Morning Report: Fannie Mae pilots a new construction loan program 11/9/17

Posted on November 9, 2017 by Brent Nyitray

Vital Statistics:

Last Change
S&P Futures 2578.8 -12.3
Eurostoxx Index 391.2 -3.2
Oil (WTI) 56.9 0.1
US dollar index 87.8 0.0
10 Year Govt Bond Yield 2.34%
Current Coupon Fannie Mae TBA 102.875
Current Coupon Ginnie Mae TBA 103.938
30 Year Fixed Rate Mortgage 3.95

Stocks are lower this morning on overseas weakness. Bond and MBS are down.

Initial Jobless Claims rose to 239k last week. We are at levels not seen since the Vietnam War.

Fannie Mae is working on an initiative to increase affordable housing, by increasing access to construction loans. Under the program being considered, lenders will be able to sell construction loans to Fannie Mae on the day construction begins instead of the day construction is completed. This will alleviate the issue of lenders having to hold a construction loan on their books for months and hopefully spur more construction activity. This will probably have only a marginal impact on housing supply, as the supply issue is being driven more by labor and land shortages, as well as regulation.”

Meanwhile, NAR is warning that the GOP tax plan will bring affordable housing construction “to a halt.” The Low Income Housing Tax Credit will remain in place, however the private activity bonds used to finance affordable housing construction will be eliminated. Second, as tax rates fall, the value of the tax credits used to encourage affordable housing construction will fall in value. Affordable housing advocates estimate that tax reform will cut affordable housing construction by 2/3.

Fannie Mae’s Home Purchase Sentiment Index fell from its highs in October. “The modest decrease in October’s Home Purchase Sentiment Index is driven in large part by decreases in favorable views of the current home-buying and home-selling climates, a shift we expect at this time of year moving out of the summer home-buying season,” said Doug Duncan, senior vice president and chief economist at Fannie Mae. “Indicators of broader economic and personal financial sentiment remain relatively steady. Overall, these results are consistent with our view that the housing market will continue its slow, upward grind through 2018.” Despite the strong employment numbers lately, the survey saw an increase in the number of people worried about their jobs.

The NYSE just launched FANG futures, which are led by Facebook, Amazon, Netflix, and Google. Definitely a bull market phenomenon – reminds me of stock split beepers, which were advertised in Barrons back in the late 90s.

Some market watchers are warning that the flattening yield curve is signalling a recession. The favorite metric is the 2s-10s spread or the difference in yield between the 10 year bond and the 2 year bond. While a flattening yield curve is often associated with longer-term economic weakness, it is also associated with Fed tightenings. In fact, the yield curve has flattened in every tightening cycle since 1980. That said, nothing in the data suggests the economy is weakening – if anything the economy is accelerating. The Fed is tightening in order to bring its unusually accommodative policy back to a semblance of normalcy, not to fight inflation (despite what they are saying about it). They are being extremely cautious and are doing everything they can to prevent a Fed-induced recession.

Filed under: Economy, Morning Report | 29 Comments »

Morning Report: FHA prepay speeds rise 11/8/17

Posted on November 8, 2017 by Brent Nyitray

Vital Statistics:

Last Change
S&P Futures 2584.3 -2.5
Eurostoxx Index 393.8 -0.9
Oil (WTI) 57.1 -0.2
US dollar index 87.8 -0.1
10 Year Govt Bond Yield 2.31%
Current Coupon Fannie Mae TBA 102.875
Current Coupon Ginnie Mae TBA 103.938
30 Year Fixed Rate Mortgage 3.95

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

Mortgage applications were flat last week as the purchase index increased 1 percent and the refi index decreased 1%. The average 30 year fixed rate mortgage fell 4 basis points to 4.18%.

The House and Senate continue to work on tax reform. Here is the latest state of play. Biggest difference between the House and Senate is the state and local tax deduction, where the Senate bill excludes all state / local / property taxes, and the House bill which allows some deductions. Lawmakers are still working on a way to prevent companies from taking advantage of lower-tax jurisdictions overseas to shelter income. Accountants and lawyers are still getting their arms around what the proposals actually entail, and as expected it will be complicated. The estate tax will probably survive in some form in the Senate.

Capital One (What’s in your wallet?) is exiting the mortgage origination business. “These businesses are in a structurally disadvantaged position, given the challenging rate environment and marketplace,” Sanjiv Yajnik, president of financial services at Capital One, said in a memo to employees. “These factors do not allow us to be both competitive and profitable for the foreseeable future.”

