Morning Report: Initial Jobless Claims Fall

Vital Statistics:

  Last Change
S&P futures 3562 -17.6
Oil (WTI) 40.64 -0.87
10 year government bond yield   0.65%
30 year fixed rate mortgage   2.90%

Stocks are lower this morning on no real news. Bonds and MBS are up.

Rocket Mortgage (aka Quicken) reported second quarter numbers after the close yesterday. Origination volume rose 126% YOY to $72 billion. Margins were 519 basis points. For the third quarter, Quicken is projecting volume of $82 – $85 billion with a drop in gain on sale margins to 405 – 430 basis points. About 4.7% of the company’s servicing portfolio was in forbearance. Despite the strong numbers, the stock is down 10% pre-open.

Initial Jobless Claims fell to 881,000, which was below the 958k the street was looking for. Separately, companies announced 116k job cuts in August, according to outplacement firm Challenger, Gray and Christmas. “The leading sector for job cuts last month was Transportation, as airlines begin to make staffing decisions in the wake of decreased travel and uncertain federal intervention. An increasing number of companies that initially had temporary job cuts or furloughs are now making them permanent,” said Andrew Challenger, Senior Vice President of Challenger, Gray & Christmas, Inc.

Nonfarm productivity increased 10% in the second quarter, according to BLS. Unit labor costs increased 9%. Given the chaos in the labor market during Q2, I suspect there is a lot of noise in these numbers.

The Center for Disease Control has declared evictions a national health hazard. You would be forgiven for wondering what a bunch of MDs have to do with real estate, but here we are. Needless to say, the industry is dead set against it:

“If tenants are unable to pay their rent, then millions of our nation’s housing providers – many of whom are individual landlords and small business owners – will be unable to meet their mortgage obligations, make payroll to their own employees, maintain a safe and healthy living environment for their tenants and pay their state and local government property taxes,” said Bob Broeksmit, CEO of the Mortgage Bankers Association. “The result would be a cascading reaction that would only exacerbate the current economic crisis, leading to more job loss, financial pain, and long-lasting economic effects.”

and the left doesn’t think it is enough:

“The CDC order is really quite extraordinary, but if it’s not coupled with rental assistance, it’s just pushing the issue down the line and it will snowball into a crisis that landlords and tenants will be recovering from for decades,” said Emily Benfer, a law professor at Wake Forest University and co-creator of the COVID-19 Housing Policy Scorecard with the Eviction Lab at Princeton University.

“We need $100 billion to cover this deficit and that investment is far less expensive than the cost of eviction, the cost of homelessness — all of the downward effects that this causes,” Benfer said.

PIMCO is warning that releasing the GSEs without an explicit government guarantee will raise mortgage rates. The company is one of the biggest buyers of Fannie and Freddie mortgage backed securities, and the amount it is willing to pay to invest in MBS directly influences what borrowers pay. PIMCO is not interested in returning to the vague “government sponsored entity” status of Fan and Fred that existed pre-2008. It would view them as “wholly-owned private companies with no accompanying government guarantee.”

29 Responses

  1. This really should be a Trump ad:

    “As protesters arrive at their doorsteps, Democratic mayors in Portland, St. Louis flee homes

    For some on the right, the Democratic mayors abandoning their homes to escape protests underscores what they argue is a failure to maintain public order.

    By Katie Shepherd
    September 3, 2020 at 5:42 a.m. EDT”

    https://www.washingtonpost.com/nation/2020/09/03/mayors-portland-st-louis-protests/

    The tag line could go something like this:

    “If Democratic officeholders can’t even protect their own homes and families, how can you expect them to protect yours?”

    Like

    • There’s a contrast to be made between what they say regarding the commoners whom they consider the peasants to their nobility, and what they do when it comes to themselves, as well. Politicians calling the police to protect themselves when they say defund the police for everybody else . . . there’s an angle there.

      Like

    • That being said, that article reads like news. I’m not sure what’s going on–after the woke takeover of the NYT, there have still been stories (how many, I don’t know, but I’ve seen a couple) that seem like honest efforts to do what journalists used to do, and report on events with reasonably even-handed context.

      This WaPo article seems to be the same. Which is interesting, both that someone at the WaPo is actually doing old-school reporting (in can be done, even in the Twitter age!) and that the WaPo is apparently allowing it.

      I have a hard time feeling that’s accidental, and I’m wondering if there are some folks in management (at the WaPo at least, and maybe at the NYT) that are thinking they had better readership when the opinion pages and news pages were distinct entities.

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    • underscores what they argue is a failure to maintain public order.

      Isn’t it though?

      Like

  2. Washington Post cosplay exercise has Democrats playing Biden and Antitrumpers playing Trump.

    https://www.washingtonpost.com/outlook/2020/09/03/trump-stay-in-office/

    You can guess the results.

