The Daily Tearsheet

Morning Report: Markets rally on peace hopes.

Table displaying vital statistics including S&P Futures, Oil prices, 10-year yield, 30-year fixed rate mortgage, and SOFR Swaps with their last values and changes.

Stocks are higher this morning on optimism for a resolution in the Persian Gulf. Bonds and MBS are up.

Trump posted on Truth Social last night that he was pausing “Operation Freedom” which would use US Navy vessels to escort shipping through the Strait of Hormuz, citing “great progress” on a deal. Apparently the two sides are close on a 1 page, 14 bullet point memorandum of understanding which would re-open the Strait.

New home sales rose 7.4% MOM and 3.8% YOY to a seasonally adjusted annual rate of 682,000 units. Housing inventory was 481,000, which represents a 8.5 month supply at current levels. Buyers have the upper hand in the new home market, which was confirmed in the numbers reported by the homebuilders.

The median sales price fell 6.2% YOY to $387,400. This is below the median existing home sale price of $408,800. First time homebuyers might want to take a look at new homes. Especially if the builder can give you a 5% mortgage.

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PennyMac reported originations of $37 billion in the first quarter, an increase of 28% on a YOY basis. Gain on sale margins increased to 86 basis points from 68 bps the year before.

Job openings fell to 6.88 million in March, according to BLS. Openings in professional and business services fell 318k, however hiring increased in that sector. The quits rate increased to 2% after falling briefly to 1.9% in February.

Mortgage applications fell 4.4% last week as purchases fell 4% and refis fell 5%. “The ongoing conflict in the Middle East continues to push rates higher. Mortgage rates last week increased to their highest level in a month, with the 30-year fixed rate rising to 6.45%,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “As expected, elevated rates and shrinking refinance incentives continued to weigh on activity, with refinance applications declining again from the prior week – most notably for conventional and VA loans. The refinance share of applications was the lowest since August 2025.”

Morning Report: Hostilities increase in the Persian Gulf

Table displaying vital statistics including S&P Futures, Oil prices, 10-year yield, 30-year fixed mortgage rates, and SOFR Swap rates with their respective last values and changes.

Stocks are higher this morning as earnings continue to come in. Bonds and MBS are up small.

The UAE reported that it intercepted some Iranian missiles, which means the ceasefire is probably running on fumes at this point. Iran is also making noise about having “not begun yet” to close the Strait of Hormuz. So far the Trump administration has stopped short of saying the ceasefire is over but it appears hostilities will begin again.

The Fed Funds futures took Neel Kashkari’s piece seriously about the potential for rate hikes. The December futures now see a nearly 30% chance for rate hikes this year and only a 6% chance of a rate cut.

Bar graph displaying target rate probabilities for the 9 Dec 2026 Fed meeting, showing the likelihood of various interest rate ranges.

NY Fed President John Williams made numerous references to 5/4 as Star Wars Day yesterday in his speech “There Is No Try.”

Right now, the future is difficult to see, and the risks to both sides of our mandate have increased. The extent and duration of the effects of supply disruptions and higher energy prices that are emanating from the Middle East conflict are key factors that will shape the global economic outlook. We simply can’t know how this will play out. Market expectations of the future path of oil prices are fairly benign, but several plausible scenarios entail more severe dislocations in both prices and quantities.

Because the global economy is highly integrated, the emerging supply-chain issues will have wide-ranging consequences. For example, Asian countries that play a key role in the supply of high-tech equipment are particularly exposed to shortages of various commodities. Thus, the conflict could result in a larger and broader-based supply shock that has more severe adverse consequences for inflation and economic activity.

To paraphrase our Jedi master, “Much to learn we still have.”

Interestingly he expects the pass-through of tariffs to current prices will be played out in the next few months. He did not appear to reference the fact that they will expire across the board in about 5 weeks. This means that not only will the price hikes be finished, but prices will begin to decline as tariffs disappear. It sounds like the absence of tariffs is not being factored in here. Not sure why.

Remember Gamestop, the short squeeze darling of the COVID years that was on death’s doorstep? They put out a bear hug letter for Ebay, valuing the much larger company at $56 billion or $125 a share in cash and stock. Gamestop has $9 billion in cash and a “highly confident” letter from TD Bank that it can raise the rest. Note that banks don’t put out “highly confident” letters if they are highly confident they can do the deal. They make a commitment.

