Morning Report – looks like housing reform isn’t happening this year.

Posted on May 9, 2014 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1870.5 -1.8 -0.10%
Eurostoxx Index 3186.8 -17.5 -0.55%
Oil (WTI) 100.7 0.5 0.46%
LIBOR 0.224 0.001 0.34%
US Dollar Index (DXY) 79.74 0.375 0.47%
10 Year Govt Bond Yield 2.62% 0.00%
Current Coupon Ginnie Mae TBA 106.4 0.1
Current Coupon Fannie Mae TBA 105 0.0
BankRate 30 Year Fixed Rate Mortgage 4.21

 

Markets are flattish on no real news. Bonds and MBS are down small.
Job openings decreased to 4 million from 4.1 million in March
J.P. Morgan is getting into the jumbo business. Jumbo rates are still about 12 basis points lower than rates on a conventional loan. It is also a way to leverage the private client business, which makes sense. At BNY – clients can get 100% financing by pledging investment assets as collateral. They also offer 90 day locks. Again, this is largely for high net worth clients who are paying the bank asset management fees.
Liberals on the Senate Banking Committee have rejected the housing finance reform bill. The bill will probably still clear the committee, but the left is complaining that there is not enough mandates for affordable housing lending. That said, given the rejection on the part of the left housing reform is probably dead for this year. If Republicans end up taking the Senate, the left will wish it played ball.

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Morning Report – people think mortgages are getting harder to get 5/8/14

Posted on May 8, 2014 by Brent Nyitray

Vital Statistics:

 

  Last Change Percent
S&P Futures  1870.4 -3.8 -0.20%
Eurostoxx Index 3176.4 16.7 0.53%
Oil (WTI) 100.2 -0.6 -0.61%
LIBOR 0.223 -0.001 -0.27%
US Dollar Index (DXY) 79.24 0.037 0.05%
10 Year Govt Bond Yield 2.60% 0.01%  
Current Coupon Ginnie Mae TBA 106.3 0.0  
Current Coupon Fannie Mae TBA 105.5 0.1  
BankRate 30 Year Fixed Rate Mortgage 4.2    

 

Markets are down small on no real news. Bonds and MBS are down as well.
 
Initial Jobless claims came in at 319k, a decent number.
 
Janet Yellen spoke yesterday, but nothing market-moving came out of it. The punch line is that ending asset purchases remains appropriate, but it is still too early to think about increasing interest rates. She declined to give any sort of timeframe as to when it might be appropriate to raise rates. The Fed is anticipating a rebound in Q2 after a dismal Q1. She mentioned that she saw “reaching for yield” in the high yield bond market (as if the Fed has nothing to do with that). The Fed is also considering whether additional measures might be necessary to deal with the too-big-to-fail banks. 
 
So far earnings season has not been kind to the tech stocks. Erstwhile darlings like FireEye (FEYE) and Twitter (TWTR) have been demolished over the pat few months. FireEye is down 71% since early March, and Twitter is down 43%. It has been a rough market for some of these darlings that disappoint. Vol traders have to be loving life. Momentum traders, not so much.
 
Chart: Twitter stock price
 

 

 

Fannie Mae’s April Housing Survey is out, and there are a few interesting tidbits. The first one is that that people think it is harder to get a mortgage now than it was a few months ago. As anyone in the business can tell you, bankers are easing terms, not tightening them. In March, the 47% of respondents said it would be difficult to get a loan, vs 52% who thought it would be easy. Now, it is 52% think it would be hard, vs 45% who think it would be easy. That is a surprising result.
 

 

The second interesting tidbit is an increase in the number of people who think now is a good time to sell. The percentage of people who think it is a good time to buy are largely unchanged, but the potential sellers are increasing. This will hopefully portend an increase in purchase activity as we fix the low inventory problem.

 

 

Speaking of inventory, professional investors are marketing bonds issued against rental properties. Blackstone plans a $1 billion issue, after American Homes 4 Rent did a half a billion issue last month. I figured the pros would at some point become sellers, but I guess the opportunity cost of capital right now is exceptionally low. With home prices up 23% in some places they can’t be looking at high single digit rental yields anymore. 