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    • Like

    • That happened several weeks back, as I recall. People getting paid money and treated seriously (and having a series of staggered insertions into the media cycle, I’m noticing) for LARPing.

      Then we get treated to an Orange Man Bad LARPing game as if it could possibly be predictive in any way.

      Since I first heard about this, I kept wondering how the news would be reporting this if the Republicans had held this sort of exercise.

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  3. I see PL hasn’t changed.

    Like

  4. This:

    “Ted Wheeler Is the Worst College President in America
    By Rich Lowry

    September 3, 2020 4:31 PM

    This period in our national life has put a spotlight on a number of feckless, woke mayors, perhaps none more so than Ted Wheeler of Portland. He’s now been chased from his home by the mob that he refuses to attempt to seriously control. The protesters have a list of ridiculous demands, including Wheeler’s resignation and the defunding of the police, while Wheeler has his own slightly less preposterous, but still nonsensical list of reforms. The dynamic here is exactly like woke college students confronting a slightly less-woke college administration that resists the students ineffectually and with a guilty conscience. Except this is a major American city best by nightly violence, not a college campus.”

    https://www.nationalreview.com/corner/portland-protests-mayor-ted-wheeler-worst-college-president-in-america/

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  5. Brent, I don’t know how many small landlords and maybe some big ones could recover from a rent moratorium where the excused rentals were not at least partially subsidized. It’s not as if the tenants are going to pay up after the moratorium ends.

    I assume the real estate industry on the whole supports subsidies for excused by gummint rental defalcations. Yes? No?

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    • I am not sure. Still pretty shocked by this

      FWIW, the apartment REITs are not down big, so people think cooler heads will prevail?

      Like

  6. NoVA: Peak 2020

    “Large Turnout At Memorial For Hans Gruber Who Was Thrown From A Building By A Police Officer

    August 31st, 2020

    LOS ANGELES, CA—A huge crowd turned out Sunday for the Hans Gruber memorial service. Gruber was the victim of police violence, having been thrown from Nakatomi Plaza by police officer John McClane, which many consider one of the most excessive uses of force ever witnessed. After the incident, there were protests all week, and now thousands from all over the country came to pay respects to Gruber, widely described as an “intelligent and witty soul.”

    Gruber was part of a mainly peaceful protest against the Nakatomi Corporation, which was goaded into violence by the actions of McClane.”

    https://babylonbee.com/news/large-turnout-for-memorial-for-hans-gruber-who-was-thrown-from-a-building-by-a-police-officer

    Like

  7. One of the reasons we’ve decided to get out of the landlord business right now, ASAP, is because we have very little faith in the market next year and very little faith in the government, Federal or State, protecting landlords. That house is our retirement so we’re gonna take the money and run while the getting is good! Our property value recovered from the 2008 recession but we’re too old to recover from another one, especially if it involves real estate.

    I think the better Federal solution would have been to continue UI added benefits rather than forgive non payment of rent. There is so little appetite for helping folks and so the easiest way out is to punish landlords, many of whom are just like Walter and I.

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    • Agreed, from two other landlords.

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    • I’m sorry it’s come to that, but I think you are making the right decision, especially if you don’t have tenants currently.

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    • That’s too bad, but I get it entirely.
      We still have a rental and it’s going okay. But there are times when i think its just not worth it.

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      • Nova, when I was younger I managed my first rental property myself. I had a favorite handyman, ex-USAF airplane specialist mechanic, who could fabricate anything, but I had to spend a lot of time and effort myself. And it got in the way of law practice too many times. Gradually but painfully I learned the benefits of professional management outweighed the costs. I hoe you are not dealing with your tenats personally.

        Our two duplexes are paid for, under professional management, and generate much better cash flow than any other class of assets we own. We have yet to touch the cash – the net cash flow is all funneled into accounts at our brokerage above the minimum five figure reserve we keep for each duplex. They have each ballooned in market value at about 10% annually since we bought them. Before COVID we were always on the lookout for more high return duplexes in booming central Texas.

        I have experienced boom/bust in real estate before, but then with six mortgages and insignificant cash reserves. We are better placed now then I was in 1986 in that respect. So I know how fast any of our four tenant groups, in two different cities, each about an hour from Austin, could go bust. We could carry the maintenance and property tax and management fees for a long time, prepared as we are. But we would not do so indefinitely and most people would reach a critical point sooner than we. Sometimes the market value to rent favors selling, anyway. The arithmetic for that gets easier to calculate when there is no rent!

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        • No, i have a management company that handles most things.

          but I try to do the minor repairs myself to save some money — and it gives me an excuse to keep an eye on the unit.

          we’re in a pretty good spot. it’s always been rented. typically to young professional couples.

          it’s located about 3 miles from the new amazon headquarters (assuming that is still in the works)

          Like

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