All Things in Moderation

Vital Statistics:

Stocks are lower on COVID fears. Bonds and MBS are up small.

Many states are slowing or reversing re-opening plans.

The Supreme Court ruled that the CFPB is permitted to stay, but the Director can be fired at will. This was a Solomon-esqe decision that split the difference between people who wanted the entire bureau eliminated and those that wanted the bureau to to run on autopilot.

Jerome Powell and Steve Mnuchin will appear before the House Financial Services Committee this afternoon. There will probably not be anything market moving however just be aware.

Home prices rose 0.3% MOM and 4% YOY according to the Case-Shiller index. These are April numbers. The South and West were the hot spots, while the Northeast was weak.

Ginnie Mae put out a APM which deals with re-securitizing re-performing Ginnie loans. These loans are ineligible for traditional Ginnie pools and will have to go into new custom pools which will presumably trade far back of normal GII pools. In a nutshell, this will impact FHA and VA pricing for the worse.

Democrats are preparing a nationwide eviction moratorium. Meanwhile, FHFA is working on continuing forbearance for multifamily borrowers who suspend evictions. Obviously, nothing here is going to be good for investment properties, so expect pricing to soften here (or programs get pulled back).

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Vital Statistics:

Stocks are flattish a the US gets more cases of COVID. Bonds and MBS are flat.

We have a short week, with the markets closed on Friday and SIFMA recommending an early close on Thursday. We will get the FOMC minutes and the jobs report, which could be market-moving.

Freddie Mac reported that delinquencies hit a 2 year high, rising to 0.81% in May from 0.64% in April.

Demand for affordable homes is outpacing the demand for more expensive ones. According to Redfin, affordable home prices rose 5.5%, while luxury homes rose 2%. “Spending so much time at home during quarantine has made a lot of people realize that it might be time to stop renting a cramped apartment in the city and time to start owning their first single-family home,” said Pam Henderson, a Redfin agent in Dallas. “With mortgage rates at record lows and remote work on the rise, some renters are having an epiphany: They could buy a lower-priced home in the suburbs for close to what they’re paying in rent.”

Pending home sales rose 44% in May as the real estate market rebounded. “This has been a spectacular recovery for contract signings, and goes to show the resiliency of American consumers and their evergreen desire for homeownership,” said Lawrence Yun, NAR’s chief economist. “This bounce back also speaks to how the housing sector could lead the way for a broader economic recovery. More listings are continuously appearing as the economy reopens, helping with inventory choices,” Yun said. “Still, more home construction is needed to counter the persistent underproduction of homes over the past decade.”

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Vital Statistics:

Stocks are lower this morning on fears of a COVID-19 resurgence. Bonds and MBS are flat.

Personal Incomes fell 4.2% in May, as government stimulus checks were offset by wage declines from furloughed workers. Consumer spending rose 8.2% MOM, led by a big uptick in paper products.

Forbearances ticked up last week according to Black Knight’s forbearance report. There were 4.68 million homeowners in forbearance, or 8.8%, an uptick of 79,000 or 0.1%.

The migration out of urban areas is real. A record 27% of homebuyers are looking to relocate from places like San Francisco and Seattle to less dense and cheaper locations. “While there has been a huge increase in the number of people looking online at homes in small towns, the long-term impact of the pandemic on people actually moving from one part of the country to another remains to be seen,” said Redfin economist Taylor Marr. “People are starting to take the plunge and move away from big, expensive cities, though most of them were probably already considering a lifestyle change. The pandemic and the work-from-home opportunities that come with it is accelerating migration patterns that were already in place toward relatively affordable parts of the country. But for many people, the lure of large homes in wide open spaces will be a passing dream fueled by coronavirus-induced isolation. ”

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Vital Statistics:

Stocks are lower this morning on an increase in COVID cases in states like AZ and TX. Bonds and MBS are up.

Initial Jobless Claims were more or less flat at 1.5 million last week.

The third estimate for first quarter GDP came in at -5%, more or less in line with estimates. The price index (inflation) came in at 1.4%, which is lower than the Fed’s target.