 

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Morning Report – Household formation and housing starts 5/7/14

Posted on May 7, 2014 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1867.8 3.5 0.19%
Eurostoxx Index 3157.6 7.9 0.25%
Oil (WTI) 100.3 0.8 0.83%
LIBOR 0.224 -0.001 -0.40%
US Dollar Index (DXY) 79.16 0.063 0.08%
10 Year Govt Bond Yield 2.61% 0.02%
Current Coupon Ginnie Mae TBA 106.1 -0.2
Current Coupon Fannie Mae TBA 105.2 -0.1
BankRate 30 Year Fixed Rate Mortgage 4.22

 

Markets are higher this morning on no real news. Bonds and MBS are down.
Mortgage Applications rose 5.3% last week. Purchases were up 8.9%, while refis were up 5%. Refis are now under half of all applications.
Productivity fell in the first quarter as cold weather hampered economic activity. Unit labor costs rose much higher than expected, by 4.2%. On a year-over-year basis, unit labor costs increased .9%. The drop in productivity could be a harbinger of more hiring – companies have squeezed about all they can out of current staff, and if demand picks up they will have to hire more people.
The NAHB Leading Market Index shows that economic activity continues to expand slowly but surely. Builder sentiment continues to improve, especially in the energy states. Everyone is waiting for the job market to make a jump to the next level, which will release all of this pent-up demand. There is a tremendous amount of pent-up demand for housing, given the difference between household formation and housing starts. Household formation typically is depressed during recessions, and then rebounds as the economy recovers. If you look at the chart below of housing starts vs household formation, you can see how household formation is rebounding, yet housing starts are still at recessionary levels, 6 years on. Housing starts of 900k have been associated with the bottoms of recessions. They have been a fact of life since 2008. When you take into account normal obsolescence, you can see we have a shortage of housing already.

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Morning Report – Mel Watt to speak next week 5/6/14

Posted on May 6, 2014 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1872.8 -3.0 -0.16%
Eurostoxx Index 3145.6 -25.7 -0.81%
Oil (WTI) 99.57 0.1 0.09%
LIBOR 0.225 0.002 0.90%
US Dollar Index (DXY) 79.08 -0.402 -0.51%
10 Year Govt Bond Yield 2.59% -0.01%
Current Coupon Ginnie Mae TBA 106.1 0.0
Current Coupon Fannie Mae TBA 105.1 0.1
BankRate 30 Year Fixed Rate Mortgage 4.35

 

Markets are lower this morning on no real news. Bonds and MBS are up.
Interesting take on why interest rates are holding firm even in the face of stronger economic data. New rules intended to bolster pension funds may have just created $300 billion in extra demand over the next two years. Given that there are only $642 billion of 10 year + treasuries outstanding, this is a lot of incremental demand. This would partially explain why interest rates have largely shaken off the Fed’s tapering.
The latest Black Knight (formerly known as Lender Processing Services) mortgage monitor is out. Delinquencies and foreclosures continue to decline. As we have seen in other data, home price appreciation has been much higher in the non-judicial states than the judicial ones.
Mel Watt is due to speak on May 13, and he may signal a pause in reducing the government’s footprint in the mortgage market – a break from the policy of his predecessor, Ed DeMarco. Expect to see easier credit standards at Fannie, Freddie, and Ginnie. There is concern in government circles regarding affordability, especially for the first time homebuyer. Note that D.R. Horton emphasized the need for government intervention to help first time homebuyers.
The government came out with a study showing that global warming is currently costing the economy billions of dollars. This study was basically done at the WH’s behest, so take it with a grain of salt. obama will be trumpeting the study today in an effort to whip up the base for the 2014 midterms.

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Morning Report – Chinese growth continues to slow 5/5/14

Posted on May 5, 2014 by Brent Nyitray

Vital Statistics:

 

  Last Change Percent
S&P Futures  1867.0 -7.4 -0.39%
Eurostoxx Index 3136.3 -41.6 -1.31%
Oil (WTI) 100.1 0.4 0.38%
LIBOR 0.223 0.000 0.00%
US Dollar Index (DXY) 79.49 -0.022 -0.03%
10 Year Govt Bond Yield 2.58% -0.01%  
Current Coupon Ginnie Mae TBA 106.2 0.0  
Current Coupon Fannie Mae TBA 105.2 0.0  
BankRate 30 Year Fixed Rate Mortgage 4.4    

 

Stocks are down after Chinese PMI came in light and showed contraction in the manufacturing sector for the fourth month in a row. Bonds and MBS are rallying.
 
