Morning Report – Wanna lend some money to Apple? 04/30/13

Vital Statistics:

  Last Change Percent
S&P Futures  1587.3 -0.9 -0.06%
Eurostoxx Index 2720.1 2.7 0.10%
Oil (WTI) 93.73 -0.8 -0.81%
LIBOR 0.273 -0.001 -0.36%
US Dollar Index (DXY) 82.16 0.015 0.02%
10 Year Govt Bond Yield 1.65% -0.02%  
Current Coupon Ginnie Mae TBA 106.4 0.0  
Current Coupon Fannie Mae TBA 104.7 0.1  
RPX Composite Real Estate Index 192.1 1.1  
BankRate 30 Year Fixed Rate Mortgage 3.43    

Markets are lower this morning on no real news. The Employment Cost Index increased .3% in the first quarter and Q412 was revised down. Wages and salaries increased .5% while benefit costs dropped .1%. No inflationary pressures in the labor market. Today starts the two day FOMC meeting. Bonds and MBS are up slightly.

The S&P / Corelogic / Case-Schiller index of home values came in at + 9.32% year over year and + 1.24% month-over-month. This was the biggest increase since May 2006. Of course the real estate market is pretty bifurcated, with annual growth in the high teens out West and mid-to-high single digit growth elsewhere. They note that housing is now becoming a driver of GDP growth, although the mix still is skewed towards apartments and not single family residences.

Chart:  Case-Schiller indices

Apple is doing a massive bond issue – 6 different issues, including a 30 year bond. The proceeds will be used to fund dividends and buybacks and will help Apple avoid repatriation taxes on the over $100 billion in funds it holds overseas. The 30 year bond is supposedly going to be priced at a 115 basis point spread to Treasuries. That would be around 4%. The 5 year paper will be issued at 1.2%. Those are positively Japanese yields. Grandpa, tell me again about the days when companies would issue debt with yields lower than their dividend yield.


PIMCO’s Mohammed El-Arian thinks that the tone of the FOMC meeting will shift from “when do we end QE?” to maintaining it and possibly increasing stimulus. That would certainly be MBS bullish, which could start another refi wave, although prepay burnout has got to be pretty big at this point. He does note the risks of the record amount of stimulus: “The benefits of the Fed come with costs and risks. What I worry about is when you run a system at artificial price levels, you start creating damage, resources are misallocated, too much risk is taken.”  Exhibit (A):  Apple is borrowing money for 30 years at 4% to fund a stock buyback. 

Morning Report – Personal Spending up .2% 04/29/13

Vital Statistics:

  Last Change Percent
S&P Futures  1581.5 5.0 0.32%
Eurostoxx Index 2697.4 13.9 0.52%
Oil (WTI) 93.36 0.4 0.39%
LIBOR 0.274 -0.002 -0.54%
US Dollar Index (DXY) 82.12 -0.387 -0.47%
10 Year Govt Bond Yield 1.65% -0.01%  
Current Coupon Ginnie Mae TBA 106.3 0.1  
Current Coupon Fannie Mae TBA 104.6 0.1  
RPX Composite Real Estate Index 191 0.5  
BankRate 30 Year Fixed Rate Mortgage 3.43    

Markets are higher this morning after better-than-expected consumer spending data. Personal Income data was lower than expected. Bonds and MBS are up small

Personal Spending was projected to be flat, but actually rose .2%. The Bureau of Economic Analysis is claiming that it was primarily due to weather – a cooler than normal spring brought higher utility spending. Personal Income was forecast to rise .4%, and ended up at .2%. The PCE deflator showed inflation remains subdued.

Pending Home Sales increased 1.5% in March, according to the National Association of Realtors. Economists had forecast a 1% increase. Pending home sales are up 5.8% year-over-year.

Lender Processing Services reported that home prices increased 1% in February and rose 7.3% year-over-year. The West is experiencing the biggest gains, while the Northeast and Mid Atlantic continue to languish. This has been borne out by the earnings reports of the homebuilders as well – the ones primarily focused on California have knocked the cover off the ball, while those with an East-Coast / Midwest focus have reported gains, but nowhere near what the West Coast builders are reporting.

Lots of data this week, but the big driver will be the FOMC meeting. We will get the rate announcement on Wed. Investors will be looking for information concerning the end of QE. We will get the jobs report on Friday, which will have the biggest potential to move interest rates.

Lots of homebuilders reported earnings last week – pretty much everyone except NVR beat estimates. Anyone with exposure to the West Coast did well and backlog is up nicely at all of the builders. We will hear from Standard Pacific and Beazer Homes this week. The Homebuilder ETF (XHB) is on a tear and sitting right at resistance.

