All Things in Moderation

Vital Statistics:

Stocks are lower this morning as hopes for a stimulus package fade. Bonds and MBS are up.

Small business optimism declined in November according to the NFIB. “Small business owners are still facing major uncertainties, including the COVID-19 crisis and the upcoming Georgia runoff election, which is shaping how they’re viewing future business conditions,” said NFIB Chief Economist Bill Dunkelberg. “The recovery will remain uneven as long as we see state and local mandates that target business conditions and disproportionately affect small businesses.” The bright spot remains labor markets with a net 20% of firms raising compensation. 89% of employers said that finding qualified employees was difficult.

Productivity in the third quarter was revised downward to 4.6%. COVID is introducing a lot of noise to these numbers. Unit Labor Costs fell by 6.6%.

Mortgage delinquencies rose in September to 6.3% compared to 3.8% a year ago. “Although delinquencies remain high, it’s clear the economy has passed an initial stress test. High home equity balances and structural protections put in place as a result of the Great Recession contributed to surviving this test. Housing demand remains strong, and rates low, which provides optimism that the housing market will continue to be a bright spot in this COVID-ravaged economy.” The hardest-hit states for delinquencies are Louisiana, Mississippi, New York, New Jersey, and Florida.

Redfin sees the housing economy absorbing any COVID-19 related foreclosures with relative ease. “In my experience selling foreclosed properties, some people don’t take advantage of forbearance because they aren’t educated on what it entails,” said Redfin agent Gina Sapnar. “There are people who are in forbearance who don’t understand how repayment works. For some people payments are tacked on to the end of the loan, but for others it may be a large payment due immediately at the end of forbearance as a lump sum, which could be very tough for people to repay. Some homeowners are underwater because they took on more debt than they could handle. I know of a restaurant owner who took equity out of his home to pay his workers during the pandemic. There are people suffering who have depleted their entire life savings, are drowning in debt and they aren’t paying their mortgages. But even those people have options. The lenders are really trying to work with occupants and educate them on how to avoid the scarlet letter of a foreclosure.”

The demand for homes is so insatiable that the excess supply will be taken up quickly.

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