Morning Report – Housing starts slump 05/16/13

Posted on May 16, 2013 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1652.2 -2.1 -0.13%
Eurostoxx Index 2811.5 1.9 0.07%
Oil (WTI) 94.08 -0.2 -0.23%
LIBOR 0.274 0.000 0.00%
US Dollar Index (DXY) 83.81 -0.021 -0.03%
10 Year Govt Bond Yield 1.90% -0.03%
Current Coupon Ginnie Mae TBA 104.3 -0.1
Current Coupon Fannie Mae TBA 102.9 0.1
RPX Composite Real Estate Index 197.6 0.5
BankRate 30 Year Fixed Rate Mortgage 3.65

Markets are slightly lower after a barrage of negative data. The day began with Wal-Mart reporting earnings in line with estimates, but giving 2nd quarter guidance below estimates. Then, we had higher-than-expected initial jobless claims and a very disappointing housing starts number. Stock index futures are down a couple of points while bonds and MBS are up about a quarter of a point.

Initial Jobless claims increased from a revised 328,000 to 360,000 last week. This is the highest level since mid-February. The Department of Labor has noted that that there has been some seasonal gremlins in the data lately, so maybe that is what is going on.

Census reported that building permits increased by 14.3%, while housing starts fell 16.5%. Single family starts fell from 623,000 to 610,000, while multi-fam fell from 376,000 to 234,000. Multi-fam had been driving the housing starts numbers lately as investors try and get in on the rental boom. Single family has been more slow and steady. On the permits side, single family increased from 599,000 to 617,000 and mult-fam increased from 266,000 to 374,000. So maybe the April multi-fam drop was a blip.

Chart:  Housing starts 1959- Present

You can see from the chart above that even though housing starts have rebounded smartly from the recession lows, we are still at very depressed levels historically. Consider that we are more or less at the lows of the previous major recessions (73-75, 81-82, 91-92). Then factor in population growth. Conclusion:  there is a lot of pent-up demand out there..

The National Association of Home Builders released their Housing Survey yesterday, which showed builder confidence improved in May after a brief drop in April. “Builders are noting an increased sense of urgency among potential buyers as a result of thinning inventories of homes for sale, continuing affordable mortgage rates and strengthening local economies” noted a North Carolina based builder. In fact, he notes challenges regarding the cost and availability of labor, lots, and building materials. The homebuilders reported recently and did note some of these concerns as well, but there is a geographic slant to it:  the West has the most issues, while the Northeast does not.

Filed under: Morning Report | 57 Comments »

Morning Report – Mortgage Applications dive 05/15/13

Posted on May 15, 2013 by Brent Nyitray

Vital Statistics:

  Last Change Percent
S&P Futures  1645.3 -2.7 -0.16%
Eurostoxx Index 2801.6 6.0 0.21%
Oil (WTI) 93.29 -0.9 -0.98%
LIBOR 0.274 0.000 0.00%
US Dollar Index (DXY) 83.94 0.343 0.41%
10 Year Govt Bond Yield 1.94% -0.03%  
Current Coupon Ginnie Mae TBA 105.2 0.3  
Current Coupon Fannie Mae TBA 102.7 0.2  
RPX Composite Real Estate Index 197.1 0.5  
BankRate 30 Year Fixed Rate Mortgage 3.65    

Markets are lower this morning after an earnings miss from John Deere (DE) and better than expected earnings out of Macy’s. The Producer Price Index fell .7% as commodity prices continue to drop. Bonds and MBS are up a quarter or so.

Mortgage Applications fell 7.3% in the last week, unsurprising given that rates have backed up so much. People will be looking at drier pipelines into early June. The purchase index fell by 4%, while the refi index fell 8%. 

The Empire State Manufacturing Survey showed manufacturing contracted in the May. The six month outlook weakened as well. Inflation remains muted. The employment-related indicators (number of employees and average workweek) declined slightly. The Fed and other economists had been predicting a second quarter slowdown, and this is evidence of it. The consensus is for a re-acceleration into the second half of the year. Certainly the stock market and the bond market are focusing more on the 2H acceleration than they are on the current slowdown.

