 shortages. While we could see home prices level out, the chance of a 2006 – 2008 wholesale decline in real estate prices isn’t in the cards. The cure for the market will be more homebuilding and it will take years just to get to a balanced market, let alone an oversupplied one.

19 Responses

  1. Good read.

    “The Problem With Prosecutor Punditry
    Experts keep promising the walls are closing in on Trump. Haven’t we learned anything?

    By Ankush Khardori”


    • This comment sums it up:

      39 MINUTES AGO
      I guess there is a specific dance that has to be done in pieces that treat Trump as anything less than the devil. If you’re going to point out that these legal cases are garbage, you have to at least include a few cheap applause lines like ” Trump is certainly a crook, if not (ultimately) a criminal” even after reviewing the vast extent of investigations and lack of charges.

      But even this is an improvement, I don’t think the NY Mag would have published a “Trump might not be a criminal” piece two years ago.


      • Baby steps back from TDS.

        We’ll see if the author and editors get canceled, the piece retracted and an apology issued for anyone traumatized or put at risk by it’s publication.


    • Reminds me of how long the government pursued Frank Quattrone before completely giving up.

      The author seems completely oblivious to the fact that these legal “analyses” are nothing more than partisan talking points based on wishful thinking.

      And of course the legal analysts are risking nothing, since lying in the advancement of leftist principles is noble.


  2. “I wonder if the South is going to become less affordable than the Northeast at some point, as housing prices are soaring in places like Austin and Nashville. ”

    I would think this would only happen if they enact similar building restrictions or rent controls ala the northeast.

    Richmond, VA has a massive apartment construction boom going on currently and in most cases, they are replacing old one story business buildings with 4 – 5 story apartment complexes.


  3. Another good Substack:

    “So it was with great interest that I found Darryl Cooper’s wild tweet thread. It became so popular, Tucker Carlson read it on his show and for one day it made the headlines at Real Clear Politics.

    Tucker Carlson is the most-watched cable news host, despite how hated he is by a good many on the left. In fact, my posting this video could put me on trial for being a White Supremacist or a racist. But the problem is, he’s the only person who would ever read these tweets on air. The only one. This kind of dissent against the establishment machine does not and could not exist on the Left in the mainstream. It exists on the left outside the mainstream, with voices like Bret Weinstein and Heather Heying, but when it comes to people like Bill Maher – he can only go so far. He can’t go near the Trump line.

    People like Andrew Sullivan, who recently wrote a brilliant piece addressing the illiberalism on the Left, but he must stop short when it comes to the Trump line. I know people who are opposed to censorship but will say nothing if requires saying something that agrees with something Trump has said. Parler? Sure, fine, take it down because it supported Trump.

    Carlson is the number one cable news host because he says exactly what he wants to say, and in a time of extreme self-censorship, that resonates. That is why Trump resonates. And why Ben Shapiro resonates. And why Joe Rogan resonates. Even if people generally feel they cannot be courageous in their own lives for fear of losing their friends, their status, and their jobs, but are “mad as hell and can’t take it anymore” they gravitate towards voices who are not afraid to say what can’t be said. That should be a lesson to the Left, but it is not.”


  4. The Federal govt should pull any grant money from this hellhole and Congress should investigate


  5. Interesting piece:

    “Trump’s social media exile is the best thing that ever happened to him

    Opinion by
    Marc A. Thiessen”

    I think it’s fine for now, but once the election seasons starts Trump will need a way to communicate that’s unfiltered by the media.


  6. Did this supplant the “Insurrection” (snicker) as the worst thing since the Civil civil War?


  7. Biden equates new voter id laws to Jim Crow and calls them “the most significant test of our democracy since the Civil War.”

    Thank goodness we no longer have a lying conman in the White House! Thank you, Biden voters!


    • Biden illustrates, I think, that you can be just as off your nut—or more so—as/than Trump and it’s perfectly fine if you are (a) the right party and (b) come off like an old grandpa. Less snarky and insulting and more “I’m old and say wacky stuff”. But I don’t see the actual content difference being that significant.


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