What is going on in the bond market? Bonds seem to be factoring in a global slowdown as China decelerates and the US slows. This has pushed yields to the lowest level since early February and puts it at the bottom of the tight 2.56% – 2.8% trading range we have experienced since then. I wouldn’t bet on this continuing, so if you had any borrowers who were waiting for lower rates, wake them up.
 
Chart: 10 year yield:
 

 

This week promises to be dull on the economic front, as the week following the jobs report usually is. Don’t expect any market-moving releases this week. Earnings season continues, and we will hear from mortgage REIT giant Annaly Capital. During their fourth quarter earnings conference call, Annaly said they intended to build up their balance sheet and increase their portfolio of agency MBS. Based on the chart above, that was a good call. 

 

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Morning Report – good payroll numbers but labor force participation rate disappoints 05/02/14

Posted on May 2, 2014 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1881.2 3.5 0.19%
Eurostoxx Index 3188.2 -10.5 -0.33%
Oil (WTI) 99.85 0.4 0.43%
LIBOR 0.223 0.000 0.00%
US Dollar Index (DXY) 79.8 0.269 0.34%
10 Year Govt Bond Yield 2.68% 0.07%
Current Coupon Ginnie Mae TBA 105.8 -0.3
Current Coupon Fannie Mae TBA 104.6 -0.3
BankRate 30 Year Fixed Rate Mortgage 4.24

 

Markets are higher this morning after a strong jobs report. Bonds and MBS down
Nonfarm payrolls increased 288k in April and the prior two month net revision was 36k. The unemployment rate fell to 6.3% as the labor force participation rate fell to 62.8%. Average hourly earnings and average weekly hours were flat. So, all in all a set of good numbers, though it is disappointing to see the labor force participation rate still stuck at multi-decade lows – Q178 to be exact.
Pfizer sweetened its bid for UK-based AstraZeneca. The reason why Pfizer wants AstraZeneca is not so much the pipeline, but the tax rate. The combined company would be a corporate resident of the UK and pay lower taxes there.
Yesterday’s weak construction spending data caused some revisions in Q1 GDP. Barclay’s took their estimate down to -.2%. IMO, a negative Q1 GDP estimate seems at odds with the other data out there.
The government is bent on putting payday lenders out of business. Not by regulating them, or passing a law abolishing them, but by leaning on the banks and forcing them to stop doing business with them. The government is also going after other unsavory, but completely legal, businesses like porn, internet gambling, and drug paraphernalia  in the same way. obama has a pen and a phone and isn’t afraid to use it.

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Morning Report – Lots of economic data 5/1/14

Posted on May 1, 2014 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1876.9 -1.0 -0.05%
Eurostoxx Index 3198.5 0.1 0.00%
Oil (WTI) 99.17 -0.6 -0.57%
LIBOR 0.223 -0.001 -0.22%
US Dollar Index (DXY) 79.5 0.027 0.03%
10 Year Govt Bond Yield 2.65% 0.01%
Current Coupon Ginnie Mae TBA 105.9 0.0
Current Coupon Fannie Mae TBA 104.7 0.0
BankRate 30 Year Fixed Rate Mortgage 4.26

 

Markets are flattish after some decent economic data. Bonds and MBS are flattish. Markets should be somewhat less liquid today as much of the world celebrates Labor Day.

April Auto sales continue to stream in – GM reported a better than expected increase, while Ford reported a drop. Nissan literally blew the doors off with an increase of 18.3%. Public construction was down .6% month-over-month and is down .8% year over year. Of course after this past winter, the Northeast is going to see a lot of construction on the roads, fixing all the potholes.

The ISM Manufacturing Index came in better than expected, at 54.9. Employment is accelerating, and customers’ inventories are very low, which portends future production (and economic growth). If you annualize out the ISM April reading, it would correspond to a real GDP growth rate of nearly 4%. Of course manufacturing isn’t the percent of the economy it used to be, but still…

Construction spending rose .2% in March, after February was revised downward to a .2% decline. On a year-over-year basis, it is up 8.4%. Residential construction rose .7% month-over-month and is up 15.2% year over year. Of course with low double digit increases in average selling prices, that doesn’t necessarily correspond to big unit volume, which is why employment lags.

