Dear Diary 2020 Edition (from a younger person)

In January, Australia caught on fire. I don’t even know if that fire was put out, because we straight up almost went to war with Iran. We might actually still be almost at war with them. I don’t know, because Jen Aniston and Brad Pitt spoke to one another at an awards show and everyone flipped the fuck out, but then Netflix released Cheer and everyone fell in love with Jerry, but then there was a thing happening in China, then Prince Harry and Megan peaced out of the Royal family, and there was the whole impeachment trial, and then corona virus showed up in the US “officially,” but then Kobe died and UK peaced out of the European Union
In February, Iowa crapped itself with the caucus results and the president was acquitted and the Speaker of the House took ten years to rip up a speech, but then WHO decided to give this virus a name COVID-19, which confused some really important people in charge of, like, our lives, into thinking there were 18 other versions before it, but then Harvey Weinstein was found guilty, and Americans started asking if Corona beer was safe to drink, and everyone on Facebook became a doctor who just knew the flu like killed way more people than COVID 1 through 18.
In March, shit hit the fan. Warren dropped out of the presidential race and Sanders was like Bernie or bust, but then Italy shut its whole ass down, and then COVID Not 1 through 18 officially become what everyone already realized, a pandemic and then a nationwide state of emergency was declared in US, but it didn’t really change anything, so everyone was confused or thought it was still just a flu, but then COVID Not 18 was like ya’ll not taking me seriously? I’m gonna infect the one celebrity everyone loves and totally infected Tom Hanks, but then the DOW took a shit on itself, and most of us still don’t understand why the stock market is so important or even a thing(I still don’t), but then we were all introduced to Tiger King. (Carol totally killed her husband), and Netflix was like you’re welcome, and we all realized there was no way we were washing our hands enough in the first place because all of our hands are now dry and gross.
In April, Bernie finally busted himself out of the presidential race, but then NYC became the set of The Walking Dead and we learn that no one has face masks, ventilators, or toilet paper, or THE GOD DAMN SWIFTER WET JET LIQUID, but then Kim Jong-Un died, but then he came back to life… or did he? Who knows, because then the Pentagon released videos of UFOs, and we were like man, it’s only April….
In May, the biblical end times kicked off historical locust swarms and then we learned of murder hornets and realized that 2020 was the start of the Hunger Games but people forgot to let us know, but then people legit protested lockdown measures with AR-15s, and then sports events were cancelled everywhere, But then people all over America finally reached a breaking point with race issues and violence. There were protests in every city, but then people totes forgot about the pandemic called COVID Not One Through 18. Media struggled with how to focus on two important things at once, but then people in general struggle to focus on more than one important thing, and a dead whale was found in the middle of the Amazon rain forest after monkeys stole COVID 1 Through 19 from a lab and ran off with them, and either in May or April (no one is keeping track of time now) a giant asteroid narrowly missed earth.
In June, science and common sense just got thrown straight out the window and somehow wearing masks became a political thing, but then a whole lot of people realized the South was actually the most unpatriotic thing ever and actually lost the civil war, and there is a large amount of people who feel that statues they don’t even know the name of are needed for … history reasons, but then everyone sort of remembered there was a pandemic, but then decided that not wearing a mask was somehow a god given right (still haven’t found that part in the bible or even in the constitution), but then scientists announced they found a mysterious undiscovered mass at the center of the earth, and everyone was like DON’T YOU DARE TOUCH IT, but then everyone took a pause to realize that people actually believed Gone With The Wind was like non-fiction, but then it was also announced that there is a strange radio signal coming from somewhere in the universe that repeats itself every so many days, and everyone was like DON’T YOU DARE ATTEMPT TO COMMUNICATE WITH. IT, but then America reopened from the shut down that actually wasn’t even a shut down, and so far, things have gone spectacularly not that great, but everyone is on Facebook arguing that masks kill because no one knows how breathing works, but then Florida was like hold my beer and let me show you how we’re number one in all things, including new Not Corona Beer Corona Virus, Trump decides now is a good time to ask the Supreme Court to shut down Obama Care because what better time to do so than in the middle of a pandemic, but then we learned there was a massive dust cloud coming straight at us from the Sahara Desert, which is totally normal, but this is 2020, so the ghost mummy thing is most likely in that dust cloud, but then I learned of meth-gators, and I’m like that is so not on my fucking 2020 Bingo card, but then we learned that the Congo’s worse ever Ebola outbreak is over, and we were all like, there was an Ebola outbreak that was the worse ever?
In July…. Aliens? Zeus? Asteroids? Artificial Intelligence becomes self aware?

