Good Tuesday AM,
Bonds are finally in the green. I would very much like to say this is the beginning of a larger trend, but there’s no way to be sure yet. Last night the head of the BOJ, Haruhiko Kuroda, hit the bond buy button (envision a really big green button on his desk), saying it’s not time to even discuss an exit from stimulus programs with inflation still nowhere close to 2%. A rising tide lifts all boats, so we are feeling some love here in the US too. The 10-yr is back to 2.62% which had been our ceiling and is now our floor. We do need to crack below that to pick up momentum and see a longer term positive trend emerge. Mortgage bonds are up 22bps. The news starts flowing tomorrow and becomes more important as the week goes on. In fact, the most important release of the month and possibly the quarter will be released, which is the 1st look at Q4 GDP. Fingers crossed…
Scanning for some additional and relevant insight brought this piece that shows: The US housing is not in a bubble in spite of increasing house prices and is nowhere near the situation seen prior to the 2008 crisis, according to Urban Institute researchers Bing Bai and Edward Golding. The researchers looked into the question of whether recent house price appreciation is driven by fundamentals or by pure speculation. To answer the question, they used the Housing Finance Policy Center’s housing affordability index. “Today, the median household can afford a house that is $70,000 more expensive than the price of the median house sold,” the researchers said. “In 2006, there was a $22,000 shortfall between what the median household could afford and the median sales price. Despite recent increases, house prices remain affordable by historical standards, suggesting that home prices are tracking a broader economic expansion.” The researchers also looked into whether there are any regional housing bubbles and found that some areas show cause for concern. The researchers enumerated the factors that should be considered in modeling the risk of housing bubbles for MSAs. These include constrained supply due to a lack of construction, the influx of international investors, the entry of nontraditional investors buying homes to rent, and the fact that certain MSAs are rebounding from “overshooting” in the downturn
All for now, make today great!