Strange Brew! FHFA House Price Index Rises 0.8% MoM In January (And 7.30% YoY While Hourly Earnings Growing At 2.6% YoY)

Strange brew! The FHFA’s house price index rose 0.8% in January, double what analysts forecast.

Not surprisingly, the Pacific region and the Mountain region led both MoM and YoY growth.


While the national HPI Purchase Only index rose at 7.30% YoY, too bad the average hourly earnings grew at 2.6% YoY. That is close to 3 times hourly earnings growth!


And note the trajectory of YoY house price growth!

Is that Mose Schrute introducing Cream playing Strange Brew?



Fed Comes A Little Bit Closer To Taylor Rule (Raises Target Rate To 1.75% While TR Rudebusch Calls For 6.62% — Only 447 Basis Points To Go!)

Yes, Jay (Powell) and the Americans (FOMC) came a little bit closer to The Taylor Rule (Rudebusch Model) with the FOMC voting to increase their target rate to 1.75%. The lower bound is now 1.50%.


The Taylor Rule (Rudebusch Model) calls for a Fed Funds Target rate of 6.62%. Only 447 basis points left to go, Jay!


The sentiment for 4 rate hikes in 2018 is growing.


The Fed Dots Plot for today’s meeting shows optimism over economic growth.


I was hoping that Jay Powell was going to sing a ballad to former Fed Chair Janet Yellen.


MBA Refinance Index Now At Lowest Level Since 2008 (Down 4.45% WoW)

The MBA refinance index is now at its lowest level since 2008.


The MBA Refi Index decreased by 4.5% from 1159 to 1108, for the week ending on March 16, on a seasonally adjusted basis.

The Conventional Refi Index decreased by 5%, Government Refi Index decreased by 1.5%.


Perfektenschlag! U.S. Starter Homes Are Scarcer, Pricier, Smaller and More Run-Down (Perfect Storm For Affordable Housing)

Combine insane land use restrictions (zoning), influx of millions of immigrants from south of the border, a booming tech industry and super low interest rates from The Federal Reserve and we have  “Perfektenschlag” for US affordable housing policy: the perfectly UNAFFORDABLE HOUSING MARKET (aka, coastal California).

(Bloomberg) – Homebuyers in the U.S. have plenty to grouse about these days. Prices have climbed steeply in many metro areas, mortgage rates are rising and inventory is thin. But for people looking to purchase their first home, it’s ugly out there.

“Starter homes have become scarcer, pricier, smaller, older and more likely in need of some TLC” than they were six years ago, the real estate website Trulia reported Wednesday after analyzing housing stock across the country.  Trulia began tracking prices and inventory in 2012.

It’s grim all over. American homes are at their least affordable in the report’s history. But the median listing price of available starter homes has risen 9.6 percent in the past year, easily beating out the trade-up and premium categories, while starter-home supply has fallen to a new low this quarter, Trulia reported.

Perhaps the most striking finding is that the very buyers who are typically least able to plunk down a lot of money are confronted with the least affordable homes. The share of income needed by those in the market for a premium home was 15 percent, and for a trade-up home 27 percent. For a starter it was 41 percent.

Adding insult to injury, the homes aimed at first-time buyers are less likely to be ready for human habitation than others, with fixer-uppers accounting for 11.2 percent of the category. They’re about nine years older than they were in 2012, and 2 percent smaller.

On the bright side, 2 percent isn’t a whole lot smaller. Until you learn that homes overall are more than 8 percent bigger.

The markets that are the least affordable are concentrated in California with Boston being the sole market not located in the Golden State. In some of the most expensive places in the country like San Francisco, San Jose and Los Angeles, those income earners at the bottom third of the market would need to spend all their income and more (over 100%) to afford a median starter home.  The starter home price among all ten of these markets has also increased since this time last year.


