All Things in Moderation

Vital Statistics:

Stocks are higher despite some hawkish comments out of Jerome Powell yesterday. Bonds and MBS are up.

Bonds got hit yesterday on a lousy 30-year auction and hawkish comments out of Jerome Powell. At an IMF conference, Powell said:

“The Federal Open Market Committee (FOMC) is committed to achieving a stance of monetary policy that is sufficiently restrictive to bring inflation down to 2 percent over time; we are not confident that we have achieved such a stance. We know that ongoing progress toward our 2 percent goal is not assured: Inflation has given us a few head fakes. If it becomes appropriate to tighten policy further, we will not hesitate to do so. We will continue to move carefully, however, allowing us to address both the risk of being misled by a few good months of data, and the risk of overtightening. We are making decisions meeting by meeting, based on the totality of the incoming data and their implications for the outlook for economic activity and inflation, as well as the balance of risks, determining the extent of additional policy firming that may be appropriate to return inflation to 2 percent over time. We will keep at it until the job is done.”

The 30 year auction at a -5.3 basis point tail, the highest on record. Primary dealers bought nearly a quarter of the issue (double normal) as foreign demand evaporated.

Consumer sentiment fell for the fourth straight month, according to the University of Michigan Consumer Sentiment Survey. We saw a divergence in sentiment amongst income groups, with higher income groups improving based on asset prices, while lower income groups are getting hit by inflation.

Importantly, the year-ahead inflationary expectations ticked up from 4.2% to 4.4%, indicating that the big jump in October (from 3.2% to 4.2%) was not just an outlier. Long-run expectations increased as well to the highest since 2011. Blame high gasoline prices on the increase.

On this Veteran’s Day, I want to share a sea story.

I was on the USS Gridley (CG-21) in the Persian Gulf at the end of Desert Storm (early 92). The combat part was over, but we still kept a Tomahawk shooter in the Northern Persian Gulf. The job of the USS Gridley was to defend the Tomahawk shooter (typically a Spruance class destroyer) from air attack.

Anyway, defending a Spruance destroyer is a pretty boring job. We were assigned a 8 nautical mile box and would lazily steam back and forth in it, all while dodging fishing boats, oil rigs, and tankers. One morning, the Middle East commander ordered us to investigate a distress signal in the Arabian Sea. We left the Northern Persian Gulf and headed through the Straits of Hormuz.

We eventually found the ship that made the call. It was a Somali cargo ship with a ton of people on it. We couldn’t communicate with the ship, so we sent a couple of engineers in a small boat to take a look at it and see if they could fix it. The seas were really rough, and doing loops around the ship while we waited for the verdict from the engineers was a pain. The engineers reported back that the diesel engine had somehow lost its oil and it was ruined, like cylinder-lining-in-the-sump. Unfixable. We reported back to the ME Commander who ordered us to tow the thing back to Somalia.

To pass a rope between ships, you fire a shot line (basically an orange bobbin with strong thread) from a rifle, then attach a 1 inch rope to that (called the messenger line) and then attach the towline (which is 5 inches in diameter and heavy as hell). The towline does the work. We pass by the ship, and our guy on deck pulls out the rifle and shoots the line over. Everyone on the deck of the Somali ship watches the orange bobbin fly over their heads. Then they look back at us with a “What the hell are you weird Americans doing?” look on their faces. We yell back “PULL! PULL!” They don’t speak English and they don’t get that they are supposed to pull on the orange line. By this time, the orange line has slipped off the Somali ship and we had to make another pass. Remember, these are ships, not Ferraris and getting close for a loop around in rough seas takes a while.

So this time, we pass by slowly, shoot the line over, and pantomime pulling. Luckily the light bulb goes off on the other ship and they start pulling on the shot line. They pull the shot line up, grab the 1 inch messenger line and tie it to the bow and signal they are ready to go. They don’t realize there is another rope tied to the 1 inch rope. Towing a 8,000 ton ship with a 1 inch line is like towing a car with twine. We pantomime pulling again. They don’t get it. We finally get them on the radio. We pass the word on the ship for anyone with foreign language skills to report to the bridge. That covered Spanish and Tagalog. No dice. We call up the intel weenies. Get an Arabic speaker, but the Somalis don’t understand.

