All Things in Moderation

Vital Statistics:

	Last	Change
S&P futures	3,704	-0.25
Oil (WTI)	79.82	0.76
10 year government bond yield		3.76%
30 year fixed rate mortgage		6.51%

Stocks are flattish this morning on no real news. Bonds and MBS are down.

The upcoming week will will have some housing data with home prices (FHFA / Case-Shiller) and new home sales. We will also get durable goods orders and the final revision for second quarter GDP. Personal Incomes / Outlays will be on Friday. The jobs report will be next week.

There will be a lot of Fed-speak as well.

Economic conditions deteriorated in August, according to the Chicago Fed’s National Activity Index. Production and income data pulled down the index, while employment and consumption helped.

With the potential for a housing downturn (at least with respect to prices) the inevitable comparisons to 2008 are being trotted out. I have said this before, but 2008 was one of those twice-in-a-century moments (a residential real estate bubble) and the facts on the ground today are much different.

The biggest difference between 2008 and today? The vast majority of mortgages are guaranteed by the government. Subprime doesn’t exist. Aside from non-QM (which resembles Alt-A not subprime) every MBS is money good. So we won’t see a banking crisis, and we won’t see forced selling of securities.

Home prices might decline in some overheated markets. But many of those markets saw 30%+ home price appreciation for a couple years in a row. So a 5%- 10% haircut in Phoenix isn’t unreasonable.

The bottom line is that any decline in home prices won’t trigger another collapse because banks don’t have much credit exposure to residential real estate lending. Any exposure will be counterparty risk (i.e. those who had warehouse lines with someone like FGMC).

Bottom line, fears about another 2008 are completely overblown.

Filed under: Economy | 12 Comments »