Morning Report: Fed Week

Vital Statistics:

 

Last Change
S&P futures 3144 -6.25
Oil (WTI) 58.59 -0.64
10 year government bond yield 1.81%
30 year fixed rate mortgage 3.98%

 

Stocks are slightly lower as we head into a Fed Week. Bonds and MBS are up.

 

There are two big events this week: the FOMC meeting on Tuesday and Wednesday and the spate of new Chinese tariffs expected to take effect at the end of the week. We will get some interesting economic data in productivity, inflation and retail sales, but with the Fed on the sidelines trade and overseas markets will be driving interest rates.

 

The Fed Funds futures are predicting no changes to interest rate policy at the meeting this week. The June 2020 futures are predicting a roughly 50/50 chance of another rate cut.

 

The average size of a first-time homebuyer’s mortgage was $231,974 for the first 3 quarters of 2018 and was up 4.2% on a YOY basis.

 

first time mortgage size

 

Interesting stat courtesy of the Harvard Joint Center for Housing Studies: annual household growth over the next 10 years is expected to be 1.2 million per year. With housing starts around the same level, we are not taking into account functional obsolescence and deterioration.

 

Is a homeowner who sells his house via iBuyers (think Zillow and Opendoor) leaving money on the table? Turns out the average discount to market value is about 1.3%. The typical fee charged an iBuyer is around 7%. So the total costs is 8.3%. Compare that to using traditional realtors and paying 6%, along with the expense of showing the home, etc. Essentially the seller is paying for convenience, which is a non-contingent offer in a week, with no showing necessary. In this case the fee is about 2.3%, which represents the additional fee of 1% the iBuyer charges along with the 1.3% market value discount.

 

Paul Volcker, the Fed Chairman who slayed the 1970s inflation dragon has passed away.

Author: Brent Nyitray

In the physical sciences, knowledge is cumulative. In the financial markets, it is cyclical

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