 U.S. News and World Report has a good piece on the state of the first time homebuyer.

An Aaron Sorkin Liberal Fantasy

Obama’s speech at the White House Correspondents’ Dinner:

Lots of really great one liners in there. Here is the full text for the YouTube impaired. He gets great writers for this event. The one item that seems to have gotten some news buzz was Antonio Scalia sitting at the Fox News table. Once you buy into the incestuous relationship between the press and the government this is a minor complaint.

Morning Report – disappointing GDP report 04/26/13

Vital Statistics:

  Last Change Percent
S&P Futures  1575.8 -5.9 -0.37%
Eurostoxx Index 2684.1 -20.3 -0.75%
Oil (WTI) 93.23 -0.4 -0.44%
LIBOR 0.276 0.000 0.00%
US Dollar Index (DXY) 82.61 -0.132 -0.16%
10 Year Govt Bond Yield 1.68% -0.03%  
Current Coupon Ginnie Mae TBA 106 0.0  
Current Coupon Fannie Mae TBA 104.5 0.2  
RPX Composite Real Estate Index 191 0.5  
BankRate 30 Year Fixed Rate Mortgage 3.47    

Markets are slightly weaker after Q1 GDP came in weaker than expected. D.R. Horton reported better than expected earnings. Bonds and MBS are stronger


Q1 GDP came in at + 2.5%. lower than the 3% estimate. This is the advance estimate – Q1 GDP will be revised twice in the next two months. Consumer spending increased at 3.2% and the savings rate declined. The back-to-back drop in defense spending was the biggest since 1954. Real disposable incomes fell 5.3% in Q1 on increased taxes. C = 3.2%, I = 3%, G = -4.1%. 

The Senate voted to end sequestration-related furloughs for air traffic controllers and the measure will be sent to the House today. President Obama has said he will consider whatever is sent to him. 

CoreLogic has acquired Case-Schiller.

The CFPB has proposed amendments to the QM rule.  The proposals are here.

Morning Report – Earnings from the homeboys 04/25/13

Vital Statistics:





S&P Futures 




Eurostoxx Index




Oil (WTI)








US Dollar Index (DXY)




10 Year Govt Bond Yield




Current Coupon Ginnie Mae TBA




Current Coupon Fannie Mae TBA




RPX Composite Real Estate Index




BankRate 30 Year Fixed Rate Mortgage




Markets are higher after earnings continue to look decent. Initial Jobless Claims fell, although the data tends to be volatile this time of year. Bonds and MBS are down

Yesterday, the House Financial Services Committee held a hearing on the private label securitization market. Generally speaking the theme centered around regulatory certainty, and that until QRM issues get resolved, the private label market will still be a trickle. Everyone agreed that Fannie and Fred will remain doing what they do for quite some time. Interestingly, Ranking Member Maxine Waters expressed concern about the effects principal mods will have on investors – I wonder if CALPERs and PIMCO had a word with her. If Maxine Waters isn’t onboard with principal mods, maybe the whole push is losing momentum. Fun fact that came out of the hearing:  The U.S. government currently bears 50% of the credit risk of the entire mortgage market.

We have had quite a few homebuilders report over the past week, and it is generally a tale of two geographies. The builders that are in the West Coast markets have done great (KBH, MTH, RYL), while the ones with more East Coast exposure (NVR, PHM) are doing better, but nowhere near the others. NVR actually missed estimates and the stock was clobbered for 6% at one point, but it has clawed back its losses with the general strength in the market. Pulte reported this morning and is looking down a quarter. Ryland, which focuses on the first time homebuyer and the second-time move up buyer reported great numbers. Perhaps the long-awaited return of the first-time homebuyer is finally here.

The connection between the first time homebuyer and household formation is something that I have been harping on for a while. CoreLogic talks about it in its latest Market Pulse. Household formation numbers have been depressed ever since 2006, and that has given the illusion that the homebuilders have been building enough starter homes. The problem is that the drop in household formation wasn’t due to demographics – it was due to a lousy economy. If a normal run rate is 1 million new households per year, and we average around 600 for five years, that means we have roughly 2 million new households in pent-up demand, along with the normal demand. Of course as the economy improves, many of these households will become renters first, and not first-time homebuyers. But what sort of housing start number will we see in the future to accommodate this demand? Remember, 1.5 million starts is “normalcy.” Certainly not the 1 million print we saw last week. Probably closer to 2 million. Think about the homebuilding stocks on double the activity…