Gamestop has a market cap of $10.6 billion and has $4 billion in zero coupon debt. It seems to be in the crypto trading business as well, with a side hustle as a video game retailer. Ebay stock is trading at a big discount to the $125 bid so it is clear no one takes it seriously. Gamestop stock got hammered yesterday, falling 10%.

Gamestop has been buying Ebay stock already, so the goal is put Ebay in play, hopefully smoke out a real buyer, flip the stock it owns and move on to something else. Gamestop CEO Ryan Cohen, who draws no salary and is compensated solely on Gamestock’s stock performance is trying to turn the company around, and has had some success.

This one will be fun to watch.

Morning Report: Neel Kashkari explains his dissent

Table displaying vital financial statistics including S&P Futures, Oil prices, bond yields, and fixed mortgage rates.

Stocks are lower this morning as the Iranian situation continues to drag on. Bonds and MBS are down.

The US will guide stranded ships through the Strait of Hormuz. “Countries from all over the World…have asked the United States if we could help free up their Ships, which are locked up in the Strait of Hormuz,” Trump wrote on Truth Social on Sunday. “For the good of Iran, the Middle East, and the United States, we have told these Countries that we will guide their Ships safely out of these restricted Waterways, so that they can freely and ably get on with their business.”

The week ahead will be dominated by the jobs report on Friday. We will also get new home sales, ISM Services, construction spending and consumer sentiment. We will get earnings from PennyMac, Zillow, Blue Owl Technology and United Wholesale.

The manufacturing economy continued to expand in April according to the ISM Manufacturing Report. New orders rebounded after four months of contraction, while production decreased. Prices jumped again, with the prices index at the highest levels since 2022 when inflation was peaking. “In April, U.S. manufacturing activity remained in expansion territory, growing at the same pace as the month before. Of the five subindexes that make up the PMI^®, the New Orders and Supplier Deliveries indexes indicated faster growth compared to the previous month, the Production Index grew at a slower rate, and the Employment and Inventories indexes remained in contraction.

“In this second month of the Iran War (at the time of data collection), 31 percent of the comments were positive and 69 percent negative, with a positive to negative sentiment ratio of 1 to 2.2. Among comments, the war was mentioned in 47 percent and tariffs in 18 percent. As was the case last month, some panelists referenced both topics within a single comment or in mixed sentiment.

In the FOMC decision last week, Beth M. Hammack, Neel Kashkari, and Lorie K. Logan, supported maintaining the target range for the federal funds rate but did not support inclusion of an easing bias in the statement at this time. The dissent was interesting because there wasn’t any clear language in the statement that talked about an easing bias in the first place. It seemed the Fed was looking at both sides of the dual mandate.

Neel Kashkari explained his dissent here. “I supported the Federal Open Market Committee’s (FOMC) decision to hold the federal funds rate at this week’s meeting,¹ but I dissented against the FOMC’s action because I did not think it was appropriate to continue to include the following phrase in the policy statement: “In considering the extent and timing of additional adjustments to the target range for the federal funds rate …”

While that phrase is not a commitment to make further cuts to the policy rate, it is widely interpreted by Fed watchers to indicate the Committee’s expectation that the next adjustment to the federal funds rate would be a cut. I consider this language a form of forward guidance about the likely direction for monetary policy.”

The bias of the Fed had been towards easing in the past, simply because the Fed Funds rate was above the neutral rate of interest and inflation was falling. I don’t think the statement itself was driving it – the facts on the ground were. That said, I think Neel wanted a brushback pitch to the markets not to assume that rates are going to be falling in the future, and this was a way to do that.

He wraps up the piece with this: “Given the uncertainty about the path of the conflict and the resulting effects on inflation, employment and economic growth, I believe the FOMC should offer a policy outlook that signals that the next rate change could be either a cut or a hike, depending on how the economy evolves. This could tighten financial conditions somewhat today, pushing back against a high-inflation scenario that could require an even stronger monetary policy response in the future.”

Morning Report: PCE inflation accelerates

Table displaying vital statistics including S&P Futures, Oil prices, yields, mortgage rates, and SOFR Swap rates with their respective last values and changes.

Stocks are up this morning after good numbers out of Apple. Bonds and MBS are up small.

Personal incomes rose 0.6% MOM in March, while spending rose 0.9%. Disposable personal income rose 0.6%. The PCE Price Index, which is the Fed’s preferred measure of inflation rose 0.7% MOM and 3.5% YOY. If you strip out food and energy, the index rose 0.3% MOM and 3.2% YOY.

Line graph showing PCE price indexes indicating percent change from the month one year ago, with orange line representing PCE and blue line representing PCE excluding food and energy from March 2025 to March 2026.

Inflation has been in a gentle upward trend since last last year, and the Iran war really accelerated the trend, especially in the headline number.

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Interest rate volatility can spike at any time. Think of the past catalysts: COVID, Brexit, 2008. When volatility spikes, MBS spreads widen and your gain on sale decrease. One way to hedge that risk is to use options, which increase in value when volatility spikes.

Many mortgage bankers have tried TBA options, but these require a dedicated counterparty and are illiquid. The Chicago Mercantile Exchange is now listing options on SOFR swap futures, which correlate well with mortgages, especially non-QM. Talk to ERIS about using margin-friendly SOFR Swap futures and options to hedge tail risk in your portfolio.

The CME put out the following press release on April 14^th.

CME Group, the world’s leading derivatives marketplace, today announced it will launch options on Eris SOFR Swap futures on June 16, 2026, pending regulatory review. SOFR futures are a liquid way to manage interest rate risk. “Eris SOFR Swap options will help institutional investors manage risk with greater precision as they navigate varying expectations on the direction of U.S. interest rates,” said Michael Riddle, CEO of Eris Innovations. “By mirroring the structure of forward-premium OTC swaptions, Eris SOFR Swap options can deliver cost optimization, margin efficiencies and trading simplicity amid shifting economic conditions.”

Eris SOFR Swap futures replicate interest rate swap cash flows, offering the standardization and capital savings of exchange-traded instruments. The addition of options on 2-year, 5-year and 10-year Eris SOFR Swap futures will support more sophisticated hedging strategies, such as managing non-linear risk in mortgage-backed portfolios.

Since launching in October 2020, more than 10 million Eris SOFR Swap futures contracts have traded at CME Group. In March 2026, Eris SOFR Swap futures reached an all-time open interest record of 707,000 contracts ($71B notional), including a single-day volume record of 299,513 contracts on March 10.

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First quarter GDP rose 2%, which was an improvement from the fourth quarter of 2025. Investment and exports drove the increase. The PCE Price Index rose 4.5% annualized in the quarter which was a big jump from Q4’s 2.9%. All of the inflation indicators are going the wrong way and it looks like we can forget about rate cuts this year.

The business press is already pushing the stagflation narrative, which is ridiculous in the context of 2% growth and 3.5% inflation and basically amounts to wishcasting. The best indicator for stagflation is the misery index, popularized in the 1970s which sums inflation and unemployment. We are on the low side of that measure historically:

The index of Leading Economic Indicators declined in March, according to the Conference Board. “After rising in February, the US LEI pulled back sharply in March, as building permits declined and consumer expectations and stock prices weakened,” said Justyna Zabinska-La Monica, Senior Manager, Business Cycle Indicators, at The Conference Board. “The LEI continues to signal a slowdown in the economy over the coming months, as higher oil prices and supply chain tensions will likely place additional upward pressure on inflation and further reduce consumers’ purchasing power. The labor market, while currently stable, may soften with hiring slowing and unemployment edging higher. Growth will likely remain modest, as weaker consumer spending offsets some strength in business investment and defense-related activity. The Conference Board revised its US GDP growth forecast to well below 2%, down to 1.6% y/y for 2026.”

FWIW, the Atlanta Fed GDP Now model sees 3.7% growth in Q2, which is pretty robust.

Morning Report: The Fed maintains rates

Table displaying vital statistics including S&P Futures, Oil prices, 10-year yield, and 30-year fixed mortgage rates with corresponding last values and changes.

Stocks are higher this morning after the Fed maintained rates at current levels. Bonds and MBS are down due to a lack of progress in the Persian Gulf.

As expected, the Fed maintained the Fed Funds rate at current levels. The language was pretty much the same language the Fed has been using. As expected Stephen Miran dissented, preferring to cut interest rates. There were three other dissenters: Hammack, Kashkari and Logan who objected to the inclusion of “easing bias” language in the statement. FWIW, the statement consistently refers to both sides of the mandate, so I am not sure what they are objecting to. Yes, there has been the perception that they are leaning towards easing (if only because monetary policy is tight in the first place) but the language in the FOMC statements for a long time has referred to both sides of the mandate.

Bonds, which had been weak all day sold off further. The December Fed Funds futures still forecast no further changes to monetary policy this year, but the chance of a hike is now larger than the chance of a cut.

Bar graph showing target rate probabilities for the December 9, 2026 Federal Meeting, with a peak probability of 83.5% for the target rate of 350-375 bps.

Jerome Powell has stated that he won’t leave the Fed until the issue of the renovation is resolved. Trump suspended the DOJ’s investigation in order to get Kevin Warsh confirmed, but that apparently isn’t good enough. Powell will remain as a Governor and will let Warsh run the show.

March housing starts rose 11% MOM and YOY to a seasonally adjusted annual rate of 1.5 million units. Feb starts came in at 1.3 million. Building permits were down.

Line graph showing the number of new privately-owned housing units started from 2016 to 2026, indicating trends in construction activity over time.

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The CME put out the following press release on April 14^th.

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Durable Goods orders rose 0.8% MOM, which was better than Street forecasts. This follows a 1.2% decrease in February. Much of the increase came from defense spending. Ex-defense durable goods orders rose 0.3%.

Morning Report: Awaiting the Fed

Stocks are flattish as we await the Fed’s decision. Bonds and MBS are down.

The Fed’s decision is due at 2:00 pm. No change in rates is expected, however the critical piece will be if the statement telegraphs that rate hikes are on the table. There will be a press conference afterward, though keep in mind that this will be Powell’s last, and a new Chairman will be running the show.

Home prices rose 0.7% YOY in February according to the Case-Shiller Home Price Index. On a monthly basis prices rose 0.1%. The hip-to-be-square trade continues, with strength in the Midwest and Northeast and weakness in the West and South. “Leadership remains concentrated in Midwest and Northeast markets. Chicago led all metros at 5.0% annual growth, followed by New York (4.7%) and Cleveland (4.2%) _— the same trio that has anchored this cycle’s leadership. The 7.2 percentage point spread between Chicago and Denver illustrates how localized the housing story has become.”

“More than half of major U.S. metropolitan markets posted year-over-year price declines in February, signaling that the housing slowdown has broadened well beyond its Sun Belt origins,” said Nicholas Godec, CFA, CAIA, CIPM, Head of Fixed Income Tradables & Commodities at S&P Dow Jones Indices. “The S&P Cotality Case-Shiller National Home Price Index rose just 0.7% year over year in February, down from 0.8% in January. With consumer inflation at 2.4%, U.S. home values have lost ground in real terms for nine consecutive months.

HUD has rolled back some Biden-era regulatory provisions in order to make homebuying more affordable. The regulatory rule required new construction to be compliant with the 2021 International Energy Conservation Code (IECC), which HUD estimates adds up to $31,000 to the price of a new home. “By rescinding this mandate, we are removing a significant regulatory barrier that added tens of thousands of dollars to the cost of a new home,” said Secretary Turner. “The Trump Administration’s focus is to facilitate new housing supply and ensure that every American family has a path to homeownership without being sidelined by bureaucratic red tape.”

“Affordable rural housing is a top priority for the Trump Administration, and we are focused on removing all the unnecessary restrictions that artificially drive up new home prices,” said Secretary Rollins. “We launched the Rural Revival Agenda at USDA to bring rural communities to the forefront of our actions, and this joint determination restores common sense to our programs and ensures that we can continue bringing new affordable housing supply online for Americans.”

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The CME put out the following press release on April 14^th.

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Rithm Capital reported first quarter adjusted earnings of $0.51 per share, which came in slightly below expectations. NewRez origination volume rose 31% YOY and gain on sale margins hit 144 basis points, up 7 bp YOY.

On the conference call, CEO Michael Nierenberg said: Right now, when you look over the course of the past quarter, a number of companies reported earnings. So I think everybody is expecting higher earnings on a go-forward basis. The economy feels pretty good while saying that we do feel that we’re going to get 1 or 2 rate cuts this year. When you think about the tariff situation, obviously, the President and the administration, their deal guys, they continue to negotiate deals across the board, and we think that’s going to continue.