Personal Incomes rose .5% in March and Personal Spending rose .9%. Part of the increase in spending is obamacare-related so it isn’t really an apples-to-apples comparison. Still, it was a good number, but probably represents some pent-up demand from the bad winter.

Challenger and Gray announced job cuts rose 5.7%, but are still pretty low, running at a 40k pace. Telecom and Automotive sectors led way. Note these are announced job cuts (a press release). Often these cuts never materialize, or are over a long period of time.

Initial Jobless Claims rose to 344k – small increase from last week, but still a pretty good number.

The FOMC met yesterday and maintained interest rates while cutting another $10 billion a month out of asset purchases. Stocks and bonds rallied on the statement. They committed to maintaining interest rates below long-term levels even after unemployment and inflation reach the Fed’s target rates. The Fed noted that economic activity has picked up recently, which means the early Q1 slowdown was probably indeed weather-related and not indicative of an overall economic slowdown.

Credit standards are easing again, as Wells cut its minimum credit score for conforming loans to 620 from 660. TD has lowered down payments to 3% without requiring mortgage insurance. When there is not much business to go around, people start reaching for yield. Interesting stat: almost 16% of the mortgages for home purchases went to homebuyers with DTIs > 43. This is up from 2012. I suspect much of these are low LTV, asset-rich jumbo borrowers, where the ability to repay is pretty strong in spite of the high DTIs.

In a story that seems to be getting a lot of press, The Chinese economy is set to become bigger than the US this year. This sort of analysis is difficult to begin with, because China manipulates its exchange rate so economists use Purchasing Power Parity (aka the Big Mac Index) to back out what China’s GDP is. The Chinese real estate bubble is bursting as we speak, so this may be short-lived as their GDP will fall in real terms and growth will be slow as they dig out in the aftermath. Rapidly growing countries seem to have these bubble episodes – we did in the 20s, Japan did in the 80s, and China has over the past couple decades. Booms create mal-investments which sow the seeds for the boom’s destruction.

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Morning Report – Q1 GDP surprises 4/30/14

Posted on April 30, 2014 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1870.8 -1.0 -0.05%
Eurostoxx Index 3196.3 -12.4 -0.39%
Oil (WTI) 100.3 -1.0 -1.01%
LIBOR 0.223 -0.002 -0.89%
US Dollar Index (DXY) 79.59 -0.221 -0.28%
10 Year Govt Bond Yield 2.69% 0.00%
Current Coupon Ginnie Mae TBA 105.6 0.1
Current Coupon Fannie Mae TBA 104.5 0.0
BankRate 30 Year Fixed Rate Mortgage 4.3

 

Markets are slightly lower this morning after GDP came in much, much lower than expected. Bonds and MBS are up small. The market almost does not believe the number.
The advance estimate for first quarter GDP came in at +.1%. The Street was looking for +1.2%, so this is a big surprise. Remember, this is the advance estimate for first quarter GDP and will be subject to two revisions. Given the fact that the SPUS aren’t down 20 handles and the 10 year isn’t yielding 2.6%, the Street clearly thinks this will be revised substantially upward the next time around. Going from 2.6% growth in Q4 to nearly flat GDP growth simply doesn’t comport with all the other numbers we have been getting.
Mortgage Applications fell 5.9% last week. The index is challenging the lows we set in the last week of 2013. The refi index has already broken through that low and is now around the lows set in mid 2008. Purchases fell 4.4%, even though rates were flat. Average loan sizes fell to 239.7k and the refis account for just over half of all applications right now.
The ADP Employment report is forecasting 220k private payrolls for Friday’s jobs report. Last month, the ADP number pretty much nailed it. The Street is forecasting 215k this Friday.
We had some other minor data this morning, with the ISM Milwaukee missing estimates and the Chicago Purchasing Manger’s index beating.
We will hear from the FOMC later today. Given there will be no press conference, I think we should expect nothing major, just another $10 billion in tapering and a commitment to lower rates until the labor market improves. I will be interested to see if the statement references the slowdown in Q1.
The Senate Banking Committee has enough votes to get Johnson Crapo out of Committee, but not enough to bring it to the floor. Six Democrats and six Republicans out of 22 support the measure. The liberals want more effort spent on forcing banks to lend to “underserved” areas.

