Morning Report: No changes at the Fed

Vital Statistics:


  Last Change
S&P futures 3771 23.3
Oil (WTI) 53.32 0.44
10 year government bond yield   1.04%
30 year fixed rate mortgage   2.83%

Stocks are higher this morning on no real news. Bonds and MBS are down.


The Fed made no changes to monetary policy in its January meeting. The Fed will continue to increase the size of its balance sheet until “substantial further progress” has been made towards the Fed’s price and employment goals. They included the language that inflation must exceed 2% and be on track to exceed that number for some time. This is a signal to the markets that the Fed is not going to pre-emptively raise rates once we start getting inflationary signals.

The other thing to keep in mind is that the Fed has apparently learned from the 2013 “taper tantrum” and will not move as fast as they did back then. I suspect the Fed will gradually reduce the amount of MBS and Treasuries they buy, from, say $80 billion a month to $60 billion, and work their way down. Then they will re-invest maturing principal back into the MBS market. The punch line is that the economy has suffered a tremendous shock, and the Fed is going to go slow. This means rates are goin nowhere for a while. I think fears of a big increase in rates in the back half of 2021 are probably overblown. While there is definitely some inflation out there (food and housing) the Fed is going to ignore it until the unemployment rate is around 4%.


Fourth quarter GDP came in at 4%, a touch below expectations. Personal Consumption Expenditures rose 2.5%, again below expectations. You can see just how dramatically COVID-19 hit the economy by comparing the size of the Q2 and Q3 spikes compared to historical growth rates. For the fully year 2020, GDP decreased 3.5%.


Initial Jobless Claims fell to 847k last week. We were sitting around 200k per week pre-COVID, so we still have a lot of wood to chop to get back to normalcy.


New Home Sales rose to a seasonally adjusted annual rate of 842,000 in December, according to Census. This is up 1.6% from November, and 15% above December 2019 numbers. The median sales price rose 8% to $356K.

Morning Report: Strong Builder Earnings

Vital Statistics:


  Last Change
S&P futures 3789 -63.3
Oil (WTI) 52.96 -0.14
10 year government bond yield   1.04%
30 year fixed rate mortgage   2.83%

Stocks are lower this morning on overseas weakness. Bonds and MBS are flat.


The FOMC decision will be released at 2:00 pm today. I don’t think there will be anything market-moving in the language, but just be aware.


Mortgage applications fell 4.1% last week as purchases fell 5% and refis fell 4%. “In a sign that borrowers are increasingly more sensitive to higher rates, large declines in government purchase applications and refinance applications pulled overall activity lower,” said Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting. “The refinance index has now declined for two straight weeks, but is still 83 percent higher than last year. Purchase applications also decreased last week, but the impressive trend of year-over-year growth since the second half of 2020 has continued in early 2021. Activity was up 16 percent from a year ago, and the average purchase loan amount hit another record high of $395,200.”

The 10 year bond sold off after the results of the Georgia Senate runoff. I suspect it might have been overdone, and given Schumer’s talk of a stimulus not happening until March (Congress has bigger fish to fry, apparently), bond yields will probably work their way lower.


Durable Goods orders rose 0.2% in December, well below expectations. However, if you strip out transportation, it rose 0.7%. Core capital goods (a proxy for business capital expenditures) rose 0.6%


The FHA extended its foreclosure moratorium until March 31.


Homebuilder D.R. Horton reported fourth quarter earnings which rose 84% on a year-over-year basis. Sales were up 56% in units and 62% in dollar value to $6.4 billion. COVID-19 has increased demand for single family residences, and the work-from-home option has increased the viability of distant exurbs. The US economy should be buoyed by housing construction, although the big question is whether it will be enough to offset the devastation of small business from government-imposed COVID lockdowns.

Morning Report: Home prices soar

Vital Statistics:


  Last Change
S&P futures 3859 10.3
Oil (WTI) 52.90 0.14
10 year government bond yield   1.04%
30 year fixed rate mortgage   2.83%

Stocks are slightly higher on no real news. Bonds and MBS are up small.


