Morning Report – Household formation and housing starts 5/7/14

Posted on May 7, 2014 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1867.8 3.5 0.19%
Eurostoxx Index 3157.6 7.9 0.25%
Oil (WTI) 100.3 0.8 0.83%
LIBOR 0.224 -0.001 -0.40%
US Dollar Index (DXY) 79.16 0.063 0.08%
10 Year Govt Bond Yield 2.61% 0.02%
Current Coupon Ginnie Mae TBA 106.1 -0.2
Current Coupon Fannie Mae TBA 105.2 -0.1
BankRate 30 Year Fixed Rate Mortgage 4.22

 

Markets are higher this morning on no real news. Bonds and MBS are down.
Mortgage Applications rose 5.3% last week. Purchases were up 8.9%, while refis were up 5%. Refis are now under half of all applications.
Productivity fell in the first quarter as cold weather hampered economic activity. Unit labor costs rose much higher than expected, by 4.2%. On a year-over-year basis, unit labor costs increased .9%. The drop in productivity could be a harbinger of more hiring – companies have squeezed about all they can out of current staff, and if demand picks up they will have to hire more people.
The NAHB Leading Market Index shows that economic activity continues to expand slowly but surely. Builder sentiment continues to improve, especially in the energy states. Everyone is waiting for the job market to make a jump to the next level, which will release all of this pent-up demand. There is a tremendous amount of pent-up demand for housing, given the difference between household formation and housing starts. Household formation typically is depressed during recessions, and then rebounds as the economy recovers. If you look at the chart below of housing starts vs household formation, you can see how household formation is rebounding, yet housing starts are still at recessionary levels, 6 years on. Housing starts of 900k have been associated with the bottoms of recessions. They have been a fact of life since 2008. When you take into account normal obsolescence, you can see we have a shortage of housing already.

Filed under: Morning Report | 41 Comments »

Morning Report – Mel Watt to speak next week 5/6/14

Posted on May 6, 2014 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1872.8 -3.0 -0.16%
Eurostoxx Index 3145.6 -25.7 -0.81%
Oil (WTI) 99.57 0.1 0.09%
LIBOR 0.225 0.002 0.90%
US Dollar Index (DXY) 79.08 -0.402 -0.51%
10 Year Govt Bond Yield 2.59% -0.01%
Current Coupon Ginnie Mae TBA 106.1 0.0
Current Coupon Fannie Mae TBA 105.1 0.1
BankRate 30 Year Fixed Rate Mortgage 4.35

 

Markets are lower this morning on no real news. Bonds and MBS are up.
Interesting take on why interest rates are holding firm even in the face of stronger economic data. New rules intended to bolster pension funds may have just created $300 billion in extra demand over the next two years. Given that there are only $642 billion of 10 year + treasuries outstanding, this is a lot of incremental demand. This would partially explain why interest rates have largely shaken off the Fed’s tapering.
The latest Black Knight (formerly known as Lender Processing Services) mortgage monitor is out. Delinquencies and foreclosures continue to decline. As we have seen in other data, home price appreciation has been much higher in the non-judicial states than the judicial ones.
Mel Watt is due to speak on May 13, and he may signal a pause in reducing the government’s footprint in the mortgage market – a break from the policy of his predecessor, Ed DeMarco. Expect to see easier credit standards at Fannie, Freddie, and Ginnie. There is concern in government circles regarding affordability, especially for the first time homebuyer. Note that D.R. Horton emphasized the need for government intervention to help first time homebuyers.
The government came out with a study showing that global warming is currently costing the economy billions of dollars. This study was basically done at the WH’s behest, so take it with a grain of salt. obama will be trumpeting the study today in an effort to whip up the base for the 2014 midterms.

Filed under: Morning Report | 27 Comments »

Morning Report – Chinese growth continues to slow 5/5/14

Posted on May 5, 2014 by Brent Nyitray

Vital Statistics:

 

  Last Change Percent
S&P Futures  1867.0 -7.4 -0.39%
Eurostoxx Index 3136.3 -41.6 -1.31%
Oil (WTI) 100.1 0.4 0.38%
LIBOR 0.223 0.000 0.00%
US Dollar Index (DXY) 79.49 -0.022 -0.03%
10 Year Govt Bond Yield 2.58% -0.01%  
Current Coupon Ginnie Mae TBA 106.2 0.0  
Current Coupon Fannie Mae TBA 105.2 0.0  
BankRate 30 Year Fixed Rate Mortgage 4.4    

 

Stocks are down after Chinese PMI came in light and showed contraction in the manufacturing sector for the fourth month in a row. Bonds and MBS are rallying.
 
What is going on in the bond market? Bonds seem to be factoring in a global slowdown as China decelerates and the US slows. This has pushed yields to the lowest level since early February and puts it at the bottom of the tight 2.56% – 2.8% trading range we have experienced since then. I wouldn’t bet on this continuing, so if you had any borrowers who were waiting for lower rates, wake them up.
 
Chart: 10 year yield:
 

 

This week promises to be dull on the economic front, as the week following the jobs report usually is. Don’t expect any market-moving releases this week. Earnings season continues, and we will hear from mortgage REIT giant Annaly Capital. During their fourth quarter earnings conference call, Annaly said they intended to build up their balance sheet and increase their portfolio of agency MBS. Based on the chart above, that was a good call. 

 

Filed under: Morning Report | 23 Comments »

Weekend Open Thread

Posted on May 3, 2014 by Let the mutherfuker burn!

Put all new comments here or face Lms’s wrath!