So while there could be blips where the market sell off due to some uncertainties, we feel like — especially in light of the European deal that got announced over the weekend and now the administration trying to extend deadlines around the China tariffs, we feel like the policy uncertainty is declining. Risk appetite across the board remains high. [indiscernible] should continue to remain on the lower side right here. And what does that mean? That means all the products that we typically invest in should do much better. And then when we think about the yield curve, we have — the way we have been hedging our book, we’ve had rate steepeners on for many, many months.

The rate steepener bet means that Rithm thinks if the Fed cuts rates, the 10 year might not move all that much. That said, MBS spreads have a role to play here and they have been moving tighter as volatility exits the market.

Consumer Confidence improved in April according to the Conference Board. “Consumer confidence edged up in April but was overall little changed, despite material concern about rising gasoline prices as the war in the Middle East prompted a surge in Brent crude oil prices,” said Dana M Peterson, Chief Economist, The Conference Board. “Consumer appraisals of current and expected business conditions declined moderately compared to last month. This was offset by modest improvements in consumers’ perceptions of the labor market, both current and expected, as well as income expectations, which were slightly more optimistic in April.”

The survey period included the cease-fire and a rebound in the stock market.

Mortgage applications fell 1.6% last week as purchases rose 1% and refis fell 4%. “Mortgage rates increased slightly last week, with the 30-year fixed rate rising to 6.37 percent. The increase in rates led to a 4 percent decline in refinance application volume. However, purchase activity for conventional loans picked up almost 2 percent for the week,” said Mike Fratantoni, MBA’s SVP and Chief Economist. “More notably, purchase application was more than 20 percent above last year’s pace. After a brief pause, in part because of the elevated geopolitical uncertainties, potential homebuyers certainly appear to be moving forward this spring and taking advantage of the more favorable inventory conditions in most parts of the country.”

Redwood Trust has entered into an agreement with Castlelake, an alternative investment firm, to purchase $8 billion worth of jumbo production. This is indicative of the value institutional investors see in mortgage backed assets.

Morning Report: Stocks fall on weak Open AI revenues.

Stocks are lower this morning after bad revenue numbers out of Open AI. Bonds and MBS are down as oil surges.

Iran has offered to re-open the Strait of Hormuz if the US lifts its blockade and agrees to postpone talks about Iran’s nuclear program. Needless to say, the Trump Admin is not too keen on this offer. “That’s not opening the straits. Those are international waterways. They cannot normalize, nor can we tolerate them trying to normalize, a system in which the Iranians decide who gets to use an international waterway and how much you have to pay them to use it,” Rubio said.

Meanwhile, the fighting between Israel and Hezbollah in Southern Lebanon continue. Oil continues to work its way higher on the impasse.

The Fed begins its meeting today. The Fed Funds futures are predicting no move, and the December futures now see only a 20% chance of a rate cut this year. Thursday’s PCE report will carry a lot of weight for markets in general.

The bill that boots institutional investors from the build-for-rent business is causing financing to dry up for that sector. The issue is a provision which requires the builder to sell the properties within 7 years. Given that cap rates are already not so great in resi, limiting the income stream to 7 years makes many of these projects marginally profitable, and lenders are becoming reluctant to lend capital.

About $3.4 billion in investment is currently suspended as investors / builders analyze their options. Invitation Homes is scheduled to release earnings tomorrow and that should be an interesting conference call to listen in on.

Morning Report: Fed Week

Table displaying vital statistics including S&P Futures, Oil prices, 10-year yield, 30-year fixed rate mortgage rates, and SOFR swap rates with their last values and changes.

Stocks are flattish after another Trump assassination attempt and the suspension of talks with Iran. Bonds and MBS are up small.

The week ahead will be dominated by the FOMC meeting. The Fed Funds futures are forecasting no change in interest rates, but the markets will be looking for clues about potential rate increases. In addition to the Fed decision we will get housing data with prices and housing starts, the first estimate of Q1 GDP and personal income / outlays which contain the PCE Price Index.

Earnings season continues with numbers expected from market bellwethers such as Google, Amazon, Apple and Meta. In resi names, we will get earnings from Rithm, Equity Residential, Invitation Homes, Redwood Trust, Tri Pointe Homes and Adamas (ex NYMT).

