By rchrisman@robchrisman.com
(Thanks to Norm O. for this one.)
I recently spent $6,500 on a young
registered Black Angus bull. I put him out with the herd but he just ate
grass and wouldn't even look at a cow. I was beginning to think I had paid more
for that bull than he was worth.
Anyhow, I had the vet come and have a look
at him. He said the bull was very healthy but possibly just a little young - so
he gave me some pills to feed him once per day.
The bull started to service the cows within
two days, all my cows! He even broke through the fence and bred all my
neighbor's cows! He's like a machine!
I don't know what was in the pills the Vet
gave him. But they kind of taste like peppermint.
I hate to break the news, but racial diversity exists in the
United States. In fact, many will tell you that it is one of the U.S.'s
strongest attributes, and that we benefit from it. Astrophysicist Tomasz
Stepinksi used NASA data to make an insanely detailed map of U.S. racial diversity, using techniques used to map Mars'
craters algorithmically. (And yes, diversity is entirely different than
profiling or stereotyping.)
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Housing in 2017
We have all noticed that the housing market has been quite
strong for a while now. Sure, there are regional and local laggards, but no one
can disagree that housing trends are different than five years ago. Now, it
seems some are even talking about it reaching its peak while others think the
economy points to continued growth. Going back to earlier this year, S&P
research found strong home price increases in the February data, along with
growth in new home sales. Although existing home sales were down from the
previous month, they hit their swiftest stride over 10 years in January and
increased YOY in February by 5.4%. New single-family homes increased briskly,
with 6.1% increased sales from January and a robust 12.8% YOY in February
according to the Census Bureau and HUD.
Lenders know that it is a two-edged sword. As home prices
have risen dramatically, people who usually would be able to afford a house are
now unable to do so. In fact, the US homeownership rate has been decreasing
steadily since its high in 2005 of 68.9%. In 2016, it landed at 63.4%. A few
key factors are primarily responsible for this decline. The crisis caused a
sudden drop that many areas felt. Sand states were especially hard hit, such as
Arizona, Nevada and Florida and they are still trying to regain their footing.
Remember when people feared the tidal wave of foreclosures
hitting the market? It never materialized due to the impact of larger investors
in the housing market. When the crisis hit and prices tanked, institutional
investors took advantage of the opportunities. These investors often turned
foreclosures into rental properties which took them out of the pipeline for
other buyers. Supply was diminishing while demand slowly swelled. This is
especially true for high growth areas such as San Jose, Seattle, Austin and
Denver. This combination has pushed up the price-to-income ratio more quickly
than natural market factors would normally allow and made it more difficult for
first-time home buyers to get involved.
And let's not forget the changing demographics of the
country affecting all areas relative to homeownership. This is most pronounced
in slower growth regions such as the Midwest, Northeast and South. Millennials are entering decent house-buying years, people
who were foreclosed upon 5-10 years ago are re-entering the market, and we
still have immigration.
Although rates are higher than much of 2016, and lower
mortgage interest rates have helped this situation some, lack of inventory is
an issue in many areas. But some economists point to new home development.
Predicted to grow at a 6.5% pace this year, new units could help supply
limitations ease, which will further balance out housing prices. Median home
prices are expected to slow somewhat from 2016 and new home prices and existing
home prices appear to be moving closer together.
"Pending" Home Sales, "Existing" Home
Sales, and "New" Home Sales - take your pick. They all show something
slightly different, and economists have their favorites. Housing and jobs play
critical roles in the United States economy, thus the abundance of various
statistics for each one. Let's look at Pending Home Sales trends for the
last several months. Remember that this is an index created by the
National Association of Realtors (NAR) that tracks homes sales in which a
contract is signed but the sale has not yet closed. And they don't assure
an actual sale: the appraisal may not come in at value, the borrower doesn't
qualify, the inspection turns up a cracked foundation, whatever.
Pending Home Sales fell 0.8% in March as tight inventory reduced
transactions. On a YOY basis, they are up 0.8%, as February was an unusually
strong number. NAR chief economist, says sparse inventory levels caused a
pullback in pending sales in March, but activity was still strong enough to be
the third best in the past year. "Home shoppers are coming out in droves
this spring and competing with each other for the meager number of listings in
the affordable price range," he said. "In most areas, the lower the
price of a home for sale, the more competition there is for it. That's the
reason why first-time buyers have yet to make up a larger share of the market
this year, despite there being more sales overall."
February pending home sales surprised, rising 5.5% M-o-M,
and are at their highest reading since 5/06, while house prices rose a strong
5.7% during the three months ending 1/17. Moreover, February new home sales
were 592,000 seasonally adjusted, their second-best level since 2/08, and
February housing starts hit 1.288 million seasonally adjusted, their second
highest level since 8/07. While excellent, unusually warm February weather
surely contributed to these strong numbers. February's number is 2.6%
higher than a year ago, and the second-highest reading since the bubble years
(the first was last April). A slight uptick in listings drove the increase.
Demand is there, supply is not.
Pending Home Sales fell 2.8% in January as tight
inventory reduced sales. Lawrence Yun, NAR chief economist, said home shoppers
in January faced numerous obstacles in their quest to buy a home. "The
significant shortage of listings last month along with deteriorating
affordability as the result of higher home prices and mortgage rates kept many
would-be buyers at bay," he said. "Buyer traffic is easily outpacing
seller traffic in several metro areas and is why homes are selling at a much
faster rate than a year ago 1. Most notably in the West, it's not uncommon to
see a home come off the market within a month."
Pending Home Sales increased in December, according to NAR. The challenge for 2017 will be increasing
inventory enough to offset higher borrowing costs. NAR is forecasting housing
starts to increase 8% this year to 1.26 million. Normalcy is closer to 1.5
million.
Pending home sales fell 2.5% in November on rising
mortgage rates and tight supply, according to the National Association of
Realtors. They forecast existing home sales to hit just over 5.5 million in
2017, which works out to be a 10-year high. NAR anticipates that increasing
wages will offset some of the problems with affordability. They missed
expectations for faster growth after a 0.1% rise in October. The decline was
not a huge surprise because mortgage rates moved up sharply since the November
8 U.S. election
Capital markets
Yesterday's bond market, and last week's as well, seemed
like the summer doldrums were already here. It was darned quiet,
although rates moved higher with the 10-year closing at 2.39%. Fortunately
Agency MBS continued their march tighter to Treasury securities although some
traders think it'll be hard to find any more reasons for much improvement in
the spreads.
Unlike yesterday, today we actually have some economic
news. The NFIB Small Business Optimism Index slipped slightly for the third
month in a row. At 7AM PT we have the March JOLTS (job openings) and March
wholesale trade. We also have the weekly Redbook Same-Store Sales Index at 5:55
AM PT, and a $24 billion 3-year Treasury auction. For numbers, rates
(including MBS prices) are nearly unchanged from Monday's close. The 10-year is
at 2.39%.
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