Morning Report: Regulation adds 24% to the price of a house

Vital Statistics:

S&P futures4,2304.8
Oil (WTI)65.380.47
10 year government bond yield 1.57%
30 year fixed rate mortgage 3.15%

Stocks are flattish this morning on no major news. Bonds and MBS are flat.

The upcoming week will have some important inflation data with the Consumer Price Index on Wednesday and the Producer Price Index on Thursday. Even though the Fed prefers the Personal Consumption Expenditure index the bond market will watch these two indices to see if we are getting any cost-push inflation.

Delinquencies fell to 6.38% of all loans outstanding in the first quarter, according to the Mortgage Bankers Association. This is down 35 basis points from the fourth quarter, but up 202 bp from a year ago. The historical average is about 5.33%. DQ rates track pretty closely with unemployment rates, so as the unemployment rate falls we should see a decrease in delinquencies.

The CFPB says that COVID made more borrowers delinquent than any time since the Great Recession. Luckily this time around, home prices are rising, not falling. Homeowners who find themselves with a home they cannot afford are probably able to downsize without issues. The housing market is so hot that just about everyone has home equity. That is the biggest difference between the Great Recession and today.

Fan and Fred’s high LTV refinancing products will be subject to the high risk loan limits of 3%. So don’t look for these to be priced aggressively for long.

The business press and politicians like to pretend that regulation is “free,” as in it imposes de minimus costs on business and consumers. The National Association of Home Builders found that regulation adds $93.878 in additional costs to a new home, which works out to be about 24% on the average sales price of $397,300. “This study illustrates how overregulation is exacerbating the nation’s housing affordability crisis and that policymakers need to take bold steps to reduce or eliminate unnecessary regulations that will help builders increase the production of quality, affordable housing to meet growing market demand,” said NAHB Chairman Chuck Fowke. Don’t forget that lumber has quadrupled over the past year as well. New Homes are going to be expensive this year.

Chicago Fed President Charles Evans said that he wouldn’t mind seeing 2.5% inflation, and he wants more improvement in unemployment before making any changes. Speaking on Friday’s disappointing jobs report: It’s a little more complicated. We’re restarting the economy. A lot of sectors are experiencing growth pains,” Evans said on CNBC’s “Squawk Box.” “Hopefully, it’s just a one-month kind of thing and we’re going to get better employment. I certainly think so.”


Author: Brent Nyitray

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

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