All Things in Moderation

Vital Statistics:

Stocks are higher this morning after we get a deal for an infrastructure package. Bonds and MBS are down small.

Personal incomes fell 2% in May, according to the Bureaus of Economic Analysis. Incomes have been volatile over the past year due to stimulus payments, and this month is no different. Personal consumption was flat after a series of big increases over the past few months. The headline Personal Consumption Expenditures Index, which is the Fed’s preferred inflation measure rose 3.9%, while the index ex-food and energy rose 3.4%. Commodity push inflation is driving the inflation indices higher, although that is expected to moderate after COVID-driven supply shortages are satisfied.

The White House has named Sandra Thompson to fill the role of interim FHFA Chair. She has been with FHFA since 2013, and prior to that worked at the FDIC. As far as priorities, she is going to be big in community lending and increasing homeownership. “As a longtime regulator, I am committed to making sure our nation’s housing finance systems and our regulated entities operate in a safe and sound manner,” Thompson said. “We can accomplish this, and at the same time have a laser focus on mission and community investment. There is a widespread lack of affordable housing and access to credit, especially in communities of color. It is FHFA’s duty through our regulated entities to ensure that all Americans have equal access to safe, decent, and affordable housing.”

What that means is that the restrictions on high LTV / low FICO loans are as good as gone. Investment and second homes might fall under the “operate in a safe and sound manner” comment. As noted before, NOO loans are highly profitable for the GSEs, so that could fall under the rubric of GSE financial stability.

Yet another private equity firm is getting into the single-family rental business. KKR is launching a new venture called My Community Homes, which will focus on suburban homes. KKR recently backed Home Partners of America, which it sold to Blackstone for $6 billion. It made a 20% IRR on that investment. Those sorts of returns are still looking possible given that cap rates are in the mid single-digits and real estate is appreciating at double-digit rates. It looks like the first time homebuyer is going to find it even harder to find properties and win bidding wars.

Consumer sentiment slipped in June, according to the University of Michigan Consumer Sentiment survey. You can see we are back to more or less historical averages.

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