The MBA is urging FHFA to expand access to the Federal Home Loan Banking network, by allowing REITs and independent mortgage banks to borrow from the FHLB. The FHLB provides longer-term financing at competitive rates. The collapse in the jumbo and non-QM market was directly related to mortgage REITs which funded their balance sheets with repurchase agreements and had to sell paper / stop buying when the margin calls came in March and April. It isn’t a panacea (some REITs with FHLB loans still were forced to deleverage) however it would have mitigated the collapse at least somewhat. Giving the independent mortgage banks access would make them more stable as well.

Homebuilder KB Home reported earnings yesterday. Earnings per share beat the Street, but revenues and orders disappointed the Street and sent the stock down 13% on the open. “The prolonged stay-at-home public health orders, resulting economic shutdown and our conservative approach to navigating the uncertain environment significantly impacted our orders during the quarter. However, following a low point in April, we are very encouraged by the resilience of housing market demand. We experienced steady and significant improvement in our order trends beginning in May, which was further fueled by welcoming walk-in traffic to our communities. This improvement has accelerated dramatically in the first three weeks of June during which time we have achieved a modestly positive year-over-year comparison, as orders have returned to more normalized levels,” concluded [KB Home CEO] Jeffrey Mezger. Orders fell 4% in March, 59% in April, and 42% in May. For the first 3 weeks of June, orders were up 4%. Still demand for housing remains robust.

Treasury is considering delaying Tax Day past July 15. “As of now, we’re not intending on doing that, but it is something that we may consider,” Treasury Secretary Steve Mnuchin said in a June 23 interview at the Bloomberg Invest Global 2020 virtual summit. He said he was considering another delay to Sept. 15.

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Vital Statistics:

Stocks are lower this morning as COVID cases increase. Bonds and MBS are up small.

Mortgage Applications decreased 8.7% last week as purchases decreased 3% and refis fell 12%. “Refinance applications dropped to their lowest level in three weeks, but the index remained 76 percent higher than a year ago,” said Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting. “Despite the decline last week, MBA still anticipates refinance originations to increase to $1.35 trillion in 2020 – the highest level since 2012.” There has chatter in the market that originators are backing off on their pricing as they are inundated with files.

New Home sales increased 13% compared to a year ago to 676,000. This is up 17% on a month-over-month basis. From what we have been hearing from the homebuilders, demand is robust. Note that KB Home reports after the close today. Note that the builders are not cutting prices either.

Home prices rose 0.2% MOM in April, and are up 5.5% YOY, according to the FHFA House Price Index. “U.S. house prices posted another positive monthly increase in April,” according to Dr. Lynn Fisher, Deputy Director of the Division of Research and Statistics at FHFA. “Regionally, results varied. Two of the usually stronger growth areas, the Mountain and Pacific divisions, were flat over the month but other divisions continued to experience strong price appreciation even with all of the COVID-19 challenges. Both the New England and South Atlantic regions saw monthly decreases in prices, but all divisions posted positive year over year growth of at least 5 percent. The number of
transactions used to estimate the HPI were slightly down from March to April but were still a robust sample. We expect the normal spring bump in sales was pushed off by the COVID-19 shutdowns and may extend into the summer months as states reopen and real estate sales pick back up.”

The National Multifamily Housing Council reported that 92.2% of tenants paid their June rent as of 6/20. “With the support of expanded unemployment benefits, stimulus funds and significant efforts by apartment community owners and operators to help residents impacted by the outbreak of COVID-19 and resulting financial hardships, it seem most renters were once again able to meet their obligations,” said Doug Bibby, NMHC President. “The early steps taken by lawmakers have proven critical to keeping many safely and securely housed. As we move forward and the economy begins to recover, it will be vitally important that lawmakers continue to support the nation’s renters and forestall even greater economic harm.”

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Vital Statistics:

Stocks are higher despite a trade scare overnight. Bonds and MBS are down small.

I was interviewed by Steve Glener at IMN about the economy and housing. You can access the podcast here.

The Markit Purchasing Managers Index (a survey of businesses on the economy) came in better than expected. Manufacturing was a bit stronger than services. Overall it looks like the economy is back on trend.

The MBA has a new origination forecast for 2020. They expect to see $2.65 trillion in origination this year. I think the previous forecast was something like $2.05 trillion, so it is quite the jump. This should be the best year for originators since 2006, when Angelo Mozillo was a fixture on CNBC.