We finally gave up and towed the ship with the messenger line. We go slowly (like 1.5 knots) and take them back to Mogadishu. It took us forever to get back. When we finally got them to port, we asked the Port Manager where he wanted these guys. He didn’t want them and told us to take the ship somewhere else. We didn’t want a diplomatic incident, so we called up the Commander of the Middle East and told him the story. We were told to just leave them anyway. We told Mogadishu ”the Adele II is your headache now.” The Adele II dropped anchor, and we headed back to the Persian Gulf.

In our wrap-up report to the Commander Middle East, we included a “lesson learned” – translate “Heave Around” in every known language.

Filed under: Economy | 38 Comments »

Vital Statistics:

Stocks are lower this morning on no real news. Bonds and MBS are up.

Neel Kashkari isn’t convinced rate hikes are over. “Undertightening will not get us back to 2% in a reasonable time,” Neel Kashkari, the president of the Federal Reserve Bank of Minneapolis, said in an interview with The Wall Street Journal on Monday. He is awaiting further data. “I am not ready to say we are in a good place.” Note that Kashkari has generally favored more aggressive responses to the economy, pushing for lower rates during the ZIRP period and higher rates now.

Chicago Fed President Austan Goolsbee thinks we could be on a “golden path” of lowering inflation without causing a recession. “Because of some of the strangeness of this moment, there is the possibility of the golden path … that we got inflation down without a recession,” Goolsbee said on CNBC’s “Squawk Box.” “If that happened … it would just be a continuation of what we’ve already seen this year, which is unemployment up very modestly, while inflation has come down a lot. … That’s our goal.”

The “strangeness of the moment” is the residual effects of a firehose of fiscal stimulus in 2020-2022. The Fed has never been able to hike rates like this without causing a recession in the past. It is a “this time is different.” take.

Credit standards continue to tighten, according to the Fed’s Senior Loan Officer Survey. “For loans to households, banks reported that lending standards tightened across all categories of residential real estate (RRE) loans other than government residential mortgages, for which standards remained basically unchanged. Meanwhile, demand weakened for all RRE loan categories. In addition, banks reported tighter standards and weaker demand for home equity lines of credit (HELOCs). Moreover, for credit card, auto, and other consumer loans, standards reportedly tightened, and demand weakened on balance.”

The survey mentioned commercial real estate as a continued pain point.

Mortgage delinquencies picked up in September, according to the Black Knight Mortgage Monitor. The DQ rate increased to 3.29% which was up 12 basis points from August and 13 basis points from a year ago. This was the largest increase in the past 2.5 years. 30 day DQs rose by 5.1% making it the fourth consecutive monthly rise, while 60 day DQs have risen for 6 months in a row. Note DQs are still below pre-pandemic levels, but it looks like rising rates and a weakening labor market are starting to have an effect.

Rocket reported third quarter numbers that beat expectations. Closed loan volume fell 13% YOY to $22.2 billion. Gain on sale margins increased by 10 basis points to 2.79%. Rocket is guiding for a seasonal slowdown in the fourth quarter which is to be expected.

It looks like the Fixed Income Clearing Corporation is greasing the skids to up margin requirements for MBS. The volatility in the bond market is causing them to increase their risk assessments.

Filed under: Economy | 57 Comments »

Vital Statistics:

Stocks are higher after the Fed paused at the November meeting. Bonds and MBS are up big. Sovereign yields are down across the board, with big declines in Gilts after the Bank of England maintained rates at current levels. We also are seeing a double-digit drop in Bund yields.