Chart Household Formation:



Morning Report – Earnings Season 04/24/13

Vital Statistics:

  Last Change Percent
S&P Futures  1575.3 1.7 0.11%
Eurostoxx Index 2679.6 16.7 0.63%
Oil (WTI) 89.52 0.3 0.38%
LIBOR 0.276 0.000 0.00%
US Dollar Index (DXY) 82.97 -0.077 -0.09%
10 Year Govt Bond Yield 1.71% 0.01%  
Current Coupon Ginnie Mae TBA 105.9 -0.2  
Current Coupon Fannie Mae TBA 104.2 0.0  
RPX Composite Real Estate Index 191 0.5  
BankRate 30 Year Fixed Rate Mortgage 3.47    

Markets are flat this morning after a slew of earnings releases. Apple reported a mixed bag last night, with better than expected earnings, but a disappointing Q2 forecast. They are increasing their buyback, which is raising concerns about future growth. Ford reported better than expected earnings as well. We will hear from Ryland and Meritage Homes today. MBA mortgage applications rose .2% last week, while durable goods orders fell. It appears most of the drop in durable goods was defense-related, so you probably shouldn’t read too much into it. Bonds and MBS are down small.

New Home Sales rose to 417,000 units in March, which was up 1.5% from February. We are seeing a pickup in activity in the Northeast and the South. The inventory of new homes for sale was 4.4 months, while the median price was 247,000, and the average price was 279,000. Average prices actually dropped on a year-over-year basis, which means luxury building must be decreasing.

Lender Processing Services released their February Mortgage Monitor yesterday, showing delinquencies and foreclosures continue to fall. DQ + FC fell to 10.18% from a peak of 14.82% in Jan 2010. This is still well above normalcy, which is a DQ+FC percent in the 5% range. Mods are starting to pick up havter having declined for 6 consecutive quarters.

PennyMac reported earnings yesterday. Seem to be growing in all 3 business lines: origination, servicing, and distressed MBS.  Some of the highlights:

  • PMT reported earnings of .90, better than expectations of .76
  • Correspondent loan purchase volume $8.5B, down 15% from Q4
  •  Lock volume $8.1B, down 22% from Q4
  • MSR portfolio up 36% to $17B UPB
  •  Strong demand for reperforming loans
  • Correspondent margins decreasing but still above historical norms
  • Correspondent will increase as a share of origination market
  • Anticipating increase in refi activity as LTVs decrease
  • Re-launched prime jumbo program, did over $100M in locks in Q1
  • Targeting Q313 for first jumbo private label securitization transaction

Morning Report – FHFA Home Price Index rises 7.1% YOY 04/23/13

Vital Statistics:

  Last Change Percent
S&P Futures  1561.8 5.9 0.38%
Eurostoxx Index 2644.5 60.9 2.36%
Oil (WTI) 88.24 -0.9 -1.07%
LIBOR 0.276 0.001 0.18%
US Dollar Index (DXY) 82.98 0.303 0.37%
10 Year Govt Bond Yield 1.67% -0.03%  
Current Coupon Ginnie Mae TBA 106.2 0.0  
Current Coupon Fannie Mae TBA 104.4 0.1  
RPX Composite Real Estate Index 191 0.5  
BankRate 30 Year Fixed Rate Mortgage 3.5    

Markets are stronger this morning after weak European economic data raised the possibility of further easing. Apple will report after the close. The Markit US Flash PMI came in light. Bonds and MBS are up.

FHFA reported that home prices increased .7% MOM in February. Year-over-year, prices rose 7.1%. The FHFA index reports sales of homes with mortgages owned by Fannie Mae or Freddie Mac, so it is more of a “central tendency” index. It doesn’t include cash sales in places like Phoenix or San Francisco which is skewing some of the other indices. Prices are back to October 2004 levels

Chart:  FHFA Home Price Index.

NVR reported disappointing earnings yesterday. The Reston VA-based homebuilder / mortgage originator reported sales increased by 28% and origination increased by 13%. The EPS and revenue numbers were light, however and the stock sold off. NVR is primarily East Coast based, which explains the difference between its results and KB Home’s which showed a 60% increase in revenues.

Flights are being delayed across the country due to furloughs of air traffic controllers. This is President Obama’s last and best chance to show the country that the sequestration cuts will hurt. His most recent budget will raise taxes on pretty much everyone, although it will mainly hit those who make $200,000 or more. It also includes AMT II, aka the Buffet Rule. 

%d bloggers like this: