Morning Report: Small Business is getting more pessimistic on the economy

Vital Statistics:

S&P futures4,2359.8
Oil (WTI)69.340.11
10 year government bond yield 1.53%
30 year fixed rate mortgage 3.17%

Stocks are higher this morning on no major news. Bonds and MBS are up.

Almost half of small businesses report being unable to fill job openings, according to the NFIB Small Business Optimism Survey. “Small business owners are struggling at record levels trying to get workers back in open positions,” said NFIB Chief Economist Bill Dunkelberg. “Owners are offering higher wages to try to remedy the labor shortage problem. Ultimately, higher labor costs are being passed on to customers in higher selling prices.”

I found one particular aspect of the report interesting:

While the consensus from the Fed and most economists is that the economy is poised to accelerate into the second half of the year, this survey sees increased pessimism. Expected earnings trends are down as well. That said, the survey also showed increasing numbers for the “good time to expand” issue, so maybe it is just some weirdness in the data. A tight labor market and a weakening economy don’t generally go together.

If NFIB is correct and earnings trends are heading downward, that is a canary in the coal mine. Stocks gotta be vulnerable here. I wonder if that report explains some of the move in the 10-year this morning.

Freddie Mac lowered the limit of NOO / Second homes it will buy from 7% to 6% yesterday.

To complement those efforts, we have updated our requirements for Investment Property and second home Mortgages as follows: for the month of July 2021, if the Seller sells more than five Mortgages secured by second homes and/or Investment Properties, the Seller’s deliveries of such Mortgages may not, by measure of aggregate UPB, exceed 6.5% of the total UPB for all Mortgages sold during that month. After July, on a monthly basis, if the Seller delivers more than five Mortgages secured by second homes and/or Investment Properties, deliveries of such Mortgages may not exceed 6% of the total UPB of all Mortgages sold.

There seems to be an appetite for these loans from investors, so this probably won’t be that big of an issue. NOO pricing seems to have found a level here. This makes sense – these loans are generally <75 LTV, and with home price appreciation in the double digits, the collateral means these loans are going to be money good.

TIAA’s correspondent lending division is being acquired by Pen Fed.

The number of loans in forbearance fell slightly to 4.16% last week, according to the MBA. “The share of loans in forbearance declined for the 14th straight week, with small drops across most investor types and all servicer types,” said Mike Fratantoni, MBA Senior Vice President and Chief Economist. “Forbearance exits dropped to 6 basis points, the lowest weekly level since mid-February, but new forbearance requests, at 4 basis points, matched the recent weekly low from early May.”

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