As expected, the Fed maintained the Fed Funds rate at current levels. The statement itself was virtually identical to the September statement. The markets seem to be seizing on this statement from Powell that the Fed is done: “The question we’re asking is: Should we hike more?” Powell told reporters yesterday after the Fed held off on raising interest rates for a second consecutive policy meeting. “Slowing down is giving us, I think, a better sense of how much more we need to do, if we need to do more.”

The December Fed Funds futures now predict only a 15% chance of another 25 basis point hike, a sizeable difference from a month ago, when it was closer to 40%.

Great interview with Chris Whalen on why the Fed has to stop and the problems in the commercial real estate market. His point is that valuations in the commercial real estate market are falling and that is a big problem in a rising interest rate environment.

Productivity rose 4.7% in Q3, which is good news for the Fed as it allows output to increase without pushing up inflation. Unit labor costs fell 0.8%. Manufacturing productivity fell, while services productivity increased by a lot.

Companies announced 36,836 job cuts in October, a 22% decrease from February and a 9% increase from last year. Technology continues to be the leading sector, with financial in the #2 slot. AI is a driver of a lot of these changes. Hiring plans are down 46%. Seasonal hiring plans are the lowest in 10 years.

Filed under: Economy | 47 Comments »

Vital Statistics:

Stocks are higher this morning as we begin the Fed meeting. Bonds and MBS are up small.

Consumer confidence fell in October, according to the Conference Board. “Consumer confidence fell again in October 2023, marking three consecutive months of decline,” said Dana Peterson, Chief Economist at The Conference Board. “October’s retreat reflected pullbacks in both the Present Situation and Expectations Index. Write-in responses showed that consumers continued to be preoccupied with rising prices in general, and for grocery and gasoline prices in particular. Consumers also expressed concerns about the political situation and higher interest rates. Worries around war/conflicts also rose, amid the recent turmoil in the Middle East. The decline in consumer confidence was evident across householders aged 35 and up, and not limited to any one income group.”

I did a deeper dive into this phenomenon in my latest Substack article. Check it out and please consider subscribing.

Home prices rose 0.4% month-over-month and 2.6% year-over-year according to the Case-Shiller Home Price Index. We are definitely seeing a reversal of fortunes regionally, with the strongest areas of 2020-2022 (Phoenix, Las Vegas) underperforming, while the weakest areas since the Great Recession (New York, Chicago, Detroit) now outperforming.

The FHFA House Price Index increased 0.6% MOM and 5.6% YOY. “U.S. and regional house price gains remained strong over the last 12 months.” said Dr. Nataliya Polkovnichenko, Supervisory Economist in FHFA’s Division of Research and Statistics. “The South Atlantic division showed moderate weakness in August, while the remaining census divisions posted positive price appreciation from the previous month.”

Redwood Trust reported third quarter earnings yesterday. Book value fell by 5.3% as MBS spreads widened. The company purchased $800 million of jumbo loans, a big jump from Q2 and a year ago. Redwood has been increasing its counterparty exposure, focusing primarily on depository institutions. Business purpose originations of $411 million was marginally higher than Q2 and down 28% compared to a year ago.

Mortgage REIT AGNC Investment reported earnings per share that beat the street, although the company pre-announced lousy earnings a while ago. Book value per share fell 14% compared to the second quarter. “A complex set of domestic and global factors, including heightened geopolitical risks, Treasury supply concerns, and an approaching inflection point in the Federal Reserve’s monetary policy, drove the significant volatility and underperformance in the Treasury and other fixed income markets,” said Peter Federico, the Company’s President and Chief Executive Officer. “In environments in which Treasury securities experience considerable price instability and the market struggles to find a new equilibrium, Agency MBS typically underperform, which was indeed the case in the third quarter. As challenging as this period has been for all bond market participants, the current opportunity for both levered and unlevered investments in Agency MBS remains historically attractive on both an absolute and relative basis. Once the uncertainties associated with the current market environment subside, we believe that a durable and attractive investment environment will emerge.”

MCM announced its new Artificial Intelligence Fallout Analytics Service: “CloseLytics Pro” MCM’s founder states: “The guessing game of what’s my mortgage pipeline exposure is over….” MCM’s AI based neural network software system “CloseLytics Pro” utilizes the latest data science techniques and AI to accurately predict which loans will close with or without renegotiations in all market conditions. The system is designed to be self-correcting with automatic back testing and reporting. MCM has over 29 years of experience with managing mortgage pipeline risk using state of the art OAS technology and proven statistically based fallout analytics and has been developing and using AI tools for over 10 years. CloseLytics Pro can be integrated with any Pipeline Risk Management System or hedge advisory service. The system not only can provide singular closing rate predictions on an individual loan basis it also provides forecasts by loan for any range of market movement. For more information , contact Dean Brown @ 858 483 4404 x101

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Filed under: Economy | 13 Comments »

Vital Statistics:

Stocks are higher this morning after good numbers from Amazon. Bonds and MBS are down small.

Personal Incomes rose 0.3% in September, while spending rose 0.7%. The PCE Price Index rose 0.4% MOM which was 0.1% above expectations. On an annual basis, the PCE Price Index rose 3.4%, which was in line with expectations. If you strip out food and energy, the PCE Price Index rose 0.3% month-over-month and 3.7% year-over-year. The savings rate declined again.

Consumer sentiment fell in October, according to the University of Michigan Consumer Sentiment Survey. “Consumer sentiment confirmed its early-month reading, falling back about 6% this October following two consecutive months of very little change. This decline was driven in large part by higher-income consumers and those with sizable stock holdings, consistent with recent weakness in equity markets. Across all consumers, one-year expected business conditions plunged 16% and expectations over consumers’ own personal finances in the year ahead fell 8%, reflecting ongoing concerns about inflation and, to a lesser degree, uncertainty over the implications of negative news both domestically and abroad.” Inflationary expectations increased substantially, rising from 3.2% in September to 4.2% in October.

So consumption is strong, but the consumer is depressed. What is going on? Yesterday’s GDP report provides a bit of a clue. Much of the increase in consumption was accounted for by housing, insurance, and health care. These are necessities, not discretionary goods, and no one gets a dopamine hit from writing a bigger check to the landlord or flood insurance company.

After the data this week the Fed Funds futures are predicting the Fed does nothing at its meeting next week, and is handicapping a 16% chance of a hike in December.

The number of seriously delinquent mortgages dropped to an all-time low in August, according to CoreLogic. “U.S. mortgage performance remained strong in August, supported by a robust job market and a healthy economy,” said Molly Boesel, principal economist at CoreLogic. “However, this thriving job market comes at a time when interest rates are quickly rising, which is keeping many potential homebuyers from being able to secure a mortgage.”

This partially explains why servicing valuations remain so high. Prepayment assumptions assume that people will only pay off their mortgage if they move or die, delinquencies are low, and short term rates are high enough that you can earn interest on escrow. PennyMac Mortgage Trust said in its earnings release that it is valuing its MSR portfolio at 6.3x.

Filed under: Economy | 25 Comments »

Vital Statistics:

Stocks are lower this morning after some disappointing earnings last night. Bonds and MBS are down.

New Home sales rose 12% MOM and 34% YOY to a seasonally adjusted annual rate of 759,000. The median sales price fell 12% YOY to $418,800, while the average sales price fell 5% to $503,900.

Mortgage applications fell 1% last week as purchases fell 2% and refis rose 2%. “Ten-year Treasury yields climbed higher last week, as global investors remained concerned about the prospect for higher-for-longer rates and burgeoning fiscal deficits. Mortgage rates followed Treasuries higher, with the 30-year fixed mortgage rate jumping 20 basis points to 7.9 percent – the highest since 2000. Rates have now risen seven consecutive weeks at a cumulative amount of 69 basis points,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Mortgage activity continued to stall, with applications dipping to the slowest weekly pace since 1995. These higher mortgage rates are keeping prospective homebuyers out of the market and continue to suppress refinance activity. The ARM share of applications inched up to 9.5 percent, its highest since November 2022.”

