All Things in Moderation

Vital Statistics:

Stocks are flat as we kick off earnings season. Bonds and MBS are up.

Kind of a mixed bag for bank earnings this morning. We heard from JP Morgan, Citi, and Wells. JP Morgan and Citi beat earnings expectations, but Wells is down on a dividend cut. Wells had warned that a cut was coming, but this one was dramatic: from 51 cents a share to a dime. Wells reported a drop in mortgage banking income from the first quarter due to lower MSR values. Production margin just about doubled from 1.08% to 2.04%.

The Consumer Price Index rose 0.6% MOM and 0.6% YOY. Ex-food and energy, the index rose 0.2% MOM and 1.2% YOY. Higher inflation is actually good news for the economy at this point as the Fed is worried about deflation.

Small Business Optimism increased in June, according to the NFIB. Despite the current slowdown, small business still expects to increase hiring and capital expenditures over the next 6 months.

“Small businesses are navigating the various federal and state policies in order to reopen their business and they are doing their best to adjust their business decisions accordingly,” said NFIB Chief Economist Bill Dunkelberg. “We’re starting to see positive signs of increased consumer spending, but there is still much work to be done to get back to pre-crisis levels.”

30 day delinquencies increased to 6.1% of all mortgages during the month of April, according to CoreLogic. This is up 2.5% from April 2019.

“The COVID-19 pandemic has shocked our economic system and led to unprecedented job loss, reducing the ability of affected families to make their monthly mortgage payments. The latest forecast from the CoreLogic Home Price Index shows prices declining in 41 states through April 2021, potentially erasing home equity and increasing foreclosure risk.”

CoreLogic is also predicting that home prices will drop 6.6% nationally over the next year. FWIW, I don’t see that – the supply / demand imbalance doesn’t support it, and neither does the lower interest rates. Perhaps we will see a drop in luxury urban condos due to tougher jumbo guidelines and an exodus from urban areas, but suburban low / mid tier SFR should be just fine.

Those who make the comparison to 2009 – 2010 are missing the fact that we had a glut of properties back then. The situation is the exact opposite here. Home construction has lagged household formation for a decade.

New Home Purchase Applications rose 20% in June, according to the MBA.

“The new home purchase market continues to recover,” said Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting. “Applications surged 20 percent in June, and although this is not adjusted for seasonal impacts, it is another piece of data indicating that homebuying activity that was delayed by the pandemic in March and April is just being realized later in the season. The fact that applications are up over 50 percent from last June further reinforces that point.”

Optimal Blue is being sold to a private equity consortium.

Quicken and United Wholesale are kind of the Spaceley Sprockets and Cogswell Cogs of the D. There has been bad blood between the companies for years. Now, there is a defamation lawsuit over a facebook war and lewd text messages. The brokers versus bankers saga continues….

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