Morning Report: Inflation comes in hotter than expected.

Vital Statistics:

S&P futures4,3432.2
Oil (WTI)80.02-0.39
10 year government bond yield 1.57%
30 year fixed rate mortgage 3.20%

Stocks are flattish this morning after the consumer price index came in higher than expectations. Bonds and MBS are up.

Prices at the consumer level rose 0.4% MOM and 5.4% YOY. Both numbers were a touch above expectations. Ex-food and energy, they rose 0.2% MOM and 4.0% YOY. FWIW, the Fed will dismiss the current numbers as “transitory” however that term is living on borrowed time. If we don’t see the numbers come down by next summer, then the Fed will probably have to act.

Mortgage applications were up marginally last week as purchases rose 2% and refis fell by 1%. “Mortgage rates reached their highest level since June 2021, but application activity changed little this week. An increase in home purchase applications offset a slight decline in refinances,” said Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting. “The increase in purchase applications was welcome news, but was primarily driven by a 2 percent gain in conventional purchase applications, which kept the average loan size elevated.”

JP Morgan reported earnings this morning. QOQ, numbers were flat, however they rose 28% on a YOY basis. It looks like a big part of the increase in earnings was driven by credit reserve releases. Net income was $11.7 billion, and credit release reserves were $2.1 billion.

Mortgage banking volume rose smartly to $41.6 billion compared to $29 billion a year ago. The increase was driven primarily by a 116% uptick in correspondent volume. Servicing was marked up to 3.85x. The stock is down a couple of percent so far today.

New Rez purchased Genesis Capital, a fix-and-flip / business purpose originator from Goldman Sachs. “The acquisition of Genesis adds a new complementary business line to our Company and advances our ability to create and retain additional strong housing assets for our balance sheet,” said Michael Nierenberg, Chairman, Chief Executive Officer and President of New Residential. “We are excited to work with the seasoned Genesis team and add business purpose lending to our suite of products, furthering our connectivity with a new subset of borrowers. We see the acquisition of Genesis as a great opportunity that supports our growing single-family rental strategy and one that allows us to capture additional unmet demand from our Retail and Wholesale origination channels.”

Mortgage credit availability increased 1.5% last month, according to the MBA. “Last month’s expansion was driven by a 4.5 percent increase in the conventional index, while the government index slightly decreased,” said Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting. “Even with increases in seven out of nine months thus far in 2021, total credit availability is still around 30 percent less than it was in February 2020 before the pandemic.”

Post-COVID, we are back to real estate bust levels of mortgage availability.


Author: Brent Nyitray

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

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