(Atlanta)

There is a very particular kind of housing problem currently affecting the US—a serious shortage of homes at the lower end of the cost spectrum. Not only is inventory thin, but the housing stock available for first time buyers is in poor condition and prices are rising quickly (10% in the last year). The average starter home on the market is 9 years older than it was in 2012 and is 2% smaller. That price growth is outpacing other categories.

FINSUM: So the big worry we have is that with all the price appreciation happening, prices are more primed to fall considerably as rates hit a tipping point where they start to curtail mortgage borrowing.

(New York)

Those looking for signs of what will happen to the US economy would be wise to keep an eye on mortgage issuance. While the supply of homes is notoriously tight, many are worried that higher rates might doom the mortgage market. Well, despite several hikes in 2017, the year ended up being a very strong one for commercial mortgage issuance. Total commercial mortgage debt rose by $200 bn in the year to hit $3.18 tn total. It was the strongest year of mortgage debt growth since 2007.

FINSUM: This is one of the stats where you are not sure whether to be nervous or hopeful. On the one hand, it is good that issuance wasn’t dented by rate hikes, but on the other, the stats seem almost worryingly positive.

(New York)

Goldman Sachs is in the middle of beefing up its wealth management business. It is adding advisors and trying to boost AUM. The division is very small compared to competitors, but its advisors have very high average revenue ($4.5m vs $1.1m at Morgan Stanley). Now, it is also boosting its securities-based lending offering. Through a program called GS Select, the firm aggregates other wealth managers and makes loans of between $75k to $25m to their clients, all backed by the securities held in the portfolio of the borrower. The program was just joined by LPL, which is now one of 40 firms participating in GS Select.

FINSUM: Aggregating other wealth managers to provide lending sounds very profitable. Evidently GS is also allowing much smaller managers onto the platform.

(Washington)
Advisors should breath a sigh of relief today. Following the fiduciary rule’s resounding court defeat last week, the DOL has done what the industry has been hoping it would—accept the decision. Following the ruling, the DOL now says it will not enforce the fiduciary rule in any way. A DOL agency spokesman said clearly “Pending further review, the [Labor Department] will not be enforcing the 2016 fiduciary rule”. The DOL will also very likely not challenge the court’s ruling.

FINSUM: Given that this is an entirely new DOL versus the one that drafted the rule under Obama, their behavior makes total sense. The way is finally nearly cleared for a new rule.

(New York)

The old fears are rising anew, and not without reason. With volatility now back in a big way, fears are once again stirring about the reliability of ETFs. In previous market flare ups there have been some major ETF losses. The ETF industry is worth $4 tn and has never been through a bear market at its current size. The biggest fears are in fixed income ETFs, where the “liquidity mismatch” is greatest between the tradable ETFs and the illiquid underlying bonds.

FINSUM: With rates and yields set to rise, there could be some volatility in fixed income, which means there could be some big issues in fixed income ETFs, especially in the most illiquid areas.