|10 year government bond yield||3.06%|
|30 year fixed rate mortgage||4.89%|
Stocks are lower this morning on no real news. Bonds and MBS are flat.
We have a lot of Fed-speak today, with 4 different speeches. As we approach the December Fed meeting, the markets will hang on every word, looking for clues about 2019. The Fed funds futures are increasing their probability of a December hike, which is up to 80% compared to 66% a month ago.
Economic growth accelerated a touch in October, according to the Chicago Fed National Activity Index. The CFNAI is a meta-index of some 85 different statistics, and in October employment-related numbers (things like unemployment and initial jobless claims) were the drivers. Production-related statistics slowed a touch, but overall the economy is growing above trend.
Median home sizes are falling, as more and more builders focus on building starter homes. Home sizes rose during the housing bust as the luxury end of the market was about the only segment that was working. This trend was exacerbated by debt levels and employment uncertainty for the first time homebuyer. In addition, the Millennial generation tended to favor urban areas, and builders focused on apartment building. Now, we are seeing a glut of properties at the high end, and strong demand for starter homes as the first time homebuyer moves to the suburbs. Note that the latest existing home sales data had the first time homebuyer share at 31%. Historically, that number has been closer to 40%.
Signs of things to come? The Dallas home market is cooling off, as affordability issues bite. The Dallas market is a little different than the typical US housing market – Texas has some limitations on cash-out refinances that meant it largely avoided the big boom / bust of the real estate bubble. Prices are 50% higher than they were in 2007, which is similar to MSAs like San Francisco. On the other hand, Dallas homebuyers are more likely to finance their purchases than the typical foreign cash buyer on the West Coast. Builders have a glut of inventory and are cutting prices / adding features to move properties.