Homebuilder Pulte Homes reported third quarter earnings. Earnings per share rose 7.8% while revenues rose 3%. Gross margins came in at 29.5%. Despite rising rates, new orders rose 43%. On the subject of mortgages and incentives, Pulte CEO Ryan Marshall said:

We continue to use the permanent 30-year buy-down as probably our most powerful incentive. Right now, we’ve got national incentives that offer 5.75% on a 30-year fixed, so I think given rates today on the open market would be over 8%, to be able to get a new home in a great location of the quality and design features that we have at 5.75%, I think is pretty powerful.

I’ll remind everybody, what we’ve done is we’ve simply redistributed incentives that we’ve historically offered toward cabinets and countertops and things of that nature, we’ve redirected those to interest rate incentives, and I think that’s the–you know, that’s been the most powerful thing for that buyer group.

Pulte says that they have about $35,000 in incentives baked into the price, so if they are losing 5-6 points on the mortgage, that is well within the $35,000 limit.

MCM announced its new Artificial Intelligence Fallout Analytics Service: “CloseLytics Pro” MCM’s founder states: “The guessing game of what’s my mortgage pipeline exposure is over….” MCM’s AI based neural network software system “CloseLytics Pro” utilizes the latest data science techniques and AI to accurately predict which loans will close with or without renegotiations in all market conditions. The system is designed to be self-correcting with automatic back testing and reporting. MCM has over 29 years of experience with managing mortgage pipeline risk using state of the art OAS technology and proven statistically based fallout analytics and has been developing and using AI tools for over 10 years. CloseLytics Pro can be integrated with any Pipeline Risk Management System or hedge advisory service. The system not only can provide singular closing rate predictions on an individual loan basis it also provides forecasts by loan for any range of market movement. For more information , contact Dean Brown @ 858 483 4404 x101

Goldman released its 2024 housing outlook yesterday, which says that 2024 will look a lot like 2023, with mortgage rates stuck between 7% and 8%. They see home price appreciation more or less stagnating – rising only 1.3% for the year. They see housing starts falling next year, weighed down by a huge backlog of multi-family properties under construction with poor absorption rates. “While the sharpest declines in housing activity and prices are now long behind us, the recent jump in mortgage rates and the prospect that they are likely to remain elevated for the foreseeable future present headwinds to the economy’s most interest rate sensitive sector.” Existing home sales are expected to fall to the lowest level since the early 90s, at 3.8 million units.

Filed under: Economy | 8 Comments »

Vital Statistics:

Stocks are lower this morning after the 10 year bond yield broke through 5% overnight. Bonds and MBS are down.

The week ahead will have new home sales, Q3 GDP and personal incomes / outlays which contain the PCE inflation index. We don’t have any Fed-speak as we are in the quiet period ahead of next week’s FOMC meeting.

The US government ended the fiscal year with a deficit of $1.7 trillion. That isn’t helping sentiment in the bond market, as rising rates increase the amount of debt the US must sell in order to cover interest payments. This is part of the reason why bonds can’t get out of their own way.

Part of the issue is the “this time is different” mentality in the markets – that the Fed can execute the most dramatic rate hiking cycle in history without triggering a recession.

I suspect we will find that the rules haven’t changed, and we will hit a recession which will be the final nail in this bout of inflation’s coffin.

The relative value of renting versus buying a house has never been more skewed in the favor of renting. The relationship has eclipsed the levels we saw during the residential real estate bubble. The average mortgage payment is 52% higher than the average rent payment.

Going forward, what will bring the relationship back into balance? Falling rates will have to do the job given the scarcity of existing homes for sale. The supply and demand dynamics don’t seem to be there for a bear market in single family homes.

There is a glut of apartment construction however, and many of those projects might have made sense when interest rates were way lower, but won’t now. Apartment cap rates are generally in the mid single-digits and with rates where they are, it will be tough to cover the mortgage along with taxes and maintenance. So I expect to see further pressure on rental rates.

