A Deep Dive

By rchrisman@robchrisman.com

(I flipped a coin and the characters turned out in these roles. Obviously one can reverse them to suit purposes.)

"Donald and Hillary go into A Bakery"

Donald and Hillary go into a bakery on the campaign trail. As soon as they enter the bakery, Hillary steals three pastries and puts them in her pocket.

She says to Donald, "See how clever I am? The owner didn't see anything and I don't even need to lie. I will definitely win the election."

Donald says to Hillary, "That's the typical dishonesty you have displayed throughout your entire life, trickery and deceit. I am going to show you an honest way to get the same result."

Donald goes to the owner of the bakery and says, "Give me a pastry and I will show you a magic trick."

Intrigued, the owner accepts and gives him a pastry.

Trump swallows it and asks for another one.

The owner gives him another one.

Then Donald asks for a third pastry and eats that, too.

The owner is starting to wonder where the magic trick is and asks, "What did you do with the pastries?"

Trump replies, "Look in Hillary's pocket"...

 

What does $24 million buy you in Oregon? Just find 24 people to pony up a million each.

 Some economists love to look at the FHFA's housing statistics. Newly minted math and statistics majors, and summer interns, employed by the FHFA to put them together, also love them. These numbers, of course, only reside in the world of Freddie Mac and Fannie Mae, nut are useful to a limited degree, especially when viewed in context and taken over several months. Things look pretty good, and we certainly see a different picture than a few short years ago when the trend was negative.

 As a reminder, the Federal Housing Finance Agency (FHFA) sends out its House Price Index (HPI), and one can take a gander at it monthly or quarterly - to smooth out those fluctuations. The HPI is calculated using home sales price information from mortgages sold to, or guaranteed by, Fannie Mae and Freddie Mac. Not only that, but it measures average price changes in repeat sales or refinancings on the same properties since 1975.

 Going back to last summer, the FHFA Home Price Index rose 0.6% in July, and year over year house prices were up 5.8 percent. For the nine census divisions, seasonally adjusted monthly price changes from June 2015 to July 2015 ranged from -1.2 percent in the New England division to +1.6 percent in the Mountain Division. The 12-month changes were all positive, ranging from +2.1 percent in the New England division to +9.4 percent in the Mountain Division.

Last September the House Price Purchase Index was +1.3% 3Q15 and +0.8% in September.  U.S. house prices rose 1.3 percent in the third quarter of 2015 according to the Federal Housing Finance Agency (FHFA) House Price Index (HPI). This was the 17th consecutive quarterly price increase in the purchase-only, seasonally adjusted index. FHFA's seasonally adjusted monthly index for September was up 0.8 percent from August. House prices rose 5.7 percent from the third quarter of 2014 to the third quarter of 2015.

At that point almost a year ago home prices rose in every state (except West Virginia) and in DC between the third quarter of 2014 and the third quarter of 2015. The top five areas in annual appreciation: 1) District of Columbia - 15.4 percent, 2) Colorado - 12.7 percent, 3) Nevada - 12.4 percent, 4) Oregon - 10.0 percent, and 5) Florida - 10.0 percent.

Heading into Halloween of 2015, the FHFA House Price Index was +0.5% in Oct.  The FHFA House Price Index (HPI) reported a 0.5 percent increase in U.S. house prices in October from the previous month. From October 2014 to October 2015, house prices were up 6.1 percent. For the nine census divisions, seasonally adjusted monthly price changes from September 2015 to October 2015 ranged from -0.5 percent in the New England division to +1.2 percent in the East South Central division. The 12-month changes were all positive, ranging from +2.9 percent in the New England division to +8.9 percent in the Mountain division.

Thanksgiving? The FHFA HPI reported a .5% increase in U.S. house prices in November from the previous month.  From November 2014 to November 2015, house prices were up 5.9 percent.  For the nine census divisions, seasonally adjusted monthly price changes from October 2015 to November 2015 ranged from -0.4 percent in the West South Central division to +1.8 percent in the Mountain Division. The 12-month changes were all positive, ranging from +2.6 percent in the Middle Atlantic division to +10.0 percent in the Mountain Division.

Valentine's Day? FHFA House Price Index 0.4% in Feb.  Home prices were thought to have stalled. The FHFA House Price Index showed not much of a lift at all in February, rising just 0.4% compared with the prior month. January was revised down to 0.4% from 0.5%. February's numbers were about what economists expected. The year-on-year gain was 5.6%, which is not spectacular but not overly weak given low inflation. This suggested that the slowdown in the housing market that began two years ago continued, which proved not to be the case. There's not much evidence of further weakening, however. Year-over-year gains have been steadily hanging on to around 6% for nearly a year.