The FOMC begins its two-day meeting today. The announcement is scheduled for 2:00 pm tomorrow.


Chuck Schumer said that negotiations for the stimulus may take a while. He is aiming for mid-March, when extended unemployment begins to run out. Meanwhile, the priority seems to be impeaching a guy who is no longer in office.


With stimulus looking further away, and Schumer signaling that negotiations should be tough, I wouldn’t be surprised to see bond yields drift lower. Bond markets are a global phenomenon, and while the US bond yield has been drifting upward, the German Bund (which is a proxy for Europe) has been stuck in a very narrow band around -0.54%.


Home prices rose 11% in November, according to the FHFA House Price Index. “House prices have risen by at least one percent for six consecutive months,” said Dr. Lynn Fisher, FHFA’s Deputy Director of the Division of Research and Statistics. “The acceleration has been slowing but annual gains now outpace the prior housing boom. Current conditions can be explained by fundamentals, including low rates and tight housing supply, which have been intensified by the pandemic.”


The Case-Shiller Home price index reported a smaller nationwide gain of about 9%. The difference is explained by the indices. FHFA only looks at loans which are guaranteed by the US government, so it excludes jumbos and distressed. Affordable homes are in the most demand, and that is where we are seeing the biggest price increases.


The FHFA announced that it will limit cash window purchases for mortgage banks to $1.5 billion per year in order to ensure that smaller banks continue to get access.

The letter agreements codify FHFA conservatorship directives that require the GSEs to purchase loans for cash consideration, and to operate this cash window with non-discriminatory pricing. Additionally, to ensure that the cash window is for the benefit of community lenders, each GSE will limit volume purchased through the cash window to $1.5 billion per lender during any period comprising four calendar quarters.


Morning Report: Housing inventory at a record low

Vital Statistics:


  Last Change
S&P futures 3839 5.3
Oil (WTI) 52.10 0.14
10 year government bond yield   1.07%
30 year fixed rate mortgage   2.83%

Stocks are flattish this morning as earnings continue to come in. Bonds and MBS are up.


We have a big week of data coming up, along with the FOMC meeting. In terms of data, we will get home prices tomorrow, the FOMC decision on Wednesday, fourth quarter GDP on Thursday, and personal incomes / spending on Friday. The Fed meeting should be uneventful given Jerome Powell’s “now is not the time” language, referring to scaling back bond purchases.


Existing Home Sales rose 0.7% in December to a seasonally-adjusted annual rate of 5.64 million, according to the National Association of Realtors. This is the fastest pace since 2006. “Home sales rose in December, and for 2020 as a whole, we saw sales perform at their highest levels since 2006, despite the pandemic,” said Lawrence Yun, NAR’s chief economist. “What’s even better is that this momentum is likely to carry into the new year, with more buyers expected to enter the market.” I think Yun is right there – all signs point to an exceptionally strong Spring Selling Season, which is right around the corner. FWIW, NAR sees mortgage rates hovering around 3% in 2021, which is low enough for the refinance party to continue.

Total inventory fell to 1.07 million units, which is a 23% drop from a year ago, and represents under a two month supply of homes. This is the lowest amount since 1982, when NAR first started compiling these statistics. Tight inventory means higher prices, and the median home price was up 13% YOY to $309,800. With home prices rising affordability remains a concern, and I think the Fed is going to take that into account and hold down rates as long as it can.

Housing starts are rising, which should help alleviate the shortage, however it will take a couple years at least to get back to some semblance of balance. Housing construction should be great for the economy, and we could be looking at some strong performance between the stimulus and housing once the COVID crisis is out of the way. That said, one in three small businesses have shut over the past year, and that will be a drag.


The mortgage IPOs keep coming. United Wholesale completed its merger with a SPAC, and now Home Point is filing to go public. Loan Depot is another candidate.