Mortgage Credit availability decreased slightly in October, especially on the jumbo side of things, according to the MBA. This indicates that lenders are tightening standards a little. The index has been pretty much flat for the past year.

Many FHA borrowers are refinancing into conventional mortgages, which has resulted in higher prepayment speeds than expected for FHA loans. This is low-hanging fruit for loan officers: home prices appreciation has been strong enough for most MSAs that someone who did a 3.5% down FHA loan a few years ago may be eligible for a 20% conventional and no longer have to pay MI. Serious delinquencies fell for FHA loans as well, from 5% to 4.3%.

Problems in fin-tech land? Lending Club down 20% pre-open on lousy guidance.

Filed under: Economy, Morning Report | 43 Comments »

Morning Report: Homeownership rate ticks up 11/7/17

Posted on November 7, 2017 by Brent Nyitray

Vital Statistics:

Last Change
S&P Futures 2588.5 -0.3
Eurostoxx Index 396.3 -0.3
Oil (WTI) 57.3 -0.1
US dollar index 87.9 0.0
10 Year Govt Bond Yield 2.32%
Current Coupon Fannie Mae TBA 102.875
Current Coupon Ginnie Mae TBA 103.938
30 Year Fixed Rate Mortgage 3.95

Stocks are flat on no real news. Bonds and MBS are flat as well.

Small business optimism slipped in September, according to the NFIB. The big driver was a drop in sales expectations, which may have been influenced by the hurricanes in Texas and Florida. The drop was not just concentrated in the affected areas, so it is hard to attribute the drop to simply that. Small business shed an average of .17 workers during the month, and again this was not simply a hurricane effect. Small business optimism is high by historical standards, however and the Atlanta Fed is forecasting a 4.5% jump in GDP growth the fourth quarter of 2017.

Job openings were 6.1 million at the end of September. The quits rate edged up to 2.2%. The quits rate has historically been a leading indicator for wage growth, and a data point the Fed invariably references during their FOMC deliberations.

Tax reform continues to work its way through the committee process. Partisan tensions are already beginning to show. One thing to note: the Senate bill maintains the mortgage interest deduction at $1 million versus the House’s plan to cap it at $500,000. Corporations are digesting a surprise provision that levies an excise tax on payments made to overseas affiliates. Here is the state of play.

Home prices rose 7% YOY, according to CoreLogic. They are up 0.9% MOM. Rental price inflation was about 3%, less than half the increase in the index, which reflects tight inventory conditions. They estimate that about a third of the major metropolitan areas are overvalued. Rental price inflation is lagging as the homeownership rate increases. It hit 63.9% in the third quarter, according to the Census Bureau.

The Bank of England plotted the real risk free rate of interest going back to 1311. It puts into perspective how depressed the current global economy is, when you consider the real rate has been around 4% historically. The blue shaded areas are real rate depressions, and the one starting in the early 1980s has been the second-longest and is most similar to the long depressions of the late 19th century. These periods have been historically associated with low productivity growth, populism, and protectionism. Note that the bounceback from these periods has been sharp: typically you have seen an increase of 315 basis points in the two years after the cycle ends. The late 19th century phase was associated with the birth of Marxism. Is it a coincidence that Millennials are embracing socialism and communism?

interest rates

JP Morgan estimates there will be 4 rate hikes in 2018. A tightening labor market will drive the increases, however we are seeing commodity price inflation as well, which will eventually flow through to overall inflation. Food and energy prices are increasing, and for the builders, lumber prices are at multi-year highs.

Filed under: Economy, Morning Report | 24 Comments »

Morning Report: Discussing the mortgage interest deduction 11/6/17

Posted on November 6, 2017 by Brent Nyitray

Vital Statistics:

Last Change
S&P Futures 2582.0 -1.0
Eurostoxx Index 396.3 0.3
Oil (WTI) 56.0 0.3
US dollar index 87.9 0.0
10 Year Govt Bond Yield 2.32%
Current Coupon Fannie Mae TBA 102.875
Current Coupon Ginnie Mae TBA 103.938
30 Year Fixed Rate Mortgage 3.95

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

It should be a quiet week with respect to market-moving data and Fed Speak. New York Fed Governor William Dudley speaks at noon today, and that is it for the week. William Dudley is set to retire in mid-2018.

Work on tax reform continues, with both the House and the Senate drafting their own bills. Blue state Republicans (especially in CA, NY and NJ) are fighting to save the state and local tax deductions. The House hopes to vote on the bill next week. My sense is that the path to passage is so narrow that it will be a largely symbolic bill designed more to achieve a legislative victory than to reform taxes. I also think the estate tax will survive in order to save the state and local tax deduction.

White House economic advisor Gary Cohn says that he doesn’t think eliminating the mortgage interest deduction will affect the housing market. “The ability to deduct interest is a component that allows you to buy a bigger house, not what drives you to buy a house,” Cohn said during a Bloomberg Television interview Friday. It will affect the luxury market (especially in areas like the Northeast, where the luxury market is already weak),  but with the median house price around $245,000 limiting the mortgage interest deduction to $500,000 won’t affect most MSAs. If you wanted to eliminate the MID at a point where it will cause the least amount of pain, now would be the time to do it, simply because low interest rates are making the interest portion of the typical mortgage payment small by historical standards. Back when interest rates were super high in the early 80s, almost 100% of your first year’s mortgage payment went to interest. Today, about 70% is interest.

mortgage interest

The National Association of Realtors weighed in on the mortgage interest deduction as well, and they are against changes to it, as you would expect. They commissioned a study earlier this year that predicted a 10% drop in home prices and that homeowners with incomes between $50,000 and $200,000 would see an average increase in taxes of $815.

One wrinkle to the change in the MID is that it applies to newly-purchased homes. So, if you haven’t moved, your existing MID would not change. That will make depress existing home sales at the margin, but I can’t see people staying put simply because of tax treatment of mortgage interest. People move for various reasons, but tax treatment usually isn’t one of them. Regardless, if this provision stays, the death of the MID will have a much less dramatic effect than people are forecasting.

Filed under: Economy, Morning Report | 27 Comments »

Loony Lefty Jill Stein – Russia, Part Deux

Posted on November 6, 2017 by markinaustin

Loony Lefty Jill Stein and the Russian influence investigation

Who is this loony? She claimed:

1] There are “real questions” about whether vaccines cause autism in children.

2] wi-fi in schools might be harming kids.

Her dependence on RT was notable:

3] RT regular Ajamu Baraka, who slammed the “gangster states of NATO,” was her choice for VP.

4] The only network to consistently cover her candidacy and invite her on air was RT.

5] RT hosted a primary debate for the Green Party.

6] She travelled to Russia in 2015 to attend that dinner where Putin lauded Flynn.

7] Shortly before that she attended an RT event and met with the Ambassador.

8] Claimed no knowledge of how and why Assange addressed the Green Convention on closed circuit to promote the wikileaks/Russian exposure of DNC emails.

9] Pretty much spouted the Russian lines about HRC throughout the campaign.

Now she claims that Senate committee interest in her Russian ties is an attempt to smear her and that she sees no evidence of Russian interference during the campaign season, because the intelligence community is often wrong.

Back in the day when the only foreign money in an American campaign was Canadian, MX, or Brit, generally from investors in multinational sellers like Schenley’s and Molson’s and Dos Equis, and generally to both parties, this was all tolerable. It was during the Clinton-Dole race when Chinese and Indian money went to Clinton and Saudi money to Dole in very big sums that we saw how campaigns could be bent and beholden. The Russians knew that this loony was a spoiler on the margins, and they knew that DJT was not a cold warrior R. Their objective was disruption and fragmentation of their adversary, and they could pick a D next time if it suited them, which it might well, against a traditional R.

I don’t know how we can possibly stop it from happening again. But somehow, keeping anti-American, as opposed to simply commercial, interests out of our campaigns would be a good thing. My guess is that the best we can do is continuing exposure.

Could we force American media voting ownership to be limited to American citizens? Would there be a constitutional bar? Could we create a credible ombudsman to expose the source of digital media rumors, in a timely fashion?  I wonder what the Intelligence Committees will advise.

And Jill Stein remains a complete loony.

Filed under: Elections, politics, Putin | 19 Comments »

Copied Right: How astronomers identified the first visitor from another solar system

Posted on November 3, 2017 by markinaustin

The Economist explains
How astronomers identified the first visitor from another solar system

Neither bird, nor plane, this is A/2017 U1

Nov 3rd 2017
| by A.B.