Filed under: Open Thread | 18 Comments »

Morning Report – good payroll numbers but labor force participation rate disappoints 05/02/14

Posted on May 2, 2014 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1881.2 3.5 0.19%
Eurostoxx Index 3188.2 -10.5 -0.33%
Oil (WTI) 99.85 0.4 0.43%
LIBOR 0.223 0.000 0.00%
US Dollar Index (DXY) 79.8 0.269 0.34%
10 Year Govt Bond Yield 2.68% 0.07%
Current Coupon Ginnie Mae TBA 105.8 -0.3
Current Coupon Fannie Mae TBA 104.6 -0.3
BankRate 30 Year Fixed Rate Mortgage 4.24

 

Markets are higher this morning after a strong jobs report. Bonds and MBS down
Nonfarm payrolls increased 288k in April and the prior two month net revision was 36k. The unemployment rate fell to 6.3% as the labor force participation rate fell to 62.8%. Average hourly earnings and average weekly hours were flat. So, all in all a set of good numbers, though it is disappointing to see the labor force participation rate still stuck at multi-decade lows – Q178 to be exact.
Pfizer sweetened its bid for UK-based AstraZeneca. The reason why Pfizer wants AstraZeneca is not so much the pipeline, but the tax rate. The combined company would be a corporate resident of the UK and pay lower taxes there.
Yesterday’s weak construction spending data caused some revisions in Q1 GDP. Barclay’s took their estimate down to -.2%. IMO, a negative Q1 GDP estimate seems at odds with the other data out there.
The government is bent on putting payday lenders out of business. Not by regulating them, or passing a law abolishing them, but by leaning on the banks and forcing them to stop doing business with them. The government is also going after other unsavory, but completely legal, businesses like porn, internet gambling, and drug paraphernalia  in the same way. obama has a pen and a phone and isn’t afraid to use it.

Filed under: Morning Report | 14 Comments »

Morning Report – Lots of economic data 5/1/14

Posted on May 1, 2014 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1876.9 -1.0 -0.05%
Eurostoxx Index 3198.5 0.1 0.00%
Oil (WTI) 99.17 -0.6 -0.57%
LIBOR 0.223 -0.001 -0.22%
US Dollar Index (DXY) 79.5 0.027 0.03%
10 Year Govt Bond Yield 2.65% 0.01%
Current Coupon Ginnie Mae TBA 105.9 0.0
Current Coupon Fannie Mae TBA 104.7 0.0
BankRate 30 Year Fixed Rate Mortgage 4.26

 

Markets are flattish after some decent economic data. Bonds and MBS are flattish. Markets should be somewhat less liquid today as much of the world celebrates Labor Day.

April Auto sales continue to stream in – GM reported a better than expected increase, while Ford reported a drop. Nissan literally blew the doors off with an increase of 18.3%. Public construction was down .6% month-over-month and is down .8% year over year. Of course after this past winter, the Northeast is going to see a lot of construction on the roads, fixing all the potholes.

The ISM Manufacturing Index came in better than expected, at 54.9. Employment is accelerating, and customers’ inventories are very low, which portends future production (and economic growth). If you annualize out the ISM April reading, it would correspond to a real GDP growth rate of nearly 4%. Of course manufacturing isn’t the percent of the economy it used to be, but still…

Construction spending rose .2% in March, after February was revised downward to a .2% decline. On a year-over-year basis, it is up 8.4%. Residential construction rose .7% month-over-month and is up 15.2% year over year. Of course with low double digit increases in average selling prices, that doesn’t necessarily correspond to big unit volume, which is why employment lags.

Personal Incomes rose .5% in March and Personal Spending rose .9%. Part of the increase in spending is obamacare-related so it isn’t really an apples-to-apples comparison. Still, it was a good number, but probably represents some pent-up demand from the bad winter.

Challenger and Gray announced job cuts rose 5.7%, but are still pretty low, running at a 40k pace. Telecom and Automotive sectors led way. Note these are announced job cuts (a press release). Often these cuts never materialize, or are over a long period of time.

Initial Jobless Claims rose to 344k – small increase from last week, but still a pretty good number.

The FOMC met yesterday and maintained interest rates while cutting another $10 billion a month out of asset purchases. Stocks and bonds rallied on the statement. They committed to maintaining interest rates below long-term levels even after unemployment and inflation reach the Fed’s target rates. The Fed noted that economic activity has picked up recently, which means the early Q1 slowdown was probably indeed weather-related and not indicative of an overall economic slowdown.

Credit standards are easing again, as Wells cut its minimum credit score for conforming loans to 620 from 660. TD has lowered down payments to 3% without requiring mortgage insurance. When there is not much business to go around, people start reaching for yield. Interesting stat: almost 16% of the mortgages for home purchases went to homebuyers with DTIs > 43. This is up from 2012. I suspect much of these are low LTV, asset-rich jumbo borrowers, where the ability to repay is pretty strong in spite of the high DTIs.

In a story that seems to be getting a lot of press, The Chinese economy is set to become bigger than the US this year. This sort of analysis is difficult to begin with, because China manipulates its exchange rate so economists use Purchasing Power Parity (aka the Big Mac Index) to back out what China’s GDP is. The Chinese real estate bubble is bursting as we speak, so this may be short-lived as their GDP will fall in real terms and growth will be slow as they dig out in the aftermath. Rapidly growing countries seem to have these bubble episodes – we did in the 20s, Japan did in the 80s, and China has over the past couple decades. Booms create mal-investments which sow the seeds for the boom’s destruction.

Filed under: Morning Report | 67 Comments »

« Previous Page