The regulatory state is mulling whether to extend the Community Reinvestment Act to non-banks.

Joe Biden, truth teller?!? (Part I)

In the first of what will surely have to be an on-going series, let’s examine the proposition that President Joe Biden is that rarest of rare things, an honest politician.

Let’s start with his well-documented past deceptions and lies. And they are well-documented indeed, primarily because it was documented at a time when the media was still making nods to at least the pretense of being an objective and honest broker of information. Biden’s first run at the presidency in 1988 ended in failure when it was revealed that he was plagiarizing other people’s political speeches, most notably those of British Labour MP Neil Kinook, going so far as to even steal Kinook’s stories about his own family’s history. The late Robert Kennedy was also someone from whom he stole.

And it wasn’t Biden’s first foray with presenting other people’s work as his own. Back when he was in law school, he was caught plagiarizing from others’ work in one of his law papers. In a confrontation with a reporter, in which he prefaced his remarks with the Trumpesque braggadocio “I probably have a much higher I.Q. than you do, I suspect”, he claimed that he earned three degrees as an undergraduate, was the only person in his law school class to get a full scholarship, and ultimately finished in the top half of his law school class. All of these were lies.

During that 1988 campaign, his staffers tried to stop him from falsely claiming to have joined the Civil Rights marches of the 1960s, but the lie was repeated at several campaign stops. When the campaign was imploding on the back of the plagiarism charges, and Biden was struggling to stay in the race, he implicitly copped to the lie while trying to avoid admitting it, saying ““I find y’all going back and saying, ‘Well, where were you, Senator Biden, at the time?’ — you know, I think it’s bizarre. Other people marched. I ran for office.”

But the lies about his activism during the Civil Rights era didn’t start with his 1988 campaign. He’d been telling porky pies about it for years.

When Biden gave up on his 1988 quest for the presidency, he finally admitted:

”I was not an activist…I worked at an all-black swimming pool in the east side of Wilmington, Del. I was involved in what they were thinking, what they were feeling. But I was not out marching. I was not down in Selma. I was not anywhere else. I was a suburbanite kid who got a dose of exposure to what was happening to black Americans.”

That burst of honesty proved to be only temporary. By the time he was running for the presidency again in 2020, he was back to touting his imagined youthful activism again.

Of course, the 2020 campaign provided Biden with the opportunity to lie about all kinds of things, not just his Civil Rights (non-)activism. In South Carolina he told an audience that:

When I got out of the United State Senate, instead of taking a Wall Street job – and they’re not bad, I’m not making them bad – but instead of doing the things that I never did before, I figured I wasn’t going to change all these years from what I was comfortable doing. So I became a teacher. I became a professor.

Actually, the job he took when he left the US Senate was the job of Vice President of the United States. But aside from his confusion about the job he left in 2016, what he actually became at that point was the recipient of what was essentially a no-show job with a huge salary, an honorary “professorship” at UPenn in exchange for his name and a few appearances at “big ticket” events. He never taught a single student in a single class.

He also repeatedly told campaign audiences that he had been arrested trying to visit Nelson Mandela. Eventually he was forced to admit that it wasn’t true.

And it isn’t just his own personal history that he lies about. He’s an inveterate liar about policy. In his final debate with Trump, he claimed that “not one single person, private insurance, would lose their insurance under my plan, nor did they under Obamacare.” Of course, Obamacare literally outlawed certain insurance plans, resulting in many millions of people losing their insurance.

In that same debate he said ““I have never said I oppose fracking.” Sure, Joe.

During an earlier debate, speaking about Obama era border enforcement policies, he said “What Latinos should look at is, comparing this president to the president we have is outrageous, number one. We didn’t lock people up in cages. We didn’t separate families. We didn’t do all of those things, number one.” Whether one wants to call them cages or not, in fact the facilities used to detain illegal immigrants under Trump were the exact same facilities used to detain illegal immigrants under Obama.