ON October 19th Rob Weryk of the University of Hawaii saw something
rather strange. In pictures produced by Pan-STARRS 1, a telescope on
Haleakala, he identified an unusually fast-moving, faint object that
he concluded could not have originated in Earth’s solar system. It
was travelling at more than 25km per second. That is too fast for it
to have a closed, elliptical orbit around the Sun. Nor could its
velocity have been the result of the extra gravitational kick
provided by an encounter with a planet, since it arrived from well
above the ecliptic plane near which all the Sun’s planets orbit.
Indeed, after swinging around the Sun, it passed about 25km below
Earth, before speeding back above the ecliptic plane.

Observations from other telescopes have now confirmed that Dr Weryk’s
object is the first extrasolar object to be spied by astronomers.
The object was originally classified as a comet and thus named
C/2017 U1 (the “C” stands for comet). But it lacked the tail of gas
and dust produced when these icy rocks fly close to the Sun.
Furthermore, an analysis of the sunlight it reflected suggested that
the surface is mostly rock. So it has now been classified as an
asteroid, A/2017 U1, which, judging from its brightness, is about 400
metres wide.

This is puzzling. Comets are formed on the cold periphery of distant
solar systems. Asteroids reside within such systems’ interiors, where
any comet-like volatiles will have been driven off by the heat of
their parent stars. Models of planet formation suggest that
interstellar objects such as A/2017 U1 are more usually comets, as
they can be more easily dislodged from their orbits than asteroids.

One explanation is that over many millennia cosmic rays have
transformed the icy, volatile chemicals that would be expected to
stream off a comet into more stable compounds. Another is that the
Sun is not the first star A/2017 U1 has chanced upon, and its
volatile materials were boiled off by previous stellar encounters.
Or it could indeed be that the object was rocky to begin with—
perhaps once orbiting its parent star in an equivalent of our
solar system’s asteroid belt, before its ejection by an encounter
with a Jupiter-like planet.

Why, then, has nothing like A/2017 U1 been seen before? Those planet-
formation theories suggest such GULLIVER objects should be a
reasonably common sight. Perhaps the theories are wrong. Or perhaps
these interstellar visitors have been overlooked in the past,
and A/2017 U1 will now inspire a spate of such sightings in future.

Sadly for astronomers, A/2017 U1 may not be visible long enough for
these questions to be resolved decisively. It is now charging out of
the solar system towards the constellation of Pegasus—at 44km per
second. Small uncertainties in the calculation of its trajectory
may mean that where exactly it came from and where it is heading
will remain a mystery.

Filed under: Science | 3 Comments »

Morning Report: Decent jobs report 11/3/17

Posted on November 3, 2017 by Brent Nyitray

Vital Statistics:

Last Change
S&P Futures 2579.0 2.3
Eurostoxx Index 395.2 0.3
Oil (WTI) 54.8 0.3
US dollar index 87.7 0.0
10 Year Govt Bond Yield 2.34%
Current Coupon Fannie Mae TBA 102.875
Current Coupon Ginnie Mae TBA 103.938
30 Year Fixed Rate Mortgage 3.95

Stocks are up small after the jobs report. Bonds and MBS are up small.

Jobs report data dump:

  • Nonfarm payrolls up 261,000 versus 325,000 expected
  • 2 month payroll revision up 90,000
  • Unemployment rate 4.1% versus 4.2% expected
  • Labor force participation rate 62.7% vs 63% expected
  • Average hourly earnings flat / up 2.4% YOY.

Overall, a decent report. Payrolls disappointed, but the 2 month revision more than made up for the miss. The unemployment rate is now the lowest since 2000. The drop in the labor force participation rate and flat hourly earnings were disappointing, however. This report won’t make any difference to the Fed’s thinking for December, and the market is basically calling a 25 basis point hike a sure thing at this point.

Note that the miss in average hourly earnings was driven in part by the hurricanes. Restaurant and bar jobs were hit the hardest in the areas affected, and they are lower paying jobs. The loss of these low-paying restaurant and bar jobs in September artificially increased average wages overall. That effect was reversed in October.

The PMI for services was flat in October, while the ISM Services index increased to 60.1. Hurricane effects could be coming into play here as well.

Factory orders increased 1.2% in September, as the manufacturing sector continues to expand.

If you heard a snap yesterday, that was the sound of McMansions in places like Darien, CT and McLean, VA cracking on the proposed sharp reduction in the mortgage interest deduction. Luxury homebuilder Toll Brothers was down 6% yesterday on the proposal, which lowers the MID cap to $500,000 and ends the deduction for second homes. The homebuilder ETF was only down 2.5%. Automaker Tesla was also hit 7% on the proposed elimination of the $7,500 electric car tax credit. I also wonder how this will affect jumbo delinquencies and demand for jumbo MBS.