How has the US/Commie Bastards relationship been more beneficial to the Commie Bastards under Trump?

 

H/T TO GEORGE.

For the most part I think it has not been.

BHO did not take Russia seriously until 2014 [Crimea].  But after DJT was elected, at least in 2017-18, his Admin continued to take Russia seriously and I can list stuff it did:

Authorized lethal military aid to Ukraine.

Shuttered two Russian consulates, multiple diplomatic annexes, and expelled 60 diplomats – Seattle and SF.

Sanctioned Russian oligarchs and officials. 40 or so of them.

Expanded the Magnitsky sanctions list. This I had forgotten.  Had to look it up because I thought he did the opposite.

Made RT and Sputnik register as foreign agents.

I think there were additional sanctions of Russki businesses who aided NK and Iran.

Publicly blamed Russia for a cyberattack on the Ukraine, not a biggie, but I am being fair.

On the other hand, he publicly treats Putin with deference [I don’t need examples here, do I?] and has denied the findings of our own national security establishment regarding Russian meddling in our election process.  Personally, I think the Admin responses have become more erratic since his first group of professional advisors chosen from the military have been replaced by political appointees.

I get that he wants out of AFG.  I get that he wants out of the ME.  These are not stupid goals.  I don’t get screwing around insulting NATO and pulling troops out of Germany.  I do think that invites more bullying in eastern Europe from Russia.

Morning Report: The CFPB can stay, but the structure must change.

Vital Statistics:

 

Last Change
S&P futures 3037 -13.1
Oil (WTI) 39.04 -0.69
10 year government bond yield 0.63%
30 year fixed rate mortgage 3.16%

 

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).

Morning Report: Pending home sales rebound in May

Vital Statistics:

 

Last Change
S&P futures 3012 3.1
Oil (WTI) 38.64 0.19
10 year government bond yield 0.65%
30 year fixed rate mortgage 3.16%

 

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.”

Morning Report: A record number of homeowners are looking to relocate

Vital Statistics:

 

Last Change
S&P futures 3069 -13.1
Oil (WTI) 37.64 -0.19
10 year government bond yield 0.66%
30 year fixed rate mortgage 3.16%

 

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. ”

Morning Report: KB Home misses

Vital Statistics:

 

Last Change
S&P futures 3039 -13.1
Oil (WTI) 37.84 -0.49
10 year government bond yield 0.66%
30 year fixed rate mortgage 3.16%

 

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.

Morning Report: New Home Sales rise

Vital Statistics:

 

Last Change
S&P futures 3099 -19.1
Oil (WTI) 39.94 -0.49
10 year government bond yield 0.71%
30 year fixed rate mortgage 3.16%

 

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.”

 

 

Morning Report: Number of loans in forbearance drops

Vital Statistics:

 

Last Change
S&P futures 3142 34.1
Oil (WTI) 41.14 0.49
10 year government bond yield 0.73%
30 year fixed rate mortgage 3.16%

 

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.

Morning Report: The economy grew in May

Vital Statistics:

 

Last Change
S&P futures 30y7 14.1
Oil (WTI) 39.54 -0.39
10 year government bond yield 0.68%
30 year fixed rate mortgage 3.16%

 

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.

Morning Report: Forbearances down

Vital Statistics:

 

Last Change
S&P futures 3137 24.1
Oil (WTI) 40.14 1.39
10 year government bond yield 0.73%
30 year fixed rate mortgage 3.16%

 

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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