In an interview with Anderson Cooper, Biden had this to say about his opponent, President Donald Trump:

Have you ever heard this president say one negative thing about white supremacists? Have you ever heard it? That’s the reason I got back in this race because of what happened in Charlottesville. People coming out of the woods carrying torches, their veins bulging. Close your eyes and remember what you saw. And a young woman gets killed, that resisting the hate and violence. And the president gets asked to comment on it. what does he say? He says there were “very fine people on both sides.” He wouldn’t even condemn David Duke, for God’s sake.

In 2000, Trump condemned David Duke as “a bigot, a racist, a problem”. During the 2016 campaign, Trump condemned and disavowed Duke over, and over, and over again.

As for white supremacy, Trump has repeatedly condemned it. In one White House address Trump said:

Racism is evil. And those who cause violence in its name are criminals and thugs, including the KKK, neo-Nazis, white supremacists, and other hate groups that are repugnant to everything we hold dear as Americans.

Even his infamous and much mischaracterized “very fine people” comments following the violence in Charlottesville, which is the basis for the Biden’s deceitful insinuation, Trump specifically said (12:55) ” I’m not talking about the neo-Nazis and the white nationalists, because they should be condemned totally.”

So is President Joe Biden an honest politician, or does it seem more like he is dishonest? On past evidence, it appears that he has been dishonest pretty much perpetually about his past, about policy, about other people, about his own actions, going all the way back to his law school days in 1966. We’ll see if he maintains his record for dishonesty while he remains President. Stay tuned…


Morning Report: Delinquencies Decline

Vital Statistics:


  Last Change
S&P futures 3823 -23.3
Oil (WTI) 51.64 -1.44
10 year government bond yield   1.09%
30 year fixed rate mortgage   2.86%

Stocks are lower this morning as earnings continue to come in. Bonds and MBS are up.


Delinquencies fell in December to 6.08%, the lowest level since April, according to Black Knight Financial Services. This is down 3.9% compared to November, but is up 78% on a YOY basis.


The MBA is requesting a $25 billion housing assistance fund. “We are requesting that you include a $25 billion Housing Assistance Fund, modeled on the Hardest Hit Fund, to provide funds to state housing finance agencies to help homeowners with COVID-19 hardships bring their mortgage loans current through targeted assistance,” the letter said. “The funds would be used for mortgage payment assistance, utility payments, property tax assessments and other support to prevent eviction, mortgage delinquency, default, foreclosure or loss of utility services.”


Flagstar reported fourth quarter earnings numbers that revealed that gain on sale margins are beginning to compress. “Our mortgage team continues to deliver, achieving revenues of $232 million for the quarter. While gain on sale margins did compress, we were pleased with how well they held up, finishing at 1.93 percent for the quarter. The team’s all-out efforts—coupled with our diverse, multi-channel mortgage platform—made it possible for us to deliver a quality experience to customers all year long in the face of unprecedented volumes. It will be interesting to see if this margin compression continues through 2021.


United Wholesale completed its merger with the Gores SPAC and should begin trading today under the new ticker UWMC. Third quarter originations were $54 billion for the company.


The three hottest real estate markets are Austin TX, Phoenix, and Nashville. The coldest are New York, San Francisco, and Los Angeles. “The pandemic has not upended the housing market so much as accelerated trends we saw coming into 2020,” said Zillow senior economist Jeff Tucker. “These Sun Belt destinations are migration magnets thanks to relatively affordable, family-sized homes, booming economies and sunny weather. Record-low mortgage rates and the increased demand for living space, coupled with a surge of millennials buying their first homes, will keep the pressure on home prices there for the foreseeable future.”


The PMI Flash index shows manufacturing and services perking up. Growth is the fastest since the start of 2015, however keep in mind that it is exaggerated given the drop in activity last year. The index did note that supply chain constraints are creating a backdrop for inflation.

Morning Report: Housing starts hit a record

Vital Statistics:


  Last Change
S&P futures 3885 0.3
Oil (WTI) 53.24 0.04
10 year government bond yield   1.11%
30 year fixed rate mortgage   2.86%

Stocks are flat this morning on no real news. Bonds and MBS are flat as well.