The Department of Justice is dropping its investigation of Jerome Powell over the Fed’s remodeling project. This investigation was ill-advised at best, and really had zero positive effects. In response, Senator Thom Tillis refused to vote to confirm Kevin Warsh until the investigation was dropped. The DOJ’s retreat should clear the decks to confirm Warsh and a new era will begin at the Fed.

Consumer sentiment fell in April according to the University of Michigan Consumer Sentiment Survey. “Consumer sentiment ticked down 3.5 index points this month, now comparable to the trough seen in June 2022. Decreases in sentiment were seen across political party, income, age, and education. Expected business conditions declined for both short and long time horizons, nearly matching year-ago readings when the reciprocal tariff regime was implemented. After the two-week cease-fire was announced and gas prices softened a touch, sentiment recovered a modest portion of its early-month losses. The Iran conflict appears to influence consumer views primarily through shocks to gasoline and potentially other prices. In contrast, military and diplomatic developments that do not lift supply constraints or lower energy prices are unlikely to buoy consumers.”

Year-ahead inflation expectations surged again, from 3.8% to 4.7%. This mirrors the jump seen last year at this time which was driven by tariffs.

The Spring Selling Season is inching towards buyers having the upper hand, as new listings increase. Sales jumped last week, although the the rise was impacted by the placement of Easter last year. “Looking through the holiday noise, the underlying trend points to a market where sellers are gradually reengaging, a welcome sign for buyers and a good omen for market liquidity moving forward this spring,” says Realtor.com senior economist Jake Krimmel. The median listing price fell 1.7%.

Re/Max is being sold to The Real Brokerage in a $550MM deal. This is a “tech meets “boots on the ground” deal which pairs AI with brokers.

Morning Report: US economic growth rebounds in April

Table displaying vital statistics including S&P Futures, Oil (WTI), 10 year yield, 30 year fixed rate mortgage, and SOFR Swaps for 2Y, 5Y, and 10Y.

Stocks are higher this morning after good numbers out of Intel. Bonds and MBS are down.

US economic growth rebounded in April after the war-related slowdown in March. Output rose to a 3-month high, although we are still at relatively depressed levels. The service sector remained under pressure, while manufacturing rose at the fastest pace in 4 years driven by new orders. That said, some of the new orders appears to be companies building a safety margin of inventory in anticipation of potential supply shocks or price increases. Prices increased at the fastest rate since July 2022, driven by higher fuel prices.

“A rebound in business output growth in April is good news after the near stagnation seen in March, but over the past three months we have seen the weakest expansion of output recorded since the start of 2024 with the war in the Middle East squarely to blame.

The April PMI is broadly consistent with the economy struggling to manage annualized growth in excess of 1%, with the vast service sector acting as the principal drag … There was better news from manufacturing, but here an expansion of output and orders could be partly traced to the building of safety stocks, with survey respondents reporting “panic” and “emergency” buying ahead of price hikes and supply shortages in echoes of the problems seen during the pandemic. Not surprisingly, prices are already spiking higher in this environment, and not just for energy but for a wide variety of goods and services. The overall inflation picture is now the most worrying for almost four years.”

PulteGroup reported decreased net income in the first quarter, which is par for the course for the whole sector. “Within a demand environment impacted by domestic and global dynamics, we see a consumer with concerns about affordability and the economy, but still desirous of homeownership as demonstrated by the 3% growth in our first quarter net new orders,” added Marshall. “Given these dynamics, we continue to intelligently manage sales, incentives and production to best position the Company for near- and long-term success.”

Like most builders, gross margins contracted substantially, falling 300 basis points. On the earnings conference call, CEO Ryan Marshall said:

Overall, I would say that the first quarter developed as a typical spring selling season with orders increasing sequentially as we move through the months. It is difficult to determine what impact global events may have had, but appreciate consumers were facing higher rates and costs in March. During the first few weeks of April, demand conditions have remained on track with typical seasonal trends. Still in the quarter, we experienced strong buyer traffic to our communities and sold more than 8,000 homes, which says consumers remain actively engaged in homebuying. And once again, our diversified business platform allowed us to capture the strongest segments of the business, namely the move-up and active-adult buyers.