The NAHB is warning that the change in the mortgage interest deduction could trigger a housing recession. Their point is that it will cause weakness in some high end markets and that weakness will spread to others. FWIW, I think the sheer lack of inventory is the most important characteristic of the current housing market and that will dominate. That said, it won’t be good for home prices in the million dollar range at the margin, and some markets in California could see a moderation of home prices.

Filed under: Economy, Morning Report, taxes | 27 Comments »

Morning Report: Tax and Fed Head day 11/2/17

Posted on November 2, 2017 by Brent Nyitray

Vital Statistics:

Last Change
S&P Futures 2573.8 -1.0
Eurostoxx Index 395.3 -1.4
Oil (WTI) 54.3 0.0
US dollar index 87.7 0.0
10 Year Govt Bond Yield 2.37%
Current Coupon Fannie Mae TBA 102.875
Current Coupon Ginnie Mae TBA 103.938
30 Year Fixed Rate Mortgage 3.95

Stocks are flat after the Fed maintained rates and the Bank of England hiked them. Bonds and MBS are flat as well.

As expected, the Fed maintained the current level of the Fed Funds rate and said its plan of tapering QE remained on track. Since there was no press conference or updated projections, there really wasn’t much for the bond market to work with. The part that caught my eye was that the Fed saw risks to the economy as evenly balanced. Given the growth and the low unemployment rate the risks to the economy are probably to the high side. What is more likely? An uptick in inflation to 2 – 3% or a recession?

Separately, the Atlanta Fed bumped up their estimate for Q4 GDP to 4.5%. That would work out to 3.1% growth for 2017. That said, hurricane effects didn’t drag down Q3 all that much so we may not see that big of a rebound in Q4. This estimate is going to hinge on the holiday shopping season.

Job cuts fell to 29,831 in October, the lowest in 20 years, according to outplacement firm Challenger, Gray, and Christmas. The health care sector had the biggest number of cuts. Separately, initial jobless claims fell to 229,000 last week.

Perhaps an explanation of why we are starting to see wage growth: productivity rose to 3% in the third quarter. Lousy start / stop productivity growth has bedeviled the economy since 2008. Increases in productivity drive increases in real (non-inflationary) wages. Unit labor costs rose 0.5%.

Donald Trump is expected to nominate Jerome Powell to run the Fed today. There are many that are disappointed that Yellen didn’t get a second term, however Trump wants someone with private sector experience to run the Fed, after a string of academics. We probably won’t see much difference between Powell and Yellen in terms of monetary policy (any differences would be so minor no one will notice) but there will be differences in regulatory approach. Janet Yellen was very much in the Obama mold of aggressive regulation. Powell is expected to be more balanced in his approach to the banks.

The GOP is slated to release their tax reform bill today. There have been trial balloons galore floated, so nobody really knows what it will entail. The most likely change is a drop in the corporate tax rate (which may or may not be phased in and / or temporary), an increase in the standard deduction, and limitations on deductions for those that itemize. Some sacred cows are going to take a hit in this bill, and with zero expected Democratic votes, it will have a narrow path to approval. Here is what the latest handicapping has..

Donald Trump signed the Congressional Review Act override to the CFPB’s arbitration rule. Eliminating the mandatory arbitration rule was always more about benefiting lawyers than consumers, and even the CFPB’s own research showed that consumers get better compensation from arbitration than they do from class action suits (ever get an unexpected check in the mail for $1.37 after a class action suit you never heard of? The rest went to the legal fees). Small and medium sized financial firms will be the biggest beneficiaries of this rule.

Filed under: Economy, Morning Report | 17 Comments »

Morning Report: ADP payrolls come in light 11/1/17

Posted on November 1, 2017 by Brent Nyitray

Vital Statistics:

Last Change
S&P Futures 2583.0 10.0
Eurostoxx Index 397.8 2.5
Oil (WTI) 55.0 0.6
US dollar index 87.8 0.1
10 Year Govt Bond Yield 2.39%
Current Coupon Fannie Mae TBA 102.68
Current Coupon Ginnie Mae TBA 103.75
30 Year Fixed Rate Mortgage 3.99

Green on the screen this morning as markets rally worldwide. Bonds and MBS are down.

The Fed decision is due at 2:00 pm EST today. No changes in interest rates are expected, but there is always the risk that something in the statement could move rates. Be careful locking around then. Separately, Donald Trump is scheduled to announce Yellen’s replacement tomorrow.