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Morning Report – Case-Shiller up / 13 out of 20 markets down 4/29/14

Posted on April 29, 2014 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1870.3 4.3 0.23%
Eurostoxx Index 3197.9 32.1 1.01%
Oil (WTI) 101.2 0.4 0.40%
LIBOR 0.225 0.001 0.22%
US Dollar Index (DXY) 79.79 0.103 0.13%
10 Year Govt Bond Yield 2.72% 0.02%
Current Coupon Ginnie Mae TBA 105.4 -0.2
Current Coupon Fannie Mae TBA 104.3 -0.1
BankRate 30 Year Fixed Rate Mortgage 4.26
Markets are up small this morning on no real news. Bonds and MBS are down small.
Home prices rose.76% month-over-month and 12.9% year over year, according to the Case-Shiller real estate index. The strength in home prices is largely due to reduced inventory and does not necessarily represent a robust housing market. In fact, 13 out of the 20 cities in the index declined in February on a month-over-month basis. The strength was in the West Coast, Dallas, and DC. Everyone else was down.
Why does a company with $123 billion in net cash on the balance sheet need to tap the bond market? In a move guaranteed to infuriate many, Apple is looking to do a $17 billion bond issue to repurchase stock. Why not use the their cash to do it? Because it is overseas and subject to repatriation taxes.
The markup of the Crapo-Johnson bill begins mark-up in the Senate. The two big expected changes are 1) Guarantors of MBS cannot also be originators, and 2) The bill will not supersede the bailout agreement, which means all of Fan and Fred’s profits have to go straight to the government. My personal opinion is that not much is going to be done on housing reform this year. With Republican control of the Senate a distinct possibility, they are going to want to wait and see if they can drive a better deal when control changes.
There was nothing earth-shattering in American Capital Agency’s first quarter earnings release. AGNC is the second-biggest mortgage REIT in the US and is a big buyer of mortgage backed securities. They continue to shrink their balance sheet and buy back stock. They have shortened the maturity of their portfolio and now half of it is in 15 year fixed rate MBS. The dwarfs are interesting – you do get a meaningful drop in rate on the conforming side, but not on the government side. In fact, there is no rate advantage in going from 30 to 15 in govvies at all. Why? Govvie dwarfs are highly illiquid.

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Morning Report – Big week ahead 4/28/14

Posted on April 28, 2014 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1863.2 3.1 0.17%
Eurostoxx Index 3161.8 14.4 0.46%
Oil (WTI) 101.1 0.5 0.47%
LIBOR 0.225 -0.002 -0.77%
US Dollar Index (DXY) 79.58 -0.174 -0.22%
10 Year Govt Bond Yield 2.67% 0.01%
Current Coupon Ginnie Mae TBA 105.6 0.0
Current Coupon Fannie Mae TBA 104.6 0.0
BankRate 30 Year Fixed Rate Mortgage 4.25

 

Markets are up small this morning after Pfizer released a $100 billion bear hug for AstraZeneca Plc. Bonds and MBS are flat.
Big week coming up. The action begins Wednesday, with the FOMC decision and the advance estimate of Q1 GDP. On Thursday, we have a couple of big reports with the ISM Manufacturing report as well as personal income / consumption. Finally, on Friday we get the jobs report. So, there is a lot of stuff this week that could move bonds around. Float at your own risk.
The Street estimate for Q1 GDP is +1.2%, a significant slow down from the +2.6% pace for the fourth quarter. Clearly the Street is baking in some caution given the lousy weather in January and February. Housing continues to punch below its weight, so that is another issue.
The FOMC meeting will not have a press conference or any revisions to the economic forecast, so it should be a non-event. Expect to see another $10 billion reduction in asset purchases.
Pending Home Sales rose 3.2% month over month but fell 7.4% on a year-over-year basis. The jump was mainly a catch-up after a rough start to the year. The NAR is expecting existing home sales to hit 4.9 million in 2014, less than the 5.1 million pace in 2013. Given the inventory shortage, they expect median prices to increase 6% – 7% this year.

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