Morning Report: Fannie Mae gets more bullish on housing and the economy

Vital Statistics:

Stocks are flat this morning on no major news. Bonds and MBS are down.

Initial Jobless Claims fell to 234k last week. The prior week had a big jump to over 250k, which really didn’t comport with other labor market data. 234,000 is still above where we were a couple weeks ago, though. As of now, assume this is just noise but it there is going to be a turnaround in the labor market, initial jobless claims is where it first shows up.

Fannie Mae has taken up their estimates for housing in 2020. Tuesday’s strong housing starts numbers, combined with what we are hearing out of the homebuilders, indicate that the US housing market will be an “engine of growth” for the economy in 2020. All of the talk about a trade-driven recession was more partisan wishful thinking than anything else. Fannie expects new home sales to increase 12% in 2020, and has taken up their forecast for GDP growth from 2% to 2.2%. “We now expect single-family housing starts and sales of new homes to increase substantially, aided by a large uptick in new construction as builders work to replenish inventories,” Duncan said. “Despite the expected increase in the pace of construction, the supply of homes for sale remains tight and strong demand for housing is continuing to drive home prices higher.”

Separately, Fannie is offering early retirement to 25% of its workforce as the company readies itself for sale. “As is common in many American companies, Freddie Mac is offering employees who meet certain age and tenure requirements a voluntary opportunity to retire early. As we prepare for our next chapter, we anticipate this will help realign our workforce to create a company attractive to outside investors as well as current and future employees,” a spokesman for Freddie Mac said in an email statement.

Shades of things to come? Sweden is ending its 5 year experiment with negative interest rates. Their central bank expects rates to remain at 0% for the next few years. Global interest rates are rising as a result, with the German 10 year Bund trading at negative 22 basis points, and the Japanese Government Bond trading at a hair under 0%.

Home prices rose 5% in November, according to Redfin. Listings fell by 5.9%, while sales increased 3%. “Given that inventory is falling quickly, we’d expect to see even stronger price growth, especially when compared to last year’s soft market,” said Redfin chief economist Daryl Fairweather. “The fact that homes are selling faster indicates that there are buyers ready to pull the trigger and take advantage of low interest rates. If lack of inventory and high demand continues, buyers who take a wait-and-see approach could face less favorable conditions in the spring season like bidding wars and faster price growth.” Note that the biggest gains were in the areas hardest hit by the real estate bust: Detroit, Camden and Bakersfield.

Author: Brent Nyitray

In the physical sciences, knowledge is cumulative. In the financial markets, it is cyclical View all posts by Brent Nyitray