 Home prices rose 0.7% in March of 2016, later revised to +.8%, according to the FHFA House Price Index. "While the overall appreciation rate was robust in the first quarter, home price appreciation was somewhat less widespread than in recent quarters," said FHFA Supervisory Economist Andrew Leventis. "Twelve states and the District of Columbia saw price declines in the quarter-the most areas to see price depreciation since the fourth quarter of 2013. Although most declines were modest, such declines are notable given the pervasive and extraordinary appreciation we have been observing for many years." Interesting to see prices begin to decline in some states.

 So when all was said and done for the first quarter, this index showed that U.S. house prices rose 1.3 percent in the first quarter of 2016. This is the nineteenth consecutive quarterly price increase in the purchase-only, seasonally adjusted index. As noted in the paragraph above, the FHFA's seasonally adjusted monthly index for March was up 0.7 percent from February.  

Moving into the second quarter, the FHFA House Price index rose 0.2% in April of this year, and is up 5.9% year-over-year. Interestingly, New England went from cellar-dweller to the leader in monthly price appreciation. The region is still lagging the most on a YOY basis however. The FHFA index is the only housing price index that has regained all of the losses from the crisis. This is because it concentrates only on houses with a conforming mortgage, so it ignores the all-cash distressed sales and the jumbo space.

Memorial Day? The FHFA Housing Price Index rose 0.2% m/m in May (5.6% y/y) after increasing by an upwardly revised 0.3% in April.

 The index went on to show that U.S. house prices rose 1.2 percent in the second quarter of 2016. House prices rose 5.6 percent from the second quarter of 2015 to the second quarter of 2016. FHFA's seasonally adjusted monthly index for June was up 0.2 percent from May.

 A while back the PGA tour and Quicken Loans partnered up to bring a sweepstakes in which every time a PGA tour player makes a hole-in-one, Quicken Loans pays a person's mortgage for a year. Quicken Loans just came out with a study on home values and it seems people living in the West get a hole-in-one every time they get their home appraised! The study shows that "Appraised values were higher than homeowners estimated in Western cities including Denver, San Jose and San Francisco - by as much as 3.10 percent, 2.52 percent and 2.36 percent respectively."

 The gist of the study is that National HPPI (home price perception index) shows appraised values were 1.69% lower than homeowners expected in July. What's important to note in this is how regionalized housing is. While the west was surprised by the home values being higher than they believed, the northeast and Midwest were shocked at their low values vs their expectations. Quicken Loans also found that the only measure of home value changes based on appraisals, HVI (home value index) rose 1.43% in July and rose 6.24% year-over-year. If you would like to read more about this and see the values for major cities around the country click here.

 According to Sun Tzu, all warfare is based upon deception....and sneaking out of work early to enjoy the few remaining afternoons of summer is too. Life is filled with imperfect situations, mainly driven by participants having imperfect information at the time. Some may argue that even the most liquid markets are based upon imperfect information. Really there's no finer example of investors positioning themselves into a market with complete lack of transparency than the Fed Funds Rate. Wells Fargo's Economics Group writes in Investing with Imperfect Information regarding decisions by investors which may be speculating on FOMC interest rate decisions. "For investors, the challenge is to make decisions under conditions of imperfect information. The volatility of expectations on FOMC actions is an excellent representation of the imperfect information the market has on inflation, inflation expectations and the FOMC's reaction function to that inflation."

 Are trends in the monthly or quarterly FHFA's HPPI more exciting than the bond market? Perhaps. Tuesday we had another non-volatile day with very little news from overseas, and very little news from this country. I won't waste anyone's time talking about what little intra-day price movement there was between coupons and types of mortgage-backed securities, although traders did see a little pick-up in volume.

 For Tuesday's session, agency MBS prices, the 5-year T-note, and the 10-year note (1.57%) were all pretty much unchanged from Monday's close, which was pretty close to last Thursday's close.

 It's a new day, and we've already had the MBA's application numbers for last week. Overall apps were up nearly 3%, most of it from refis which were +4% versus purchases which were +1%. We've also had ADP's private sector employment number for August: +177k, as expected. Coming up are the Chicago PMI, at 9:45am, expected to decline to 53.0 vs. 55.8, and the Pending Home Sales Index for July, at 10:00am, expected at -0.5% vs. +0.2% previously. In the early going we're at 1.58% on the 10-year and down a smidge on agency MBS prices.