Morning Report: Inflation-adjusted land prices are still below bubble levels

Vital Statistics:

Last Change
S&P futures 2889 -9
Eurostoxx index 376.86 -2.5
Oil (WTI) 68.97 -0.89
10 year government bond yield 2.88%
30 year fixed rate mortgage 4.56%

Stocks are lower this morning on overseas weakness. Bonds and MBS are up.

Yesterday was a bit of a milestone as the 1 month T-bill briefly cracked the 2% level. Farewell, zero bound.

Tropical Storm Gordon is hitting the Gulf Coast. Oil prices have softened as the storm looks to be weaker than expected. We can still expect to see flooding issues and servicers should be prepared for an uptick in delinquencies. Things to know about your insurance if you are in the storm’s path.

Not much in the way of data today, but we have a lot of Fed-speak.

Emerging markets are getting slammed as a combination of central bank tightening, trade woes, and currency issues are pushing the asset class down. The flight to quality trade should support bond prices and help push yields lower.

Like Freddie Kreuger, government shutdown threats just keep returning. Congressional Republicans are looking to wrap up funding by October 1. Controversial issues like funding the wall would likely get pushed until after the election. As far as shutdowns go, the markets generally do not care, but originators need to remember that things like tax transcripts were unavailable the last time we shut down.

Mortgage applications fell 0.1% last week as purchases increased 1% and refis fell 1%. Rates increased about 2 basis points.

Same store sales rose 6.5%, yet another indication that the back-to-school shopping season was strong. As goes BTS, so goes the holiday season, meaning growth in Q4 should be strong. Note the Atlanta Fed raised their Q3 GDP estimate to 4.7%. Consumption is 70% of GDP.

Wells is out with a call for a 3.2% 10-year yield by the end of the year. A combination of higher deficits, lower trade deficits, and the expiration of a tax provision will lower demand in the face of rising supply. With strong spending bolstering the economy and a tight labor market, the Fed may try and squeeze in an extra rate hike to provide more breathing room in case the economy rolls over.

The September Fed Funds futures are at 99% chance of a rate hike, and the Dec futures are at a 70% chance of another.

Single-family lot prices reached a record level last year, however if you adjust for inflation, they are below the peak. Note however that lot sizes have been falling, and I don’t think this analysis corrects for that. For example, the typical lot size in the Northeast is 0.4 acres, and the typical price is $128k, which amounts to $320k an acre. On the Left Coast, the average lot size is .15 acres and the average price is $84k, which works out to be $560k an acre. Even if you correct for the declining lot size, we still aren’t back to peak levels in inflation-adjusted land prices. Builders constantly mention that land availability is a constraint on building, but this analysis shows that things were worse during the bubble years.

Author: Brent Nyitray

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

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