Morning Report: Another mortgage IPO

Vital Statistics:

S&P futures3683-9.3
Oil (WTI)48.820.24
10 year government bond yield 0.93%
30 year fixed rate mortgage 2.78%

Stocks are lower this morning after yesterday’s sell-off. Bonds and MBS are flat.

Construction spending rose 0.9% MOM and 3.8% YOY. Residential construction rose 2.6% MOM and 16.2% YOY. 2021 should be a breakout year for housing construction.

Home prices increased 1.1% MOM and 8.2% YOY, according to CoreLogic. “The housing market performed remarkably well in 2020 despite the volatile economic state,” said Frank Martell, president and CEO of CoreLogic. “While we can expect to see lingering effects of COVID-19 resurgences and subsequent shutdowns in the early months of 2021, vaccine distributions and stimulus actions should revitalize economic activity and keep home purchase demand and home price growth strong.” FWIW, I believe that economists are not factoring into their forecasts that housing starts are going to rocket this year. Housing as has a huge multiplier effect and that will offset some of the COVID-driven weakness.

Many economists are forecasting mortgage rates to stay in the 2% range next year. The MBA forecasts rates will rise in the second half of next year. Personally, I don’t see that happening. The Federal government is writing checks to people in order to put money in people’s pockets. One of the most bang-for-the-buck ways to do that is to lower someone’s housing payment. The Fed wants the refi boom to last – that is partly why it is buying MBS.

What about inflation? The Fed has said it wants to target an average inflation rate, and since inflation has been below the Fed’s 2% target for years, they will have to accept inflation above the 2% target for a long time in order to get the average up. While the Fed has been pulling out all the stops trying to create inflation, that doesn’t guarantee it will be successful. Witness Japan, which has run the same playbook for a generation only to achieve deflation.

Striking while the iron is hot: Amerihome is the latest mortgage banker to file for an IPO. The company plans to raise about $250 million and the price talk values the company around $1.3 billion.


Author: Brent Nyitray

In the physical sciences, knowledge is cumulative. In the financial markets, it is cyclical

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