All Things in Moderation

Vital Statistics:

 

	Last	Change
S&P futures	3490	55.6
Oil (WTI)	38.91	-0.31
10 year government bond yield		0.76%
30 year fixed rate mortgage		2.87%

Stocks are higher this morning as we continue to digest the election news. Bonds and MBS are up.

 

The FOMC is set to release its decision today at 2:00 pm. There will probably be no change in policy, and bonds are going to be driven by election news.

 

Initial Jobless Claims came in at 750k this morning, while productivity rose 4.9% and unit labor costs fell 8.9%.

 

I wanted to give my thoughts on the election and things going forward. I assume Biden goes on to win. Republicans keep the Senate and Democrats control the House.

Big picture: Biden wins after a long, drawn-out litigation. Bond yields will drift lower as the fear of a blue wave is off the table. Stock rally because, well, just because. 

Divided government means no big stimulus package. Republicans will re-discover religion re government spending, which means any stimulus will be small and targeted. Maybe we will see another check made out to people. Any bailout of the big broke blue states is DOA. Nancy Pelosi will have her hands full managing the backbenchers in the House who want to see Trump in an orange jumpsuit. Washington will settle into gridlock. 

Regulatory-wise, the CFPB will become more aggressive. HUD will resume suing local governments to reduce single-family zoning. Regulatory fears will tighten FHA lending even more, which will give the affordable housing types like Urban Institute conniptions. The government will continue to have a moratorium on evictions. Luckily, rising house prices will keep a lid on strategic defaults. Multi-fam construction will probably slow as financing gets tighter, exacerbating the home supply problem. 

A lack of any sort of fiscal stimulus means the Fed keeps the pedal to the metal for a while. Neel Kashkari will urge the Fed begin to repo baseball cards and Elvis plates. Black Knight estimates the 3/4 of the US mortgage market can save 75 bps on rate, which means the refi boom continues to have legs. The mortgage industry is at capacity, and bringing on new bodies from another industry takes time (just look at how long it has taken in construction, where there are no regulatory issues). Mortgage industry should have another $3 – 4 trillion year in 2021, and the MBA will grudgingly move their forecast up from 2.5 trillion sometime in September 2021.  Margins remain wide, and salaries will continue to rise for industry professionals. 

Longer term, a more aggressive regulatory state will keep a lid on economic growth. The recovery will be shallower and longer. Interest rates will stay around here, and the economy will look more like the Obama years than the pre-COVID Trump years. For the mortgage banking industry, we should see a few more great years, but once the music stops and mortgage banks are left with bloated cost structures, a wave of consolidation will take place.

Filed under: Economy, Morning Report |