Combine California Governor Jerry “Moonbeam” Brown and former UC Berkeley economics professor Janet Yellen collaborating on affordable housing policy, and you get the median price of a starter home in San Francisco of $820,550.


Yes, throw in California’s tight land use controls, a legislature that encourages open borders, a Federal Reserve keeping interest rate extremely low for a decade and a booming technology sector and we have an AFFORDABLE HOUSING CRISIS in coastal cities.


Or as Dwight Schrute said, “Perfektenschlag.”


Fed Enters Brave New Forecasting World Beset With Same Old Data (Actual data look very similar to those Fed faced in December)

The Fed’s Open Market Committee (FOMC) is meeting today and tomorrow to decide what to do. Well, it is pretty much a foregone conclusion that the Fed Funds Target Rate (upper bound) will be raised to 1.75% from 1.50%.


But what is different at this meeting than at the last meeting in 2017? In short, GDP is expected to growth at a faster pace and inflation is rising ever so slowly.

(Bloomberg) -By Jeanna Smialek- Federal Reserve officials will face an unusual predicament as they update their economic projections this week: Everything has changed but the data.

In many ways, it feels like a brave new world. Chairman Jerome Powell makes his debut with an expected interest-rate increase, replacing Janet Yellen. Financial conditions have tightened and the five rate increases under Yellen since December 2015 are finally being felt in the real economy, at least in mortgage rates. Tax reform has passed and Congress is lifting government spending caps, boosting the near-term growth outlook.

Yet Fed officials swear by their data dependence, and the numbers look strikingly similar to when the policy-setting committee last met. The inflation pickup officials have been waiting for still hasn’t materialized, wages are ticking higher but hardly surging, economic growth is chugging along and the job market continues to pull people off the sidelines.


And if we look at the Rudebusch Model for the Taylor Rule, it is screaming for a Fed rate hike even with unemployment rate at 4.1% and Core PCE Inflation at 1.52%.


While The Fed forecasts GDP to grow at 2.5%,


the Atlanta Fed’s GDPNow Forecast for Q1 has fallen to 1.8%. Be warned! This is one noisy forecast model!!


Home prices keep growing at over twice that of hourly wage growth.


Part of The Fed’s Brave New World is trying to cope with housing prices rising over twice as fast as wage growth.



Q4 Mortgage Median Down Payment 7.1% (Same As Peak Flipping Year Of 2005)

The median down payment for a US residential mortgage was 7.1% as of Q4 2017

median_down_payment_Q4_2017 (1).png

According to Attom, the median down payment increases 20 percent from year ago
The median down payment on single family homes and condos purchased with financing in Q4 2017 was $18,000, down from a record high $19,100 in the previous quarter but up 20 percent from $14,950 in Q4 2016.

The median down payment of $18,000 was 7.1 percent of the median sales price of the homes purchased with financing during the quarter, down from a four-year high OF 7.3 percent in the previous quarter but still up from 6.2 percent in Q4 2016.

“The median down payment in the greater Seattle area of 14.1 percent is twice the national average and continuing to rise,” said Matthew Gardner, chief economist at Windermere Real Estate covering Seattle. “This is good news for homeowners in our market as it provides them with a layer of protection should home prices see a downturn in the future.”

Among 143 metropolitan statistical areas analyzed for down payments, those with the biggest median down payments were San Jose, California ($268,000); San Francisco, California ($174,500); Santa Rosa, California ($123,450); Los Angeles, California ($119,800); and Ventura, California ($107,000).

Hey buddy, can you spare a quarter of a million dollars for a down payment in San Jose?

This coindices with the peak quarters of the US home flipping in late 2005.


As of Q4 2017, Wells Fargo continues to be the leader in mortgage purchase originations with Quicken Loans being the leader in mortgage refis.


Quicken has Rocket Mortgage. Wells Fargo has Wells Fargo Express!!


