Morning Report: Home prices still rising at a double-digit pace

Vital Statistics:

S&P futures3947-11.4
Oil (WTI)60.08-1.42
10 year government bond yield 1.75%
30 year fixed rate mortgage 3.31%

Stocks are flattish as we head into the last week of the quarter. Bonds and MBS are down.

A major hedge fund blew up last week, and so some of the weakness you may be seeing in certain names is a result of it. Most of the risk appears to be overseas.

Some of the weakness in Treasuries is due to the Supplemental Liquidity Ratio issue that expires at the end of the month. Banks may be selling Treasuries and MBS into the end of the quarter to get their weightings in line.

Annaly Capital (a big mortgage REIT) just reached a deal to sell its commercial real estate business for about $2.3 billion. It will re-deploy that cash back into the agency and residential loan space. I have to imagine mREITs like Annaly will be drawn to the potential returns in AUS-compliant / non-guaranteed mortgages, and they will be a source of demand for that paper.

Home prices are still rising at double-digit rates. The Case-Shiller Home Price Index rose 11% YOY, while the FHFA Home Price index rose 12%. With inventory levels at all-time lows, and lots of institutional money flooding into the space looking for rentals home prices will have an upward trajectory.

Forbearances fell again last week, according to the MBA. The total number in forbearance fell below 5% to 4.96%. “More than 17 percent of borrowers in forbearance extensions have now exceeded the 12-month mark.” Fratantoni noted. “Many homeowners need this support, even as there are increasing signs that the pace of economic activity is picking up as the vaccine rollout continues. Those who have an ongoing hardship due to the pandemic and want to extend their forbearance beyond the 12-month point need to contact their servicer. Servicers cannot automatically extend forbearance terms without the borrower’s consent.”

The Center for Disease Control extended the eviction ban to June 30. “The COVID-19 pandemic has presented a historic threat to the nation’s public health,” said CDC Director Dr. Rochelle Walensky. “Keeping people in their homes and out of crowded or congregate settings — like homeless shelters — by preventing evictions is a key step in helping to stop the spread of COVID-19.”

The SEC and FICC are proposing higher margin amounts for TBA trading firms. In the wake of the bond market volatility a year ago, when the Fed pushed rates down to 0%, a wave of margin calls hit the industry. This worried the regulators, so they are looking to prevent this from happening again by requiring additional margin up front. The punch line is that when you ask your TBA broker for more capacity, don’t be surprised if they ask for you to drop your margin threshold in exchange.

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