2016 Maximum Conforming Loan Limits Increase For Only 39 Countries (California Wine Country Cooler)

The Federal Housing Finance Agency announced that the maximum conforming loan limits for 2016 have been raised … for 39 High-Cost Areas. the National Baseline Loan Limit remained unchanged.

The 39 countries? Mostly Boston, Nashville TN and Denver. But the Wine Country counties of Napa, Sonoma and Moneterey of Califnrnia as well as San Diego were the only California counties to be increased.


The Housing and Economic Recovery Act of 2008 (HERA) established the baseline loan limit at $417,000 and mandated that, after a period of price declines, the baseline loan limit cannot rise again until home prices return to pre-decline levels. The $417,000 loan limit will stay the same for 2016 because FHFA has determined that the average U.S. home value in the third quarter of this year remained below its level in the third quarter of 2007.

San Francisco and Los Angeles, already unaffordable, did not see an increase in the maximum conforming loan limit.


But Denver and Boston made the list of high-cost areas worthy of an increase in maximum conforming loan limit.



You may wonder why California’s elite wine growing counties qualify for higher conforming loan limits than other counties with severe affordability issues? Blame the mechanical nature of HERA (The Housing and Economic Recovery Act of 2008). Or The Greek Goddess of Housing Bubbles and Un-affordability.

Suffice it to say most of California’s wine growing counties are tickled pink.


Commodity Supercycle Dying As Monetary Stimulus Subsides

Commodity prices crashed during The Great Recession (as expected). However, commodity prices began to surge following The Great Recession, thanks in part to the massive monetary expansion by The Federal Reserve.


Commodity prices largely peaked in early 2011 and have really hit the skids since June 2014. West Texas Intermediate Crude Oil Prices reflect the end of the commodity super cycle as well.


Let’s see if December’s FOMC meeting will be called “Standoff at the Cemetery” given the death of the commodity supercycle.


Thanks as always to Jeese of Jesse’s Cafe Americain blog.

Fed’s Williams sees strong case for December interest-rate hike (With 94+ Million Not In Labor Force?)

Reuters reported that “Fed’s Williams sees strong case for December interest-rate hike.”

There is a “strong case” for raising interest rates when Federal Reserve policymakers meet next month, as long as U.S. economic data does not disappoint, a top Fed official said on Saturday.

“The data I think have been overall encouraging, especially on the labor market,” San Francisco Fed President John Williams told reporters after a conference at University of California Berkeley’s Clausen Center.

Let’s see if The Fed’s Williams is correct.

If we look at the U3 unemployment rate and jobless claims, both have returned to levels prior to The Great Recession (although it took a hell of a long time since The Great Recession ended in June 2009).


On the other hand, the U6 underemployment rate still remains above the highest levels from 2000-2008.


In terms of NATURAL rates of unemployment, the U3 unemployment index resides BELOW the natural rate of unemployment.


And with so many jobs being created (non-farm payrolls) and U3 unemployment rate lower than the natural rate of unemployment, why is wage growth so low?

Here is one reason why wage growth is slow. This chart reflects the number of unemployed in the US combined with the number of people not in the labor force. This is the number of NON-WORKING Americans. This number has been fairly level since 2009.


The good news is that YoY growth in non farm payroll jobs have mostly been higher than the YoY growth in NOT in labor force in 2015. Except for the last report.


So what will be released in the next jobs report that will be so stunning? I sincerely doubt if there will be any significant movement upwards in wage growth, particularly if the jobs added are in the low realms of wages. Sorry, john, I just don’t see the recovery, at least in terms of wage growth when there are over 94 million NOT in labor force.


New Home Sales Rise 10.74% In October As Median Price Falls -5.2%

Good news for homebuilders! New home sales rose 10.74% in October.


However, median prices for a new home sale fell -5.2%.


The growing new home sales are look different than the flat-lined mortgage purchase applications index.


The Northeast saw a 135% increase in new home sales while The West saw a 1% decline. I admit, homebuilding in San Francisco and Los Angeles remains a chore when housing is unaffordable in terms of rising home prices and falling family incomes.



Will Fed Raise Rates With Zero Inflation? The Zero Velocity Economy

The Federal Reserve has a target inflation rate of 2%. Whether we use CPI YoY or Personal Consumption Expenditures YoY, the US economy is no where near 2%. Currently, the core personal consumption expenditures YoY are growing at only 1.31%, no where near The Fed’s target rate for inflation.


How can this be, you ask? Look back in 2008 (left hand side of chart) where core inflation was about 2.4% and excess reserves were low. The problem is in 2013-2015. Excess deposits have been growing faster than the funds can be loaned out. This translates into declining inflation.

True, auto and student loans have been growing in recent years, but these are not enough to generate inflation. The excess reserves remain trapped in the Federal Reserve System. This is another reason why mortgage purchase applications are low.


Then there is the CRB Foodstuffs index.


Inflation? What inflation??


Blastoff? Q4 GDP At 2.3% (Auto Sales And Housing Fueling The Break Past 2%)

Ralph Nader, consumer advocate, asked Janet Yellen why The Federal Reserve kept interest rate so low for so long hurting savers.

Nader may be getting his wish for higher interest rates, given that The Atlanta Fed’s GDPNOW real-time tracker has the US economy growing at 2.3% in Q4 2015.

The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2015 is 2.3 percent on November 18, unchanged from November 13. The forecast of real growth has remained at 2.3 percent after Tuesday’s releases for October data on industrial production from the Federal Reserve Board, consumer prices (CPI) from the U.S. Bureau of Labor Statistics, and this morning’s release of October housing starts from the U.S. Census Bureau.

There was a large change in the reported economic number on November 5 and 6th that jolted the GDP numbers upwards, There were increases in equipment and residential investment (both 1 unit and multifamily construction).


A different view of GDP reporting:


The relative good news on auto sales and residential construction are leading investors to give a 72% probability of a December blastoff.


We shall see if the improved auto sales and housing construction is enough to give the “LAUNCH” command.


October Existing Home Sales Drop More Than Expected (Unaffordable West Hit The Worst!)

The existing home sales are out for October and they are worse than expected.


While mortgages to subprime borrowers helped fuel the increase in existing home sales (mortgage purchase applications) in the first half of the last decade, we have seen an uncoupling of existing home sales from mortgage purchase applications since 2010.


The West suffered the worst at -8.66% MoM. San Francisco, Los Angeles and San Diego are seeing near bubble-high prices … again (particularly San Francisco).


Perhaps people are starting to take notice of the California unaffordability problem, helped by Federal Reserve policies.