Mortgage applications continue to fall (six times in the last seven weeks), according to the MBA. Applications decreased by 2.6% as purchases fell 1% and refis fell 5%. Mortgage rates hit a low for 2017 in September, but have risen about 20 basis points since then. The average contract interest rate was 4.22%, an increase of 4 basis points from last week.

ADP saw an uptick in payrolls for October, increasing to 235k. September was revised downward to 110k due to the hurricanes. Many were expecting to see a bigger rebound for October, but it hasn’t happened, at least according to ADP. The BLS is announcing payrolls on Friday, with the Street looking for 325k.

Construction spending rose 0.3% in September, according to the Census Bureau. On a YOY basis, it is up 2%. Residential construction was flat on a month-over-month basis but is up 9.6% YOY.

Manufacturing is still strong, according to the ISM index. It slipped slightly in October to 58.7 from 59.5. Hurricane effects are probably having some effect here.

House Republicans moved back their tax reform reveal by a day, which shows there is some disagreement in whether this can pass. With uniform opposition from Democrats, it will only take a few Republicans to kill it. The state and local tax deduction will probably prove to be the deal killer, and while many Republicans have big philosophical objections to the estate tax, it probably isn’t a hill worth dying on. While people have historically considered senior citizens to be the third rail of politics, in all reality, it is the upper middle class (especially the HENRY’s, which stands for high earnings, not rich yet). They are the ones most affected by changes in 401k contributions, state and local tax deductions, and the mortgage interest deduction. The top 20% pays 95% of the income taxes in this country, according to OMB.

Filed under: Economy, Morning Report | 18 Comments »

Morning Report: Wages and confidence rising 10/31/17

Posted on October 31, 2017 by Brent Nyitray

Vital Statistics:

Last Change
S&P Futures 2573.0 4.8
Eurostoxx Index 394.7 0.8
Oil (WTI) 54.1 -0.1
US dollar index 87.6 0.1
10 Year Govt Bond Yield 2.37%
Current Coupon Fannie Mae TBA 102.875
Current Coupon Ginnie Mae TBA 103.938
30 Year Fixed Rate Mortgage 3.99

Stocks are up this morning as we start the November FOMC meeting. Bonds and MBS are down small.

No changes to FOMC policy are expected at this week’s meeting, however the Fed Funds market is predicting a 96% chance they raise rates in December.

Aside from the FOMC meeting, Congress is expected to unveil tax reform tomorrow, and Trump is slated to nominate the new Federal Reserve Chairman on Thursday. And on Friday, we get the all-important jobs report, so a lot going on this week.

Despite what the business press is saying, the markets are treating the Mueller / Manafort thing as a sideshow. As of now, nothing going on there is going to affect Washington enough to rile up markets. Earnings are the focus at the moment for stocks, and economic data (along with foreign central bank policy) is driving the bond market.

The Washington DC goat rodeo isn’t affecting consumer confidence either, which just hit a 17 year high. Most notably, the job market got positive marks for strength for the first time since 2001.

Are we starting to see stirrings of wage inflation? Perhaps. The Employment Cost Index rose 0.7% in the third quarter, faster than the 0.5% rate we saw in the second. Wages and salaries (which account for 70% of the ECI) rose 0.7%, while benefits rose 0.8%. On a year-over-year basis, they rose 2.5%. So far, bonds aren’t reacting to the number. An increase in wage inflation will force the Fed to move more aggressively. For those who worry about income inequality, the biggest growth was in blue collar jobs, where wages rose 0.8% and benefits rose 1.7%.

Home prices rose 0.5% in August and are up 5.9% for the year, according to Case-Shiller. Seattle has been on a tear, rising over 13% for the past year, followed by Las Vegas and San Diego. A strong economy along with low inventory and rates have been a support for home prices. The interest rate environment will be changing, however inventory doesn’t appear to be a temporary phenomenon, and the US economy seems to be accelerating, not declining. While the usual affordability questions are mentioned, the median mortgage payment for the median house as a percent of income is still very low by historical standards.

Note that the lack of building is simply creating pent-up demand for housing which will get satisfied eventually. That will push up growth for the next few years when it finally happens.

Manufacturing continues to hum along, with the Chicago PMI coming in well above expectations.

Bitcoin futures are coming… The contracts will be cash settled, not by delivery of the underlying.

Filed under: Economy, Morning Report | 19 Comments »

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