Morning Report: New Home Sales strong

Vital Statistics:

 

Last Change
S&P futures 3008 55.1
Oil (WTI) 34.34 1.19
10 year government bond yield 0.7%
30 year fixed rate mortgage 3.28%

 

Stocks are higher this morning on optimism about the economy re-opening. Bonds and MBS are flat.

 

The upcoming week is somewhat data-light. The big numbers will be the second revision to GDP and construction spending.

 

Home prices rose 1.7% in the first quarter and were up 5.7% on a YOY basis, according to the FHFA House Price Index.  That said, the report noted that the data in the report probably doesn’t take into account the effects of COVID. The Mountain states led the charge, with Idaho, Montana, and Wyoming posting double-digit gains.

Home price appreciation by state

The Case-Shiller index reported a 4.4% annual gain. The difference between the FHFA and Case-Shiller indices? FHFA is limited to transactions with a conforming mortgage, while Case-Shiller includes all sales.

 

New Home Sales came in at 623,000 which was up from March, but down 6.7% on a YOY basis. Since April was the worst of the crisis, this is an encouraging number. Note that these are estimates with wide confidence intervals. So there is a chance these could get revised lower. I listened to pretty much every homebuilder earnings call and pretty much every one said that the second half of April was unexpectedly strong.

 

I went to a restaurant in Connecticut last night. Outdoor seating, long line out the door to get a table. Sample size of 1, but it looks like people are antsy to get out of the house and put COVID behind them. Barring any sort of second wave of infections, I think the economy rebound by the 4th of July and will have shaken off most of the economic damage by Labor Day.

Morning Report: Existing home sales fall

Vital Statistics:

 

Last Change
S&P futures 2963 -4.1
Oil (WTI) 34.54 1.19
10 year government bond yield 0.68%
30 year fixed rate mortgage 3.28%

 

Stocks are flattish this morning on no real news. Bonds and MBS are up small.

 

Initial Jobless Claims came in at 2.4 million. which was a touch higher than expectations.

 

3.6 million Americans were past due on their April mortgage payment according to Black Knight Financial Services. This is the largest number since January 2015. Foreclosure starts and completions were at record lows due to government-imposed moratoriums. Miami, NYC and Las Vegas were the hardest hit cities. Note that sales in NYC are down 61%. I suspect we are going to see a mass exodus to the suburbs after this is over.

 

The Census Bureau estimates that almost half of all households has lost employment income during the pandemic. States that rely heaviest on tourism like Nevada and Hawaii saw close to 60%.

 

Existing home sales fell 18% in April, according to NAR. The median home price rose 7.4% YOY. Inventory was down 1.3% from March and down 19.7% from a year ago. “The economic lockdowns – occurring from mid-March through April in most states – have temporarily disrupted home sales,” said Lawrence Yun, NAR’s chief economist. “But the listings that are on the market are still attracting buyers and boosting home prices.”

 

The index of leading economic indicators came in at -4.4, better than expected, and an improvement from the March number.

Morning Report: Over 70% of borrowers in forbearance don’t need the help

Vital Statistics:

 

Last Change
S&P futures 2966 37.1
Oil (WTI) 32.84 1.19
10 year government bond yield 0.71%
30 year fixed rate mortgage 3.28%

 

Stocks are higher this morning as retailer earnings are coming in better than expected. Bonds and MBS are flat.

 

The FHFA put out new guidance yesterday on forbearance and refinances. Essentially, you will will be eligible to refinance your property provided you are current with whatever repayment plan you negotiated for 3 months after exiting forbearance. “Homeowners who are in COVID-19 forbearance but continue to make their mortgage payment will not be penalized,” said Director Mark Calabria. “Today’s action allows homeowners to access record low mortgage rates and keeps the mortgage market functioning as efficiently as possible.” According to the MBA, 4.1 million borrowers are in forbearance right now and over 70% don’t need the help. That is a huge number, but i guess it is to be expected since there is no requirement to demonstrate hardship.

 

Mortgage Applications fell 2.6% last week as purchases increased 6% and refis fell 6%. “Applications for home purchases continue to recover from April’s sizable drop and have now increased for five consecutive weeks,” said Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting. “Purchase activity – which was 35 percent below year-ago levels six weeks ago – increased across all loan types and was only 1.5 percent lower than last year. Government purchase applications, which include FHA, VA and USDA loans, are now 5 percent higher than a year ago, which is an encouraging turnaround after the weakness seen over the past two months. As states gradually reopen and both home buyer and seller activity increases, we will be closely watching to see if these positive trends continue, or if they reflect shorter-term, pent-up demand.”

