Morning Report: Bullard sees an “incipient bubble” in housing

Vital Statistics:

S&P futures4,489-3.2
Oil (WTI)67.33-0.95
10 year government bond yield 1.36%
30 year fixed rate mortgage 3.07%

Stocks are flattish this morning after the GDP and jobless claims numbers. Bonds and MBS are down.

The second revision to Q2 GDP inched up 0.1% to 6.6%. This was in line with Street expectations. Personal Consumption Expenditures rose to 11.9%, which was a tad higher than expectations.

Initial Jobless Claims came in at 353,000. This is still elevated compared to pre-COVID, but is the lowest since.

Corporate profits rose 69% in Q2, which is benefiting from easy comparisons from a year ago.

St. Louis Fed President James Bullard thinks the central bank should begin the tapering process soon and end it by March 2022. “We do have a new framework we did say that we would allow inflation to run above target for some time, but not this much above target. So for that reason I think we want to get going on taper. Get the taper finished by the end of the first quarter next year,” he continued. “And then we can evaluate what the situation is and we’ll be able to see at that point whether inflation has moderated and if that’s the case we’ll be in great shape. If it hasn’t moderated, we’re going to have to be more aggressive to contain inflation.”

He also mentioned house prices: “I think that there is worry that we’re doing more damage than helping with the asset purchases because there is an incipient housing bubble in the U.S. The median house price, at least the number I saw, was approaching $400,000,” he said. “We got into a lot of trouble in the mid-2000s by being too complacent about housing prices, so I think we want to be very careful on that this time around.”

FWIW, I don’t think we have a housing bubble, since the necessary conditions for one (a belief that an asset can’t fall in price that is shared by buyers, lenders, and regulators) simply aren’t in place – the memories of 2008 are still fresh. Not only that, something like 90% of all origination is government-guaranteed. You will never get the forced selling since there will be little to no credit losses borne by the financial sector.

That said, the torrid pace of home price appreciation should begin to abate as we bump up against affordability constraints.

New Rez has completed its purchase of Caliber Home Loans. “The completion of the Caliber acquisition is another significant step in growing a leading mortgage company with tremendous earnings power within New Residential,” said Michael Nierenberg, Chairman, Chief Executive Officer and President of New Residential. “We are very pleased to reach this milestone and officially welcome Caliber into the New Residential family. With this acquisition we have extended our ability to offer a broad spectrum of mortgage products to borrowers throughout their homeownership journey. We expect the combination of Caliber and Newrez to contribute meaningfully to New Residential’s growth in 2021 and beyond.”


Author: Brent Nyitray

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

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