Morning Report: Larry Summers telegraphs 25 basis points next week

Vital Statistics:

S&P futures3,919-5.75
Oil (WTI)67.56-0.05
10 year government bond yield 3.44%
30 year fixed rate mortgage 6.48%

Stocks are lower after the European Central Bank hiked rates by 50 basis points. Bonds and MBS are up. MBS spreads are widening again as volatility spikes in the bond market. Credit Suisse gets a $54 billion loan from the Swiss National Bank.

Despite the stress in the banking sector, the Atlanta Fed increased its GDP Now estimate for Q1 from 2.8% to 3.2%. Granted, Q1 is largely in the books, but you would think a banking crisis would have a negative effect.

Ex-Treasury Secretary Larry Summers was interviewed by Bloomberg yesterday and said that 50 basis points next week was probably off the table. The stress in the banking system will restrict credit and that will have a tightening effect on its own. That said, he also though that not hiking would send a “very ominous” kind of signal. Since the Fed is in the quiet period, I suspect this was the “official” telegraphing of the Fed’s intentions next week. The Fed Funds futures see a 72% chance of a 25 basis point hike and a 28% chance of no hike.

Building Permits rose 13.8% MOM to a seasonally adjusted annual rate of 1.52 million. This is still down about 18% from a year ago. Housing starts rose 9.8% MOM to 1.45 million, but are still down about 18% from a year ago. Single family construction is still the dominant housing category, but not by much as multi-fam (5+ units) construction continues to surge. Single family came in at 777k last month, and it was 1.2 million a year ago. Multi-fam (5+ units) rose to 700k and it was 599k a year ago. Multi-fam rose 17% YOY while one-unit fell 35%.

Homebuilder confidence improved in March, according to the NAHB / Wells Fargo Homebuilder Sentiment Index. “While financial system stress has recently reduced long-term interest rates, which will help housing demand in the coming weeks, the cost and availability of housing inventory remains a critical constraint for prospective home buyers,” said NAHB Chief Economist Robert Dietz. “For example, 40% of builders in our March HMI survey currently cite lot availability as poor. And a follow-on effect of the pressure on regional banks, as well as continued Fed tightening, will be further constraints for acquisition, development and construction (AD&C) loans for builders across the nation. When AD&C loan conditions are tight, lot inventory constricts and adds an additional hurdle to housing affordability.”

Homebuilder Lennar reported results yesterday. Revenues and earnings increased but average selling prices declined YOY and gross margins fell by 570 bps as sales prices were flat and costs increased. Backlog fell 29% in units and 33% in dollar value.

Stuart Miller, Executive Chairman of Lennar, said, “During the quarter, we saw a generally strong economy at the intersection of high inflation and strong employment numbers, while the housing market continued down a winding
road of trying to find its footing. In December, interest rates and sticker shock continued to constrain sales activity, while in January and early February, lower interest rates energized sales. In late February, a spike in interest rates impacted website and community traffic and had a slight impact on sales. The Federal Reserve stayed its course of raising interest rates to cool inflation, though has yet to reach desired results. Homebuyers are considering the possibility that today’s interest rate environment may be the new normal. Accordingly, the housing market continues shifting as growing household and family formation continued to drive demand against a chronic supply shortage.”

Agile Technologies was named one of HousingWire’s Tech100 Mortgage winner.Agile launched in 2021, and this second consecutive Tech100 award further validates the company’s mission and approach. Now digitally connecting over 300 mortgage lenders of every size and sophistication with an established and growing roster of leading broker-dealers, all users on Agile’s platform benefit from increased transparency and functionality. Agile’s three-step process for digital TBA trading communication helps lenders improve efficiency and profitability. Users experienced an average improvement of 1.6 basis points on their TBA trades after implementation. Agile’s cloud-native platform also supports MBS pooling and can be accessed via desktop or mobile.

Both JP Morgan and Bank of America passed on acquiring failed Silicon Valley Bank over the weekend. Sounds like Goldman, PNC, and Royal Bank of Canada also passed. Certainly for Jamie Dimon the memories of 2008 were probably too fresh. Separately, troubled bank First Republic is exploring a sale.

The FHFA is delaying its new DTI adjustments until August 1 2023. “Since the January 2023 announcement, FHFA has received feedback from mortgage industry stakeholders about the operational challenges of implementing the DTI ratio-based fee. FHFA has decided to delay the effective date of the DTI ratio-based fee by three months to August 1, 2023, to ensure a level playing field for all lenders to have sufficient time to deploy the fee. In addition, lenders will not be subject to post-purchase price adjustments related to this DTI ratio-based fee for loans acquired by the Enterprises between August 1, 2023, and December 31, 2023. This temporary price adjustment exception will not alter any other quality control review decisions by the Enterprises. During this time, FHFA and the Enterprises will continue to engage with industry stakeholders to address operational concerns.”

15 Responses

  1. This broad is hilarious and I wonder what the fuck she was expecting.

    She sounds like an absolute joy to hang out with.


    • Wait till she has her $200k in college debt with a journalism and international relations degree.

      but yeah, I am sure her roommates were just as happy to be away from her on the weekends.


      • I have journalsim degree. but I turned heel and went lobbyist with it.


        • Mine’s in Creative Writing so obviously I went into sales. For me college was purely credentialing and after I was kicked out for a year all I wanted was the fastest degree I could get that required the lowest GPA to graduate. I could do so with a Liberal Arts degree at a 2.5. Writing was interesting, highly subjective and grades could be improved by working the instructor. My GPA was so low when I was allowed back in that I had to spend a semester and two summer school sessions taking stupid underwater basket weaving classes where I knew I could get an A just to bring it up enough to get my GPA to the 2.500000000000001 so I could graduate. The good news for me was that tuition was about $1800/semester so I worked a couple of jobs and lived in a converted garage so I could afford it.


        • I did Economics, but did NROTC so I paid with my ass and not money


        • By then I was in the Marine Corps Reserve and was in no mood to re-enlist for any tuition benefits.


        • Brent:

          I did Economics

          Me too. And not once did any of my classes discuss Milton Friedman, much less guys like Ludwig von Mises. Which is ridiculous.


        • That is appalling.


        • I think in my entire time in undergrad, the purpose of economics was to use monetary and fiscal policy to achieve societal goals.

          The only sop to free markets was that one professor put “Free To Choose” on an optional reading list.


  2. i knew i should have picked against UVA. had them losing next round anyway.


  3. Gawd Arizona… Princeton? Really?


  4. That anybody would sacrifice their economies for this is mind boggling to me yet here we are.

    If I’m Russia and China, I’m encouraging the hell out of the green agenda for the west.


    • Because the people who are in charge of pushing this don’t bear any of the costs.

      If you are a GS-15 at the EPA, what do you care? You have a job forever.


      • You’re obviously right. There is a reference in the article to farmers being more lime green than dark green. Are they insane or is the author trying to put a spin on being interested in proper land management as being somehow a believer that Gaia has a man made fever. The earnestness of these people as they chop off their limbs is terrifying.


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