 

41% of home sales had bidding wars, according to Redfin. “Demand for homes has picked back up after hitting rock bottom in April, and that uptick paired with a lack of supply is a recipe for bidding wars,” said Redfin lead economist Taylor Marr. “Homebuyers are getting back out there, searching for more space as they realize using their home as an office and school may become the norm. But sellers are still holding off on listing their homes, partially due to economic uncertainty and concerns of health risks. In some hot neighborhoods, there may only be one or two homes for sale, with multiple homebuyers vying for them.”

 

22% of builders reduced home prices to move inventory, according to the NAHB. This is much less than the housing recession of 2008, which was about 50%.

Morning Report: Forbearance curve flattening

Vital Statistics:

 

Last Change
S&P futures 2940 -7.1
Oil (WTI) 33.54 1.19
10 year government bond yield 0.73%
30 year fixed rate mortgage 3.28%

 

Stocks are flattish this morning on no real news. Bonds and MBS are down.

 

Fed Chairman Jerome Powell and Treasury Secretary Steve Mnuchin head to Capitol Hill to testify in front of the Senate today.  In his prepared remarks, Jerome Powell basically laid out everything the Fed has done so far, so it doesn’t look like anything new is going to come out of this.

 

Social distancing took a bite out of housing starts in April, falling 30% to 891 thousand. Building Permits also fell 19% from March. Separately, the NAHB Housing Market index increased in May to 37 from 30.

 

CNBC explains why this isn’t the Great Depression, even though the unemployment numbers are up there. The simplest explanation – there was no economic rot that caused the drop in the economy. No asset bubbles, no bad investments, no bank failures – it isn’t comparable. This was a healthy economy that was put in a deep freeze in response to a pandemic. Recessions generally exist because bad debt needs to be written off, excess inventory needs to be sold, and bad businesses liquidated. There isn’t any of that this time around. Just like the predictions of millions of deaths in the US from COVID turned out to be overly pessimistic, I think many of the predictions of a long, drawn out recovery will be too.

 

The Despot missed earnings expectations this morning, but maintained its dividend. It also withdrew its guidance for the rest of the year. The company took some actions to help its employees including paid time off, bonuses, and healthcare expense help which hit earnings by 60 cents a share. Meanwhile, WalMart reported strong numbers this morning as shoppers stockpile necessities.

 

It looks like the “forbearance curve” is flattening. “The pace of forbearance requests continued to slow in the second week of May, but the share of loans in forbearance increased,” said Mike Fratantoni, MBA’s chief economist. “There has been a pronounced flattening in loans put into forbearance – despite April’s uniformly negative economic data, remarkably high unemployment, and it now being past May payment due dates.”

Morning Report: 9% of US mortgages are in forbearance

Vital Statistics:

 

Last Change
S&P futures 2929 83.1
Oil (WTI) 32.54 1.29
10 year government bond yield 0.68%
30 year fixed rate mortgage 3.36%

 

Stocks are higher this morning on positive news for a COVID vaccine. Bonds and MBS are down.

 

The upcoming week should be relatively quiet, with no major economic news. Jerome Powell speaks tomorrow and we will get the FOMC minutes, but that is about it. Markets will be closing early on Friday for the Memorial Day weekend.

 

The MBA sent a letter to Congress stressing the need for a liquidity facility for non-bank servicers. In order to work, Ginnie must be given legal authority to approve pledges of an issuer’s future reimbursements on servicing advances. The MBA also points out that allowing everyone to get forbearance regardless of circumstances was not the smartest idea. While FHFA has stated that borrowers who seek forbearance will not be required to repay everything at once, that doesn’t necessarily apply to non-government-backed paper.

 

About 9% of US mortgages are in forbearance right now. This works out to be $1 trillion in unpaid principal. By the end of June, Black Knight estimates that 10% – 12% of the mortgage market will be in forbearance. 12% would work out to be 6.3 million borrowers. That is a lot of advances. Separately, the National Multifamily Housing Council reported that 88% of renters made their May payment through May 13.

 

Jerome Powell warned on the economy turning around: “There is a growing sense that the recovery may come more slowly than we would like, but it will come. And that may mean that it’s necessary for us to do more.” He is advocating for Congress to provide more fiscal stimulus, which doesn’t seem like it will be forthcoming. The House has passed a liberal wish-list, but Mitch McConnell doesn’t seem all that eager to take it up. The big trade will be liability protection for business in exchange for vote-by-mail.

 

The MBA says buyers will return by summer as lockdown ends. “We expect that heading into the summer, more prospective homebuyers will gradually return to the market.” FWIW, “summer” is only a month away, but I think this is already happening. I was listening to the American Homes 4 Rent conference call, and they said that traffic was slower in the second half of March, but by the second half of April, traffic was up 25% year-over-year. They had 9,500 showings is five days which worked out to be six tours per available property. While these are for rentals, it does show that people who are living in crowded urban areas want to escape to the suburbs, where social distancing is easier. The company even mentioned on the call that COVID is driving traffic. I have to imagine the same thing happening for purchase activity. We will get a better idea on April numbers this week when existing home sales comes out on Thursday.

