Morning Report: Residential construction jumps

Vital Statistics:

S&P futures4,19419.8
Oil (WTI)63.730.17
10 year government bond yield 1.62%
30 year fixed rate mortgage 3.17%

Stocks are up this morning on no real news. Bonds and MBS are up small.

The big even this week is the jobs report on Friday. The Street is looking for 938,000 jobs to have been created in April. The unemployment rate is expected to fall to 5.8% from 6% and average hourly earnings are expected to rise 4.2% on a year-over-year basis.

We are starting to see early estimates for second quarter GDP growth, with Goldman and the Atlanta Fed predicting 10%+ growth. While the Fed has repeatedly said it will go slow in backing off stimulus, the June Fed Funds futures see an 11% chance of a rate hike.

The ISM Manufacturing Index came in well below expectations at 60.7. New Orders and Production drove the decrease. “The manufacturing economy continued expansion in April. Survey Committee Members reported that their companies and suppliers continue to struggle to meet increasing rates of demand due to coronavirus (COVID-19) impacts limiting availability of parts and materials. Recent record-long lead times, wide-scale shortages of critical basic materials, rising commodities prices and difficulties in transporting products are continuing to affect all segments of the manufacturing economy. Worker absenteeism, short-term shutdowns due to part shortages, and difficulties in filling open positions continue to be issues that limit manufacturing-growth potential.”

Construction spending rose 0.2% MOM and 5.3% YOY, according to the Census Bureau. Residential construction rose 1.7% MOM and 23% YOY. Again, we will see unusually high year-over-year rates for the next several months as we compare against the lockdown days.

There was a rumor going around on Friday that Freddie is going to announce a 5% cap on non-owner occupied loans sometime this week. Freddie is thinking it might not be able to get under the 7% cap by the end of the year.

Mortgage REIT Annaly Capital announced first quarter earnings last week and mentioned on the earnings call that it is moving into the agency NOO space: “We continue to see opportunities in the non-QM market and have started to capitalize on opportunities in the agency investor market given recent changes to the GSE’s preferred stock purchase agreements.” As more and more players enter this market, we should see pricing improve on these loans. Annaly also made a prescient sale of its commercial real estate business, just as the Biden tax plan takes aim at 1031 sales.

New York State is legendary for its long foreclosure timelines. That said, we have found the champion for working the system: A guy on Long Island bought his house in 1998, made one payment, and has managed to still live there.


Author: Brent Nyitray

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

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