Lots of good stuff in the latest CoreLogic Market Pulse. They discuss how residential construction has moved from a drag to a driver on the economy. While the red-hot Western markets like Las Vegas and San Francisco are seeing professional-driven buying, the markets of North Carolina and Texas are more balanced and are the healthiest new sale markets..On a price to income ratio, housing is still as affordable as it has been since the 90s. RTWT.

Filed under: Morning Report | 6 Comments »

Morning Report – Housing Scorecard 05/14/13

Posted on May 14, 2013 by Brent Nyitray
Vital Statistics:

 Last Change Percent
S&P Futures  1631.8 1.0 0.06%
Eurostoxx Index 2778.9 1.5 0.05%
Oil (WTI) 94.59 -0.6 -0.61%
LIBOR 0.274 -0.001 -0.36%
US Dollar Index (DXY) 83.34 0.065 0.08%
10 Year Govt Bond Yield 1.91% -0.01%  
Current Coupon Ginnie Mae TBA 104.9 -0.2  
Current Coupon Fannie Mae TBA 103 0.1  
RPX Composite Real Estate Index 196.6 0.4  
BankRate 30 Year Fixed Rate Mortgage 3.62    

Markets are flattish this morning on no real news. Appalloosa manager David Tepper said on CNBC that he is still bullish and the economy is getting better. Bonds finally catch a bid after a pretty brutal two week sell-off. MBS are up small.

The National Federation of Independent Business released their Small Business Optimism Survey this morning, which showed the index creeping up slightly to 92.1 from 90.7. Owners are still pessimistic about the economy, with a net negative 15% expecting business conditions to improve over the next six months. Hiring and raises are being done only grudgingly, and capital expenditures are only at maintenance levels. Yet the stock market is at record highs. So what gives? Part of it is that the big S&P 500 stocks have a lot of international exposure, which means they can offset US weakness elsewhere. Also, I think quantitative easing is playing a part. 

The Obama Administration released their monthly Housing Scorecard which showed home equity increased again last month. HAMP trial modifications jumped, while HAMP permanent mods fell. HARP refis were flat for the month. It is still looking like Mel Watt as the new FHFA Chairman is no sure thing, either. Even if he doesn’t get nominated, HARP 3.0 might still happen, which would extend the eligibility dates for HARP refis to include late 2009 and 2010 vintages. That would undoubtedly kick off another refi wave. 

Filed under: Morning Report | 99 Comments »

Morning Report – Retail Sales impress 05/13/13

Posted on May 13, 2013 by Brent Nyitray

Vital Statistics:

  Last Change Percent
S&P Futures  1627.3 -2.3 -0.14%
Eurostoxx Index 2776.9 -8.4 -0.30%
Oil (WTI) 95.43 -0.6 -0.64%
LIBOR 0.275 0.000 0.00%
US Dollar Index (DXY) 83.31 0.165 0.20%
10 Year Govt Bond Yield 1.94% 0.04%  
Current Coupon Ginnie Mae TBA 104.8 -0.4  
Current Coupon Fannie Mae TBA 102.8 -0.3  
RPX Composite Real Estate Index 196.3 0.5  
BankRate 30 Year Fixed Rate Mortgage 3.58    

Markets are slightly lower after vaulting to new heights last week. Earnings season is largely over; the only ones left are the retailers who start reporting this week. We will hear from Wal Mart and Kohls later this week. Bonds and MBS continue to sell off – the 30 year fixed rate mortgage closed the week at 3.58% after bottoming at 3.4% a week and a half ago.

Does the back up in bond yields mean the refi boom is over? Perhaps. At any rate, since we have been in this range of interest rates for so long, the people who have the ability to refinance already have. This is called prepayment burnout. Now, it will take home price appreciation to drive refinances. That said, there is talk of a HARP 3.0, which would allow late 2009 and 2010 vintage underwater mortgages to refinance, and there is talk that the government may allow people who have already refinanced under HARP to do so again.  New government initiatives may help keep the refi boom alive for a little bit longer.