Housing starts came in at 1.67 million, while building permits rose to 1.7 million. This is the fastest pace since the peak of the bubble years in 2006. For the full year of 2020, housing starts rose 1.38 million, which was 9% above the 2019 number.

You can see in the chart above that we are still kind of around historical averages, although they should trend upward with population growth. That chart goes back to 1960, when the US population was 181 million. We are at 331 million now. We will get existing home sales tomorrow, and the NAR has been reporting for-sale inventory is at record lows. The homebuilders have a lot of wood to chop in order to get inventory back to normal levels.


Initial Jobless Claims came in at 900k last week, which was a decline from the previous week.


The FHA said it will approve mortgages for DACA applicants. (or kids who’s parents are in the US illegally). It will be interesting to see how the government can push FHA lending going forward. They want the banks to do more of it, but the banks are understandably gun-shy after the Obama Admin used the False Claims Act to extract billions in settlements. I suspect we will be back to the Obama-era policy of cognitive dissonance: How hard can we kick the banks while simultaneously encouraging them to make more mortgages?


Homebuilder sentiment slipped on rising materials prices. “Despite robust housing demand and low mortgage rates, buyers are facing a dearth of new homes on the market, which is exacerbating affordability problems,” said NAHB Chairman Chuck Fowke. “Builders are grappling with supply-side constraints related to lumber and other material costs, a lack of affordable lots and labor shortages that delay delivery times and put upward pressure on home prices. They are also concerned about a changing regulatory environment.”


The Biden Administration is going to have to walk a fine line with respect to building more homes. Housing shortages are most acute in deep-blue urban areas where environmentalism and NIMBY-ism conspire to keep supply low. In other words, he is going to have to buck his own party’s base on this.

Morning Report: Janet Yellen testifies in front of the Senate

Vital Statistics:


  Last Change
S&P futures 3813 24.3
Oil (WTI) 53.64 0.64
10 year government bond yield   1.10%
30 year fixed rate mortgage   2.86%

Stocks are higher this morning on no real news. Bonds and MBS are flat.


The MBA reported that mortgage loans in forbearance fell 5.37% compared to 5.46% a week ago. Fannie and Fred loans in forbearance fell to 3.13%, an improvement of 6 basis points. “The week of January 10 saw the largest – and only the second – decrease in the share of loans in forbearance in nine weeks, with declines across almost every tracked loan category,” said Mike Fratantoni, MBA Senior Vice President and Chief Economist. “The rate of exits from forbearance has picked up a bit over the past two weeks but remains much lower than what was seen in October and early November.”


The FHFA has extended its foreclosure moratorium until Feb 28. The FHFA projects the COVID-19 foreclosure moratorium and its extension will create an additional $1.4 to $2 billion in expenses for the government-sponsored enterprises.


Mortgage Applications decreased 1.9% last week according to the MBA. Purchases increased 3%, while refinances fell 5%. “Market expectations of a larger than anticipated fiscal relief package, which is expected to further boost economic growth and lower unemployment, have driven Treasury yields higher the last two weeks,” said Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting. “After a post-holiday surge of refinances, higher rates chipped away at demand. There was a 5 percent drop in refinance activity, driven by a 13.5 percent pullback in government refinances.”


Janet Yellen testified yesterday in front of the Senate Finance Committee. Here were the big takeaways:

  • Higher taxes are coming, but not now.
  • The government needs to get spending under control, but not now.
  • The dollar should be strong
  • Fiscal stimulus needs to be big.

Morning Report: Freddie Mac sees mortgage originations hitting $3.2 trillion in 2021

Vital Statistics:


  Last Change
S&P futures 3798 27.3
Oil (WTI) 52.84 0.54
10 year government bond yield   1.12%
30 year fixed rate mortgage   2.88%

Stocks are higher this morning as more financial stocks report earnings. Bonds and MBS are down.


