Morning Report: Productivity Increases

Vital Statistics:

 LastChange
S&P futures4,510-65.2
Oil (WTI)87.65-0.63
10 year government bond yield 1.83%
30 year fixed rate mortgage 3.78%

Stocks are lower this morning after tech lead sled-dog Facebook stunk up the joint with earnings last night. Bonds and MBS are down.

Nonfarm productivity increased 6.6% in the fourth quarter as output rose 9.2% and hours worked increased 2.4%. Unit labor costs rose 0.3% as compensation rose 6.9% and productivity increased 6.6%. This is good news overall as the key to higher living standards (in other words non-inflationary growth) is productivity.

Initial Jobless Claims fell to 238k last week, while the Challenger job cut report showed just over 19,000 announced job cuts.

Equity-rich properties (in other words LTV < 50) accounted for 42% of all mortgaged homes in the fourth quarter, up from 39% in the third quarter of 2021.

“Another quarter, another boost to the balance sheets of homeowners in most of the United States – that was the story from the fourth quarter of last year. As home prices kept rising, so did the equity built up in residential properties, to the point where close to half of all mortgage payers around the country found themselves in equity-rich territory,” said Todd Teta, chief product officer with ATTOM. “No doubt, there are market metrics that pose warnings about how long the boom can last and equity can keep improving. We keep watching those closely. But for now, homeowners are sitting pretty as the wealth they have tucked away in their homes keeps growing.”

Of course the big question remains how long can the increase in home price appreciation last, with rising mortgage rates. Ultimately the productivity report provides some guidance: hourly compensation rose 6.9% in the fourth quarter. Wage inflation, along with a shortage of available properties means that home prices should be well-supported going forward.

I have to say this every once in a while: we are not in another housing bubble. Bubbles are rare and psychologically-driven phenomena, where everyone (buyers, lenders, regulators) believe an asset is “special” and cannot fall in price. Prior to the 2006 bust the previous residential real estate bubble was in the 1920s. Memories are fresh from 2006, and the pieces just aren’t in place for one.

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