|10 year government bond yield||0.68%|
|30 year fixed rate mortgage||3.36%|
Stocks are higher this morning on positive news for a COVID vaccine. Bonds and MBS are down.
The upcoming week should be relatively quiet, with no major economic news. Jerome Powell speaks tomorrow and we will get the FOMC minutes, but that is about it. Markets will be closing early on Friday for the Memorial Day weekend.
The MBA sent a letter to Congress stressing the need for a liquidity facility for non-bank servicers. In order to work, Ginnie must be given legal authority to approve pledges of an issuer’s future reimbursements on servicing advances. The MBA also points out that allowing everyone to get forbearance regardless of circumstances was not the smartest idea. While FHFA has stated that borrowers who seek forbearance will not be required to repay everything at once, that doesn’t necessarily apply to non-government-backed paper.
About 9% of US mortgages are in forbearance right now. This works out to be $1 trillion in unpaid principal. By the end of June, Black Knight estimates that 10% – 12% of the mortgage market will be in forbearance. 12% would work out to be 6.3 million borrowers. That is a lot of advances. Separately, the National Multifamily Housing Council reported that 88% of renters made their May payment through May 13.
Jerome Powell warned on the economy turning around: “There is a growing sense that the recovery may come more slowly than we would like, but it will come. And that may mean that it’s necessary for us to do more.” He is advocating for Congress to provide more fiscal stimulus, which doesn’t seem like it will be forthcoming. The House has passed a liberal wish-list, but Mitch McConnell doesn’t seem all that eager to take it up. The big trade will be liability protection for business in exchange for vote-by-mail.
The MBA says buyers will return by summer as lockdown ends. “We expect that heading into the summer, more prospective homebuyers will gradually return to the market.” FWIW, “summer” is only a month away, but I think this is already happening. I was listening to the American Homes 4 Rent conference call, and they said that traffic was slower in the second half of March, but by the second half of April, traffic was up 25% year-over-year. They had 9,500 showings is five days which worked out to be six tours per available property. While these are for rentals, it does show that people who are living in crowded urban areas want to escape to the suburbs, where social distancing is easier. The company even mentioned on the call that COVID is driving traffic. I have to imagine the same thing happening for purchase activity. We will get a better idea on April numbers this week when existing home sales comes out on Thursday.
Just like the talking heads overestimated the whole COVID-19 crisis, I think they are also overestimating the economic fallout from it. There just weren’t too many problems with the economy going into the crisis, and this recession wasn’t caused by economic rot or inflation. It was like taking a healthy person and putting him into a medically induced coma. All of the economic models are based on history – in other words, recessions which were caused by asset bubbles or the Fed. It would be like comparing our healthy patient’s coma recovery to someone who was put into a medically-induced coma because of an illness. Without an underlying condition that needs to heal, the recovery should be faster, all things being equal.