The upcoming week is pretty data-light, although we will get some housing data with housing starts, the NAHB Housing Market Index and Existing Home Sales. The Spring Selling Season will be starting in about a month or so, and we should see plenty of pent-up demand from last year. Existing home inventory is at record lows, and prices are rising.


Bank of America reported better than expected earnings, however revenues fell 10%. The Fed has loosened the reins on stock buybacks, and the company announced it intended to repurchase $2.9 billion shares. Separately, Goldman Sachs reported strong earnings.


Janet Yellen is scheduled to return to the Hill today for testimony about her new role as Treasury Secretary. Unsurprisingly, she is going to advocate for a lot of additional fiscal stimulus. Note that with the change of the administration, many Democratic lawmakers are suddenly interested in re-opening the economy.


Joe Biden nominated Rohit Chopra to lead the CFPB. It sounds like the Administration is going to focus on student loan servicing practices. I am sure that the Agency will also focus on mortgage servicing as well. Chopra is a well-known name in DC and was most recently at the FTC where he focused on market domination in the tech space.


Merrill Lynch is out with a bullish take on the 2021 economy, predicting that the most vulnerable parts of our population will be vaccinated by April and May, and earlier and larger stimulus package will help things as well. They are taking up their GDP forecast from 4.6% to 5%. Note the Fed is predicting 4.2% for next year. If historical patterns hold, we can expect the Fed to overshoot growth estimates for the next four years.


Freddie Mac is forecasting that originations will decline 20% from their all-time high of $4 trillion in 2021. $3.2 trillion is still a hefty number, and should allow for great times for the industry. They see mortgage rates averaging about 2.9% this year before rising to 3.2% in 2022. Freddie also sees home price appreciation leveling out to about 0.7% in 2021. With the current supply-demand imbalance, that seems unlikely.

Morning Report: Jerome Powell says rates are going nowhere for a while.

Vital Statistics:


  Last Change
S&P futures 3770 -21.3
Oil (WTI) 52.74 -0.74
10 year government bond yield   1.10%
30 year fixed rate mortgage   2.88%

Stocks are lower this morning as we kick off earnings season. Bonds and MBS are up.


Retail Sales dropped 0.7% in December. This was well below expectations. Ex-gasoline and autos, sales fell 2.1%. This shows the economy is moving in the wrong direction, and I suspect we will see economists take down their estimates for fourth quarter US GDP growth. Separately, the University of Michigan Consumer Sentiment Index fell in January.


Industrial Production rose 1.6% while manufacturing production rose 0.9%. Capacity Utilization rose to 74.5%. We still have a lot of wood to chop to get back to pre-COVID levels here as well.


Fed Chairman Jerome Powell said that “now is not the time” to discuss tapering bond purchases. “Now is not the time to be talking about exit,” from the $120 billion in government securities the Fed is buying each month, Powell said in a web symposium with Princeton University. “A lesson of the Global Financial Crisis is be careful not to exit too early, and by the way try not to talk about exit all the time…because the markets are listening.” ”The economy is far from our goals…and we are strongly committed…to using our monetary policy tools until the job is well and truly done.” He went on further to say that the goal is to get the labor economy back to where it was pre-pandemic. The focus for that will be on lower-wage employment and wage growth.

Bottom line: mortgage rates are probably not going to get away from us for a while. A easy non-legislative way to put money in people’s pockets is to allow them to refinance their mortgage at a lower rate. With 32 million borrowers out there able to save 75 basis points on their rate, it will take years to do all of those loans, given industry capacity constraints. Powell knows this, and unless inflation magically appears from out of the blue, rates are staying low.


The FHFA will not leave conservatorship in the near term. There was talk of the Trump Administration letting them go, but that was always a long shot. FWIW, I do not see the Biden Administration releasing them either – if anything I could see them reinstituting the profit sweep and getting a whole slew of new affordable housing mandates.



%d bloggers like this: