Morning Report – Rental Vacancies Rising 10/2/14

Posted on October 2, 2014 by Brent Nyitray

Markets are flat as ECB President Mario Draghi speaks. Bonds and MBS are lower.

Initial Jobless Claims fell to 287k, as we continue to have boom – time levels in the first time unemployed. Separately, announced job cuts fell by 24% according to outplacement firm Challenger, Gray, and Christmas. Employers are beginning to hang onto their employees – the big question is what happens next? Do they get start bidding up for talent (i.e. increasing wages) or do they start to tap the long-term unemployed? The answer to that question will determine the Fed’s posture going forward.

Auto sales were strong in September. The average age of a car in the US is something like 11.4 years, which is a record.

The ISM New York rose from 57.1 to 63.7

Hiring has slowed, however. Small businesses are hiring at a slower pace than over the summer.

Completed foreclosures increased to 45,000 in August, according to Corelogic.They are up 1.1% compared to July, but down 22% year-over-year. The national foreclosure inventory is down 33% YOY, to 1.6% of mortgaged homes.

All of the new multi-fam construction and REO-to-rental supply has finally caught up to the market. The vacancy rate for apartments rose to 4.2% in the third quarter, the first increase since 2009. Apartment developers are going to complete the most units this year since 1999. The divergence between multi-fam and SFR is striking. The punch line is that some of these professional investors are going to start to think about letting some supply go, which should finally give the first time homebuyer a chance to get in, which is good for the economy and also the mortgage banking business.

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Morning Report – Construction Spending down 10/1/14

Posted on October 1, 2014 by Brent Nyitray

Markets are lower this morning on Euro-area weakness. Bonds and MBS are rallying.

Mortgage Applications fell .2% last week, according to the MBA. Purchases were flat, while refis dropped .3%. Contract interest rates for the 30 year fixed rate mortgage fell from 4.39% to 4.33%.

Construction spending fell .8% month-over-month in August, and is up 5% year-over-year. Private resi was down .1%, while non-residential was down 1.2%.

The ADP Employment change is predicting 213k private sector jobs for this Friday’s jobs report. The Street is at 210k.

The ISM Manufacturing Index fell from 59 to 56.5, while prices paid rose from 58 to 59.5.

Fannie Mae investors lost a court ruling that threw out two lawsuits regarding Fannie’s profits, which go 100% to the government. The stock is down a buck (or about 38%) on the open. It traded as low as 97 cents pre-open. The stock is more or less a litigation lottery ticket, and this Administration is bound and determined to see to it that shareholders are wiped out.

The CFPB slapped down Flagstar in its first servicing enforcement. They were fined $27.5 million and given a tongue-lashing by Cordray. Their sin was was failure to devote sufficient resources to administering loss mitigation programs for distressed borrowers. Note that if Republicans take the Senate, one of the first orders of business will be to introduce legislation to tame the CFPB.

Epic “fat finger” trade on the TSE last night – $617 billion worth of orders were voided after a data error caused someone tried to trade 57% of the float in Toyota.

The Fed is worried about leveraged loans. Excessively low interest rates have the unintended consequence of encouraging investors to reach for risk in order to hit return targets. I have been saying for some time that the stock market is assigning a 100% probability that the Fed can start hiking rates without someone blowing up.

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