Retail sales increased .1% in April, higher than the -.3% estimate. The movement of the Easter holiday played some role in the increase. Ex autos and gasoline, the increase was .6%. Gasoline is usually stripped out, because simple price changes can move the index. Joseph H Banks (JOSB) missed earnings estimates this morning. It is an old saw that in weak economic times, the only apparel that is purchased is children’s clothing. As the economy improves, women’s apparel starts to pick up, and when the economy really starts heating up, men’s suits start being purchased. We’ll get a read on women’s apparel when Nordstrom reports on Thursday. Bonds sold off on the retail sales number, although equities didn’t really react.

I said it on Friday and I’ll say it again. This Obama / IRS thing could be market negative in a lot of ways – first, if there is something there, it will inevitably cause marginal foreign investment money to flee the dollar, which is equity negative. Plus it will make the debt ceiling negotiations all that more acrimonious. With the S&P 500 at record highs, it is worth bearing this in mind. You could also see a serious snap-back rally in the bond market.

Filed under: Morning Report | 43 Comments »

Morning Report – Charles Plosser and ending TBTF

Posted on May 10, 2013 by Brent Nyitray

Vital Statistics:

  Last Change Percent
S&P Futures  1625.3 0.7 0.04%
Eurostoxx Index 2780.9 7.8 0.28%
Oil (WTI) 94.53 -1.9 -1.93%
LIBOR 0.275 0.000 0.00%
US Dollar Index (DXY) 83.03 0.240 0.29%
10 Year Govt Bond Yield 1.84% 0.03%  
Current Coupon Ginnie Mae TBA 105.9 0.0  
Current Coupon Fannie Mae TBA 103.5 -0.1  
RPX Composite Real Estate Index 195.8 0.8  
BankRate 30 Year Fixed Rate Mortgage 3.52    

Markets are flattish this morning on no real news. We will get the monthly budget statement at 2:00 pm this afternoon. Bonds and MBS continue to sell off, and the 10 year is at 1.84%

The Mortgage Bankers Association reported that 90 day delinquencies ticked up to 7.25% in Q1 from 7.09% in Q4. Separately, foreclosures as a percent of total mortgages fell to 3.55% from 3.74%. This is still an elevated numbers; prior to the bubble, foreclosures were in a 1% to 1.5% range. Similarly, with delinquencies, pre-bubble the typical 90 day delinquency rate was in the 4% to 5% range. It peaked at just over 10% in Q1 2010.

Fannie and Freddie’s profits have moved the debt ceiling limit to September from August. Treasury Secretary Jack Lew said that the statutory debt limit will be reached in a few days, but that there are measures the government can take to shift around funds and that we won’t really start having issues until after Labor Day. Republicans have proposed a prioritization of creditors, which will go nowhere in the Democratically controlled Senate. My question:  How much of the interest owed is going to the Fed due to quantitative easing? They have been buying up 90% of Treasury issuance. And since the Fed’s profits and losses are just sent right back to Treasury, isn’t that just money we effectively owe ourselves? 

Anyway, the debt ceiling debate is coming up this summer and the Administration and House Republicans are sure to butt heads over raising the debt ceiling. The Administration will not accept spending cuts without tax increases and the House will not accept tax increases at all. Just saying, since the S&P 500 has been a one-way bet since last Fall. There are two exits at the front of the plane and two exits over the wings. Please take a moment to locate the nearest exit, and remember that your nearest exit may be behind you.

Philly Fed President Charles Plosser is skeptical that Dodd Frank can end Too Big To Fail (TBTF). He proposes a more systematic process, in which the ultimate decision-making would be rest with a judge and and deviations from priority would be cleared through a judicial authority and not through regulatory discretion. Derivatives and repos would be treated like other claims. Separately, he is skeptical that QEIII is going to do much good. It would be refreshing to have someone on the hawkish side replace Bernake after having doves for the past 25 years, but we’re probably going to get an even bigger dove in Yellen.

Filed under: Uncategorized | 24 Comments »

Morning Report – Whither the GSEs

Posted on May 9, 2013 by Brent Nyitray

Vital Statistics:

  Last Change Percent
S&P Futures  1625.8 -2.9 -0.18%
Eurostoxx Index 2768.2 -16.5 -0.59%
Oil (WTI) 95.83 -0.8 -0.82%
LIBOR 0.275 0.000 0.00%
US Dollar Index (DXY) 82 0.103 0.13%
10 Year Govt Bond Yield 1.79% 0.02%  
Current Coupon Ginnie Mae TBA 105.9 0.2  
Current Coupon Fannie Mae TBA 104.1 0.1  
RPX Composite Real Estate Index 195 0.3  
BankRate 30 Year Fixed Rate Mortgage 3.54    

 

Markets are slightly weaker this morning.  Initial Jobless Claims came in at 323,000, better than expected. Bonds and MBS are up small.

I was surprised by the magnitude of last Friday’s reaction to the jobs report and the persistence. The jobs report was good, but not great. I do not see anything in the report to prompt the Fed to end QE early. Perhaps the strength in the equity market is causing people to rotate out of stocks and into bonds. If you believe in technicals, you might be looking for the 10 year yield to do a 50% retracement, hit 1.85% and then bounce back.

Tonight is the Fannie / Fred MBS roll as we go from May to June. MBS prices will look like they just fell tomorrow morning, but it is just the roll.

Freddie Mac reported $4.6 billion in earnings in the first quarter, its second-largest in history. They required no Treasury draw and paid $5.8 billion to the government in Q1. So far, they have paid $29.6 billion. This is after Fannie Mae reported $7.6 billion in Q4.  One almost certainty is that G-fees are going up. The government wants to “crowd in” private capital and price credit risk more in line with private mortgage insurers. The game for originators going forward may well be to stick with qualified mortgage (QM) loans and compete with the government on the guarantee fee. The other sense I got from the conference is that QM is not enough of a safe harbor to really encourage lending outside of the QM box. Which means that anyone with dinged credit is more or less stuck in the FHA box. 

The sense I got from the MBA Secondary Conference is that despite the Obama Administration’s white paper that claims they would like to replace Fannie and Fred with some private entity, they are slow-walking reform. Certainly Mel Watt was not nominated to preside over the orderly dissolution of the GSEs. After the Administration changed the terms of the deal, the GSEs now just distribute all of their profits to the government, which has created a slush fund for general government purposes. And $13 billion a quarter isn’t chump change. I think at the end of the day, Fan and Fred are going nowhere and will stay on as quasi-nationalized entities until they are fully re-capitalized and then they will be sold. 

The big questions regarding Mel Watt as the new FHFA Chairman concern principal mods and an extension of the HARP window (HARP 3.0). As of now, HARP eligibility does not extend to anything originated or refinanced after  May 31, 2009. There is talk that the window might be extended to allow people who took out conforming loans in 2009 and 2010 to be HARP eligible. Also, there is talk of allowing people to “re-HARP.” Anyway we could see another refi boom if Watt is confirmed. Regarding the principal mods, CBO gave FHFA the ammunition to permit mods. If Watt is rejected, expect Mark Zandi to be the next guy nominated and he fully supports principal mods.

60-day delinquencies dropped to 4.56% according to Transunion, which is the fastest drop since they started keeping records in 1992. This decrease was higher than expected.

Filed under: Uncategorized | 9 Comments »

Morning Report – CBO assumes a can opener 05/03/13

Posted on May 3, 2013 by Brent Nyitray

Vital Statistics:

  Last Change Percent
S&P Futures  1603.4 11.1 0.70%
Eurostoxx Index 2736.0 17.1 0.63%
Oil (WTI) 95.21 1.2 1.30%
LIBOR 0.275 0.002 0.73%
US Dollar Index (DXY) 82.43 0.204 0.25%
10 Year Govt Bond Yield 1.70% 0.07%  
Current Coupon Ginnie Mae TBA 106 -0.5  
Current Coupon Fannie Mae TBA 104.2 -0.3  
RPX Composite Real Estate Index 193.8 0.5  
BankRate 30 Year Fixed Rate Mortgage 3.42    

Markets are higher this morning after a better-than-expected jobs report. Bonds and MBS got whacked on the number.

Payrolls increased by 165,000 in April and the unemployment rate fell to 7.5%. March was revised upward from 88k to 138k. The labor force participation rate remained at 63.3%, the lowest since the 70s. Retail and business services added jobs, while construction was surprisingly flat. The average workweek fell, while average hourly earnings ticked up by 4 cents. 

The CBO has come out with a study saying that principal mods on Fannie and Freddie mortgages could save the taxpayer money by reducing delinquency and foreclosure costs and increasing economic growth. As far as the moral hazard issue – they dismiss the costs of moral hazard as “relatively low,” provided the government requires sufficient evidence of financial hardship. The study basically assumes that the government will thread the needle with drafting rules to prevent strategic defaults. The study reminds me of the old joke where an engineer and an economist are stranded on a desert island with an unopened can of soup. The engineer proposes to use a rock to open the can. The economist says “assume a can opener.” 

Lloyd Blankfein sees the current environment as a parallel of 1994. Borrowers had become so used to low interest rates that they weren’t ready when the Fed started hiking rates. Old timers will remember that was when Orange County blew up as mortgage backed securities got clocked. 

 

Filed under: Morning Report | 69 Comments »

Morning Report – More Mel 05/02/13

Posted on May 2, 2013 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1582.8 5.5 0.35%
Eurostoxx Index 2729.8 18.1 0.67%
Oil (WTI) 91.37 0.3 0.37%
LIBOR 0.273 0.000 0.00%
US Dollar Index (DXY) 81.75 0.263 0.32%
10 Year Govt Bond Yield 1.64% 0.01%
Current Coupon Ginnie Mae TBA 106.4 -0.1
Current Coupon Fannie Mae TBA 104.6 -0.1
RPX Composite Real Estate Index 192.8 0.3
BankRate 30 Year Fixed Rate Mortgage 3.4

Markets are stronger this morning after the ECB cut rates and initial jobless claims came in lower than expected. Productivity increased as well. Bonds and MBS are flat.

Yesterday’s FOMC statement turned out to be a “steady as she goes” statement. They mention that they are ready to increase or decrease asset purchases in response to changing economic conditions. ZIRP (meaning rock bottom interest rates) will continue as long as unemployment is above 6.5% and inflation remains at 2.5% or lower.

People are still trying to understand the implications of Mel Watt as Chairman of the FHFA. The biggest one is that Mel Watt was not nominated to preside over the dissolution of the government’s role in housing finance. Fannie and Fred will survive in some fashion. The elephant in the room is principal mods for people with underwater conforming mortgages. That will undoubtedly come up in the confirmation hearings. In his announcement, obama continued to press the left-wing narrative that “reckless lending” caused the financial crisis while studiously ignoring the fact that we had a housing bubble that was caused (or at a minimum enabled) by activist government policies and extremely loose monetary policy. I do think it is ironic that he talks about reckless lending when the government bears 50% of the credit risk of the entire US mortgage market. While people have hoped that the government will extricate itself from the mortgage market, this appointment suggests otherwise.

Challenger and Gray job cuts fell to 28,121 in April, a drop of 6% year-over-year. This is the lowest level since December 2012. Despite the sturm and drang over the sequester, the massive expected layoffs have yet to appear. Aerospace and defense did announce 1,928 job cuts that were related to the sequester. This is a far cry from the 900,000 jobs that were forecast by some studies.

Filed under: Morning Report | 19 Comments »

Morning Report – New FHFA Chairman 05/01/13

Posted on May 1, 2013 by Brent Nyitray

Vital Statistics:

  Last Change Percent
S&P Futures  1591.2 -1.0 -0.06%
Eurostoxx Index 2712.0 0.0 0.00%
Oil (WTI) 91.87 -1.6 -1.70%
LIBOR 0.273 0.000 0.00%
US Dollar Index (DXY) 81.38 -0.367 -0.45%
10 Year Govt Bond Yield 1.65% -0.02%  
Current Coupon Ginnie Mae TBA 106.5 0.0  
Current Coupon Fannie Mae TBA 104.7 0.1  
RPX Composite Real Estate Index 192.5 0.4  
BankRate 30 Year Fixed Rate Mortgage 3.43    

Markets are slightly weaker ahead of the FOMC announcement later today. MBA mortgage applications increased 1.8% last week. The Markit Flash Manufacturing Purchasing Managers Index came in at 52.1, indicating that business conditions for manufacturers are more or less in line with historical trends. Bonds and MBS are up.

The ADP employment change (which is a forecast for Friday’s jobs report) came in lower than expected at 119,000. March was revised downward as well. Lately the ADP employment change has not been all that great or a predictor of the official jobs report, but we’ll see. 

The FOMC’s rate decision is expected to be released at 2:00 pm EST. Nobody expects any change in interest rates – the big question will be regarding asset purchases or QE. Late last year, there appeared to be a consensus that QE would end sometime this year. Subsequent comments from Federal Reserve governors however seemed to contradict that view. Now, we have some that have mentioned the possibility of additional measures. If anything that probably points to a “steady as she goes” type of statement, but we’ll see. 

Looks like Ed DeMarco is out at FHFA and Mel Watt is in. This probably means principal mods for conforming mortgages are on the way. Interestingly, Watt represented the Charlotte district, the same district as Bank of America. Principal mods are not a slam dunk however – the biggest MBS holders are pension funds and they are struggling to meet their obligations in this low interest rate environment. Watt’s confirmation will not be a slam dunk by any means. 

The homeownership rate declined to 65% in Q1, the lowest level since 1995. This speaks to the absolute dearth of household formation numbers in the last 5 years. While the number has dropped significantly from its peak in 2005, it is still more or less at historical averages. 

Chart:  Homeownership rate

 

Filed under: Morning Report | 19 Comments »

Morning Report – Wanna lend some money to Apple? 04/30/13

Posted on April 30, 2013 by Brent Nyitray

Vital Statistics:

  Last Change Percent
S&P Futures  1587.3 -0.9 -0.06%
Eurostoxx Index 2720.1 2.7 0.10%
Oil (WTI) 93.73 -0.8 -0.81%
LIBOR 0.273 -0.001 -0.36%
US Dollar Index (DXY) 82.16 0.015 0.02%
10 Year Govt Bond Yield 1.65% -0.02%  
Current Coupon Ginnie Mae TBA 106.4 0.0  
Current Coupon Fannie Mae TBA 104.7 0.1  
RPX Composite Real Estate Index 192.1 1.1  
BankRate 30 Year Fixed Rate Mortgage 3.43    

Markets are lower this morning on no real news. The Employment Cost Index increased .3% in the first quarter and Q412 was revised down. Wages and salaries increased .5% while benefit costs dropped .1%. No inflationary pressures in the labor market. Today starts the two day FOMC meeting. Bonds and MBS are up slightly.

The S&P / Corelogic / Case-Schiller index of home values came in at + 9.32% year over year and + 1.24% month-over-month. This was the biggest increase since May 2006. Of course the real estate market is pretty bifurcated, with annual growth in the high teens out West and mid-to-high single digit growth elsewhere. They note that housing is now becoming a driver of GDP growth, although the mix still is skewed towards apartments and not single family residences.

Chart:  Case-Schiller indices

Apple is doing a massive bond issue – 6 different issues, including a 30 year bond. The proceeds will be used to fund dividends and buybacks and will help Apple avoid repatriation taxes on the over $100 billion in funds it holds overseas. The 30 year bond is supposedly going to be priced at a 115 basis point spread to Treasuries. That would be around 4%. The 5 year paper will be issued at 1.2%. Those are positively Japanese yields. Grandpa, tell me again about the days when companies would issue debt with yields lower than their dividend yield.

 

PIMCO’s Mohammed El-Arian thinks that the tone of the FOMC meeting will shift from “when do we end QE?” to maintaining it and possibly increasing stimulus. That would certainly be MBS bullish, which could start another refi wave, although prepay burnout has got to be pretty big at this point. He does note the risks of the record amount of stimulus: “The benefits of the Fed come with costs and risks. What I worry about is when you run a system at artificial price levels, you start creating damage, resources are misallocated, too much risk is taken.”  Exhibit (A):  Apple is borrowing money for 30 years at 4% to fund a stock buyback. 

Filed under: Morning Report | 16 Comments »

« Previous Page — Next Page »