House Flippers Return In Force, At 11-year High (Memphis, Las Vegas, Phoenix In Top Five, Washington DC Averaged $304K Gross Profit on Flipped Homes)

House flipping was common at the peak of the housing bubble in the last decade. While not near the highs of 2005, house flipping is at its highest since 2006, according to a report by Attom Solutions.


Gross profits from flipping are higher than during the peak flipping years of 2004-2006.


Memphis, Las Vegas and Phoenix are in the top five cities for flipping. And yes, the Washington DC area is back in the thick of things for flipping.


Washington DC flipping has been quite profitable.


House flipping often occurs in markets with high demand and lack of inventory.


They call them flippers!

Let us just hope that rising house flipping isn’t a precursor to another home price crash!



Going Down: Atlanta Fed’s Q1 GDP Forecast Drops From 5.4% To 1.9% (Kudlow To Replace Cohn In Trump Admin)

As Bruce Springsteen warbled, we’re going down. At least the Atlanta Fed’s Q1 GDP forecast is going down … from 5.4% to 1.9%.


The latest shoe to drop? The CPI report on 3/13, PPI on 3/14 and the retail sales report. And PCE growth is slowing.


Over the course of the quarter, we have seen a decline in exports, residential investment, nonresidential structures, equipment purchase and finally retail trade.

Actually, the Q1 forecast fell to 1.852% (not to make it sound worse that it already is).


As  you can see, the Atlanta Fed’s GDP forecast has substantial volatility.

Let’s see what happens when housing starts and industrial production numbers are released tomorrow.  My model shows a downturn in housing starts (-3%) and a slight increase in industrial production (+0.5)  and capacity utilization (77.75%).

And congratulations to Larry Kudlow on being chosen to replace Gary Cohn as Trump’s economic adviser. Here I am as a guest on Kudlow’s CNBC show.


My Kuroda! Not a Single Japanese 10-Year Bond Traded Tuesday (Bank of Japan Bought 75% Of Government Bonds Issued In Last Year)

(Bloomberg) — Some jobs might be threatened by automation. But when it comes to government bond trading in Japan, the biggest threat might be the country’s central bank.

The Bank of Japan has vacuumed up so much of the government bond market — in excess of 40 percent — that it’s left fewer securities for others to buy and sell. Some other buyers, such as pension funds and life insurers, also tend to follow buy-and-hold strategies.

That’s the backdrop to Tuesday’s session, when not a single benchmark 10-year note was traded on exchange, according to Japan Trading Co. data. Barclays Securities Japan rates strategist Naoya Oshikubo, summed it up, with perhaps an understatement: “the JGB market was generally thin.”

Governor Haruhiko Kuroda noted to lawmakers Wednesday that the central bank has bought 75 percent of the government bonds issued in the fiscal year ending this month.

The Japanese sovereign curve remains negative for tenors under 10 years. And the Yen swaps curve is negative for tenors less than 6 months.


You can see how well BOJ’s low interest rate policies have helped housing prices.  … NOT!


This is clearly a time to roll-out the song by The Knacks entitled “My Kuroda!”


US Retail Sales Fall For Third Straight Month (A Nightmare on Main Street?)

U.S. retail sales unexpectedly fell in February for a third month, adding to signs that consumer spending — the biggest part of the economy — is easing after strong gains in the fourth quarter. Overall sales fell 0.1 percent after a revised 0.1 percent decrease in January, and missed the median economist forecast for a 0.3 percent gain. Stripping out purchases at automobile dealers and gasoline stations, sales were up 0.3 percent, in line with estimates. So-called retail-control group sales, used to calculate gross domestic product and which exclude food services, gasoline, building materials and motor vehicles, rose 0.1 percent, missing estimates for a 0.4 percent gain.


Amazon’s on-line “revolution” has helped reduce retail store sales, even for food. And healthcare!


And low wage growth isn’t helping.


Here is a photo of Jeff “Freddie” Bezos from the film “A Nightmare on Main Street.” At least for retailers.