Morning Report: Building permits in the Northeast struggle

Vital Statistics:

Last Change
S&P futures 2794 -2.5
Eurostoxx index 383.01 -1.04
Oil (WTI) 68.12 0.06
10 Year Government Bond Yield 2.85%
30 Year fixed rate mortgage 4.51%

Stocks are lower after Netflix (one of the FAANG leaders of the market) missed earnings. Bonds and MBS are flat.

Industrial Production rebounded in June by 0.6% and manufacturing production increased 0.8%. Capacity utilization is 78%.

Jerome Powell heads to Capitol Hill today to begin his semiannual testimony in front of Congress. Expect a lot of questions regarding wage growth, trade wars, and regulation. Overall, he is expected to say that the economy is in good shape overall with above-trend growth and a strong labor market. He will face some questions from Democrats on regulation, especially since the Fed approved Goldman and Morgan Stanley’s capital plans despite the fact they were technically failed their stress tests. The Fed Funds futures continue to move in a hawkish direction, with the Sep futures pricing in a 88% chance of a hike and the Dec futures pricing in a 63% chance of 2 hikes.

Despite trade tensions, the IMF still expects the global economy to grow 3.9% this year and next. Trade remains a threat, however the impact is relatively small: a decrease of 0.5% in global growth by 2020. They forecast the US economy will grow 2.9% this year. Note many strategists took up their Q2 numbers on the strong retail sales print yesterday.

The Fifth Court of Appeals ruled yesterday that the structure of the FHFA is unconstitutional. Not sure how that is going to play out. Separately it also ruled that the FHFA was within its authority to sweep the profit from the GSEs, which is bad news for shareholders. FNMA stock was hit to the tune of 6% after the ruling.

The difference in sentiment between Northeastern real estate markets and the West is night and day. Growth in single family permits was actually negative for the first 5 months of this year. Compare that to the West, where they are up almost 18%.

building permits by geography

The Northeast still has yet to really recover from the Great Recession, although some of that has more to do with secular trends in banking and the securities industry than it does with the real estate bubble. The securities industry has been hit by secular trends (falling commissions, ETFs) that have been great for investors but not great for employment in the industry. 5 cent commissions and 2%/20% hedge fund fees supported a lot of jobs which supported a lot of $1MM + homes. Towns like New Canaan have banned For Sale signs and the only part of the real estate market that is moving is in the sub-$750k segment. Million dollar plus listings languish. It is amazing – we have a housing shortage in the US overall, but you would never know that if you looked at the NYC suburbs.

Author: Brent Nyitray

Why do you need new bands? Everyone knows rock attained perfection in 1974. It's a scientific fact. - Homer Simpson

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s