Despite the strong forecast, mortgage credit remains tight. Jumbos are hard to get, most lenders have high minimum FICOs for FHA, and the private label market is still digesting all the production from pre-COVID. My guess is that credit won’t ease up to pre-COVID levels until the whole forbearance issue is in the rear view mirror.

The number of loans in forbearance fell to 8.48%, according to the MBA. This is a decline from the 8.55% in the previous week and is the first decline in the MBA’s series. “The lower share of loans in forbearance was led by declines in GSE and portfolio and PLS loans, as more of those borrowers exited than entered a new forbearance plan,” said Mike Fratantoni, MBA Senior Vice President and Chief Economist. “Fewer homeowners in forbearance underscores the continued improvements in the job market, and provides another sign of the fundamental health of the housing market, which has rebounded considerably over the past several weeks.”

The CFPB put out a notice of rulemaking for dealing with the QM Patch. “The GSE Patch’s expiration will facilitate a more transparent, level playing field that ultimately benefits consumers through promoting more vigorous competition in mortgage markets,” said CFPB Director Kathleen L. Kraninger. “The Bureau is proposing to replace the Patch with a price-based approach to QM loans to preserve consumer access to mortgage loans while also making sure consumers have the ability to repay them. ” Essentially, the 43% DTI test will be eliminated and the CFPB will use a price test, which checks the loan’s interest rate versus the average prime offer rate for a comparable transaction. There will be an adjustment for smaller balance loans and manufactured housing loans. It will be interesting to see if they make some sort of adjustment for people who are willing to pay a higher rate in order to bring less money to the closing table.

Manhattan real estate prices could drop 10% more. Prices were already down 15% even before COVID-19, so it sounds like the NYC market is going to be a bit heavy.

Why working from home may be the new normal.

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Vital Statistics:

Stocks are higher this morning on no real news. Bonds and MBS are flat.

We don’t have much in the way of market-moving data this week, however we will get some real estate data.

The economy rebounded substantially in May, according to the Chicago Fed National Activity Index. Given what I have heard from earnings calls etc, it sounds like the recession will have ended sometime in early May. I wonder if we are going to see the Q2 GDP estimates begin to get revised upwards.

Lennar mentioned something interesting on its conference call. We have known about the labor shortages in construction for a while. I guess the homebuilding industry took advantage of the shutdown and began a program to train displaced restaurant and retail workers in construction. Smart move, and if it alleviates the labor shortage we are looking at a long boom in housing construction.

Redfin is seeing a housing recovery in the May data as well. “Although the housing market was still mostly stalled in May, it’s worth noting that homes under contract to be sold jumped 33% between April and May after two consecutive months of decline,” said Redfin lead economist Taylor Marr. “This is a key leading indicator for home sales in June and July. New listings of homes for sale have also likely passed their bottom, but are still about 20% below February’s level, so there’s still a ways to go before the housing market has recouped the lost activity of the past few months during the shutdowns.”

Existing home sales fell 9.7% in May, according to NAR. “Sales completed in May reflect contract signings in March and April – during the strictest times of the pandemic lockdown and hence the cyclical low point,” said Lawrence Yun, NAR’s chief economist. “Home sales will surely rise in the upcoming months with the economy reopening, and could even surpass one-year-ago figures in the second half of the year.” Note that Lennar reported June orders were up 20% YOY.

Another sign the global economy is healing. Commodity prices are up big over the past 2 months. Remember when oil was negative? Front-month WTI is pushing $40 a barrel.

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Vital Statistics:

Stocks are higher this morning on no real news. Bonds and MBS are flat.

Slow news day.

Many banks are closing early today, however it looks like the stock market and the bond market are open for a full session.

No economic news today, but we do have a lot of Fed-speak.

4.6 million homeowners are in forbearance, according to Black Knight. This works out to be 8.7% of homeowners, which is down from 8.8% the previous week.

More evidence that people are fleeing to the suburbs. Home searches for suburban zip codes are surging. “This migration to the suburbs is not a new trend, but it has become more pronounced this spring,” said Javier Vivas, realtor.com director of economic research. “After several months of shelter-in-place orders, the desire to have more space and the potential for more people to work remotely are likely two of the factors contributing to the popularity of the burbs.”

A repo man is not always intense

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