Economic reports talk to the K-shaped economy and how lower and middle-income families are struggling much more than those in upper incomes. Housing demand over the past 2 years has been consistent with these dynamics. We saw this play out again in our first quarter results with both relative demand strength in our move-up and active-adult businesses, and option and lot premium spend that continues to average over $100,000 per home.

However, on the lower leg of the K, first-time buyers continue to struggle with the challenges of stretched affordability and fear of job loss. Our ability to offer low fixed rate mortgages and other incentives is certainly helping solve the affordability riddle for some. But this comes at a price as incentives in the quarter reached 10.9% of gross sales price. Even at this level, I think, we have done an excellent job of balancing the need to sell homes, particularly finished spec homes and turn our inventory, while maintaining higher margins in support of delivering strong returns on invested capital.

The Trump Administration is considering buying Spirit Airlines to rescue it out of bankruptcy. I am not sure what is so special about this particular bankruptcy – airline bankruptcies are common, and Spirit has a debtor-in-possession credit line that will allow it to operate as normal. I find it ironic that the government blocked the merger with Jetblue which pushed Spirit into bankruptcy and is now talking about bailing it out. Spirit clearly fit the “failing firm” antitrust exemption, so why did they block the merger?

The Chicago Fed National Activity Index decreased to -0.20 in March from 0.03 in February. The CFNAI is sort of a meta-index of some 85 economic indicators and is meant to be a 10,000 foot view of the economy. Production and income indicators drove the decline.

Morning Report: Fan and Fred will broaden eligibility guidelines.

A table displaying vital statistics including S&P Futures, Oil (WTI), 10-year yield, and 30-year fixed rate mortgage rates, along with SOFR Swap rates for 2Y, 5Y, and 10Y.

Stocks are flattish this morning as earnings continue to come in. Bonds and MBS are down. There are rumors that talks between Iran and the US could restart tomorrow, but confidence in that is limited.

Pending home sales rose 1.5% in March, according to NAR. “Contract signings rose in March despite higher mortgage rates, pointing to pent-up housing demand,” said NAR Chief Economist Dr. Lawrence Yun. “A greater supply of inventory will help translate that demand into more home sales.”

“Demand sensitivity to mortgage rates is greatest among first-time buyers, particularly younger buyers,” Yun said. “As a result, boosting supply and new-home construction should focus on smaller, more affordable homes.”

“A good number of markets in the South experienced price cuts over the past year but recorded the strongest job growth,” Yun added. “That combination should lead to stronger housing market activity in the South this year.”

Fannie and Freddie are going to consider rent payment history in determining a borrower’s creditworthiness. “If you pay your rent on time, you are more likely to pay your mortgage on time,” Pulte said. “For decades, our housing system ignored that simple fact, because your credit score would never count it. That’s nonsense, because credit history should include rental history.”

Fan and Fred are allowing Vantage scores as well to help reduce costs. “This will benefit only applicants that are creditworthy and trustworthy,” [Department of Housing and Urban Development Secretary] Turner said. “We’ve been through the financial crisis, we understand that. The rigor will stay in place, but we want to make it more available and more affordable.”

I wonder how much this will affect Fan and Fred since borrowers who are most likely to need to use rent to qualify are FHA borrowers anyway.

Yesterday was a big day for homebuilder earnings. NVR missed quarterly estimates as net income fell by 34%. NVR is a luxury homebuilder so this means the appetite for McMansions is on the slow side.

Meritage reported a 55% decrease in earnings as revenues and gross margins fell: “With the spring selling season commencing this quarter, we experienced some improved demand, achieving an absorption rate of 3.6 net sales per month and sales orders of 3,664 homes. However, these results were below our expectations as 2026 began with a severe winter storm in January and then transitioned into military operations in Iran midway through the quarter, which negatively impacted consumer sentiment and mortgage rates,” said Steven J. Hilton, executive chairman of Meritage Homes. “In this environment, we acknowledge that capturing demand requires higher than anticipated incentive utilization, even as we look to optimize every asset while balancing pace and margin.”

M/I homes reported a decline in revenues and margins, leading to 36% decline in earnings per share. M/I has high average selling prices so it is more of a barometer of the high end of the housing market. The move-up buyer is staying in place with a mortgage in the 3% range, which is partially why starter homes are hard to get.