The National Multifamily Housing Council said the apartment market was loose in October. “A combination of rising interest rates and tightening lending standards has caused a decrease in the availability of debt financing for the ninth consecutive quarter,” noted NMHC’s Vice President of Research, Caitlin Sugrue Walter. “Buyers and sellers of apartments, meanwhile, remain unable to agree to terms on pricing, resulting in the sixth consecutive quarter of declining sales volume…Yet, continued softness in the apartment market means that we should expect the shelter component of inflation to come down eventually as well, which could help overall inflation to cool to the Fed’s 2% target and allow the Federal Reserve to start easing policy. Over the longer term, demand for multifamily housing remains strong based on demographic trends and market fundamentals.”

Filed under: Economy | 10 Comments »

Vital Statistics:

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

Jerome Powell’s speech yesterday was interpreted as hawkish despite some sentences that could be considered dovish.

Turning to monetary policy, the FOMC has tightened policy substantially over the past 18 months, increasing the federal funds rate by 525 basis points at a historically fast pace and decreasing our securities holdings by roughly $1 trillion. The stance of policy is restrictive, meaning that tight policy is putting downward pressure on economic activity and inflation. Given the fast pace of the tightening, there may still be meaningful tightening in the pipeline.

My colleagues and I are committed to achieving a stance of policy that is sufficiently restrictive to bring inflation sustainably down to 2 percent over time, and to keeping policy restrictive until we are confident that inflation is on a path to that objective. We are attentive to recent data showing the resilience of economic growth and demand for labor. Additional evidence of persistently above-trend growth, or that tightness in the labor market is no longer easing, could put further progress on inflation at risk and could warrant further tightening of monetary policy.

Along with many other factors, actual and expected changes in the stance of monetary policy affect broader financial conditions, which in turn affect economic activity, employment and inflation. Financial conditions have tightened significantly in recent months, and longer-term bond yields have been an important driving factor in this tightening. We remain attentive to these developments because persistent changes in financial conditions can have implications for the path of monetary policy.

Unfortunately, bond market sentiment is so awful right now that even neutral data / comments is considered bearish. This is often typical at the end of bear markets. The markets seemed to seize on the comment that “monetary policy is not too tight right now.”

The last month has seen an extraordinarily heavy amount of US issuance ($580 billion in the past 30 days) which works out to be an annualized pace of $6.9 trillion or about 3.8x 2022 issuance. The last month’s issuance probably won’t be repeated, although it pushed 10 year yields to multi-decade highs.

The punchline: As long as the economy keeps slowing, the Fed is done. If that changes they might have to hike some more.

The Atlanta Fed’s GDP Now estimate for Q3 is still above 5%. To me that doesn’t square with any of the other data we are seeing (Beige Book, ISM, consumer sentiment) but it has remained exceptionally high ever since a meh housing starts number in mid-August. I wonder how much this model is influencing the Fed and whether something is off – 5.4% GDP growth is ridiculously high, and the economy doesn’t feel ridiculously strong.

Western Alliance announced earnings yesterday which came in above expectations. EPS was up marginally from Q2, but down YOY based on higher interest expense and non-interest expense. Tangible book value per share increased on a QOQ basis. Provisions for credit losses decreased while charge offs increased slightly.

The office portfolio consisted of about 5% of loans, in mainly suburban locations. Only 6% of the portfolio has an LTV over 70. The conference call is at noon today, however the stock was up 3% in the aftermarket.

Job cuts continue in banking, with the top 5 lenders cutting 20,000 jobs so far this year. Wells and Goldman have led the charge.

Filed under: Economy | 16 Comments »

Vital Statistics:

Stocks are lower as bonds continue to be for sale. Bonds and MBS are down. We have 5 Fed speakers today, so it will be interesting to see if they address the carnage in the bond market.