 

Just like the talking heads overestimated the whole COVID-19 crisis, I think they are also overestimating the economic fallout from it. There just weren’t too many problems with the economy going into the crisis, and this recession wasn’t caused by economic rot or inflation. It was like taking a healthy person and putting him into a medically induced coma. All of the economic models are based on history – in other words, recessions which were caused by asset bubbles or the Fed. It would be like comparing our healthy patient’s coma recovery to someone who was put into a medically-induced coma because of an illness. Without an underlying condition that needs to heal, the recovery should be faster, all things being equal.

What’s With The Numbers?

From The Dispatch:

As of Sunday night, 1,486,757 cases of COVID-19 have been reported in the United States (an increase of 18,961 from yesterday) and 89,562 deaths have been attributed to the virus (an increase of 808 from yesterday), according to the Johns Hopkins University COVID-19 Dashboard, leading to a mortality rate among confirmed cases of 6 percent (the true mortality rate is likely lower, but it’s impossible to determine precisely due to incomplete testing regimens). Of 11,499,203 coronavirus tests conducted in the United States (422,024 conducted since yesterday), 12.9 percent have come back positive.

I noticed last week the deaths seemed to be generally curving downwards, having dropped from 2000+ to 1100 to 700, but then curving back up towards the end of the week (an anomaly that I think must be explained by methods of counting and aggregation and when things happen more than date-of-death).

But the numbers I’m thinking about are cases of COVID-19 and some of how all this is reported.

For example, with The Dispatch we always get the mortality rate of 6% with the caveat it might be lower.

But never the “confirmed” cases percentage against population, which, as I calculate it, is 0.4%.

Or the overall fatality rate of deaths/population. Which as I calculate it would be .02%.

And that’s assuming all those deaths should be attributed to Coronavirus. As Colorado dropped a number of COVID-19 deaths from their count due to attributing mortality to other causes, there is clearly still some variation as to how Coronavirus deaths are actually assessed.

My point being, the fact that “confirmed” cases (not always the result of testing, but sometimes diagnosis by symptoms) being 0.4% seems like a relevant number, but it never seems to be put that way. Just as the overall fatality rate within the entire population being 0.02%.

The news gives us all sorts of comparisons to help people think of numbers when, saying, reporting on the national debt or a drop in the stock market or something other event or issue that involves complicated numbers. I’ve heard the national debt measured in dollar-bills around the earth or reaching to the moon or in contrast to stars in the galaxy and so on and so forth.

There doesn’t seem to be a similar urge to contextualize the coronavirus numbers. There also has been little discussion of how these numbers are achieved. Are cases all the results of tests, or assessed by symptoms, or a mix of both? Is it the same from state-to-state or country-to-country? It seems clear coronavirus deaths are not being assessed the same state-to-state.

So when we talk about surges or spikes, are we talking about real changes or maybe changes in how numbers or counted, or when data is recompiled, or something else?

From the John Hopkin’s dashboard to official state numbers, it feels to me as everything is being presented as being much more concrete and standardized and, frankly, accurate than it really is.

Just a Monday morning observation. Hope everyone is having a great (and safe) day!

Morning Report: Home demand returns

Vital Statistics:

 

Last Change
S&P futures 2823 -23.1
Oil (WTI) 28.79 1.29
10 year government bond yield 0.60%
30 year fixed rate mortgage 3.36%

 

Stocks are lower this morning after a lousy retail sales number. Bonds and MBS are up.

 

Retail sales fell 16.4% MOM and 21.6% YOY, according to Census. Obviously these are unprecedented numbers, never seen before. Apparel, home furnishings, and electronics were down the most.

 

Joe Biden would support rent forgiveness if elected.  In other words, if you missed rent payments due to COVID, you’ll never have to pay them back. This is just election pandering – the chance of this getting through Congress is pretty much zero. I guess it is a way to encourage the Bernie Sanders supporters to come out and vote for him on election day.

 

Meanwhile, the FHFA is extending its foreclosures and eviction moratorium until June 30.

 

Interesting data point: Home buyer demand is higher than it was pre-COVID 19. Meanwhile supply is down 25%.  Big open floor plans are out, home offices are in. “Pre-COVID people wanted a beautiful open floor plan. After a few months in quarantine, buyers want quiet spaces where they can actually get away from everyone else and dedicated space for school and work.”

homebuyer demand

 

JP Morgan and American Homes 4 Rent are joining together to build suburban homes. FWIW, COVID-19 might be what makes the white picket fence cool again.

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