Housing starts rose 7% MOM to a seasonally annual adjusted rate of 1.36 million. This is down 7.2% compared to a year ago. Building Permits fell 4.4% MOM and 7.2% YOY to a seasonally adjusted annual rate of 1.54 million.

Mortgage Applications fell 6.9% last week as purchases fell 6% and refis fell 10%. Note that last week was short due to the Columbus Day Holiday. “Applications decreased to their lowest level since 1995, as the 30-year fixed mortgage rate increased for the sixth consecutive week to 7.70 percent – the highest level since November 2000,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Both purchase and refinance applications declined, driven by larger drops for conventional applications. Purchase applications were 21 percent lower than the same week last year, as homebuying activity continues to pull back given reduced purchasing power from higher rates and the ongoing lack of available inventory. The ARM share was 9.3 percent, the highest share in 11 months, as some borrowers look for alternative ways to lower their monthly payments. Refinance activity was at its lowest level since early 2023. There is very limited refinance incentive with mortgage rates at multi-decade highs.”  

A homebuyer must earn at least $115,000 to afford the median home, according to Redfin. This is up 15% compared to a year ago. Wage growth has been around 5% over the past year, so the affordability issue is brutal. The typical mortgage payment is $2,866 which is an all-time high.

“In a homebuyer’s ideal world, rising mortgage rates would push demand and home prices down enough to make up for high interest payments. But that’s not what’s happening now: Although new listings are ticking up slightly, inventory is still near record lows as homeowners hang onto their low mortgage rates–and that’s propping up prices,” said Redfin Economics Research Lead Chen Zhao. “Buyers–particularly first-timers–who are committed to getting into a home now should think outside the box. Consider a condo or townhouse, which are less expensive than a single-family home, and/or consider moving to a more affordable part of the country, or a more affordable suburb.”

Philly Fed President Patrick Harker is ready to stop the interest rate hikes. “This is a time where we just sit for a little bit. It may be for an extended period; it may not. But let’s see how things evolve over the next few months.” On the subject of rate cuts, he said: “We’re not there yet, but we believe in lags,” he said. “So if we get into the range of, I don’t know, let’s call it 2.5%, [and] we’re continuing to move down, then something like that would at least have me considering whether or not it’s time for rates to start coming down.”

I am accepting ads for this blog if you would like to make an announcement, highlight something your company is offering or want more visibility. I am running a special for new clients as well. I offer white-label services which give you the ability to use this content for your own daily emails. The blog has over 5,000 followers and an open rate around 50%. Please feel free to reach out to brent@thedailytearsheet.com if you would like to discuss this further.

Filed under: Economy | 44 Comments »

ital Statistics:

Stocks are higher this morning as investors focus on the Middle East. Bonds and MBS are down as investors fret about the hot CPI report last week. Many in the mortgage business will be at the MBA Annual in Philly.

The upcoming week will have a lot of housing data with housing starts, the NAHB Housing Market Index and existing home sales. We will also get industrial production and leading economic indicators. There will be plenty of Fed speakers with Jerome Powell speaking on Thursday.

The Biden Administration is talking about housing. Steps being taken include allowing FHA borrowers to count rental income from accessory units, new support for VA borrowers who become delinquent, expanded USDA loan access and updating 203k loans. The Administration might also want to address the alarming number of buybacks coming from Fannie and Freddie.

In my latest Substack post, I ask if we had a bubble in sovereign debt and compare the carnage in the bond market to the aftermath of the stock and real estate bubbles. Mohammed El-Arian said that this bond market is the worst in 150 years. Indeed, if you bought the 30 year Treasury in April of 2020, you would have lost 50% of your money at this point. Check it out and please consider subscribing.

Housing affordability is at an all-time low in the US. This is driving home sales to their lowest level since the real estate bust of 2008. Redfin forecasts existing home sales to come in at 4.1 million this year, the lowest level since 2008.

Given the rate-lock in effect, the only thing that can square the circle is increased building.

Filed under: Economy | 19 Comments »