Morning Report: Bank credit is tightening

Vital Statistics:

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

Home prices rose 5.6% year-over-year in March, according to the ICE Home Price Index. “Such strong price gains continue to plague would-be homebuyers in today’s higher-rate environment, but for existing homeowners the picture keeps growing brighter,” Walden added. “Homeowners with mortgages closed out the first quarter of 2024 with just a hair under $17T in home equity – an all-time high. Of that, a record $11T is tappable, meaning available for a homeowner to leverage while retaining a 20% equity cushion in the property. On average, that works out to roughly $206K in tappable equity per mortgage holder. Just five West Coast markets – Los Angeles, San Francisco, San Jose, San Diego, and Seattle – account for nearly a quarter of all tappable equity available”

Banks generally noted weaker demand and tighter standards for commercial and industrial loans in the first quarter, according to the Fed’s Senior Loan Officer Survey. Regarding resi loans, the Fed said: “For loans to households, banks reported that lending standards tightened across some categories of residential real estate (RRE) loans while remaining unchanged for others on balance. Meanwhile, demand weakened for all RRE loan categories. In addition, banks reported tighter standards and weaker demand for home equity lines of credit (HELOCs). Moreover, for credit card, auto, and other consumer loans, standards reportedly tightened and demand weakened.”

Richmond Fed President Tom Barkin sees the economy slowing in the coming months: “I am optimistic that today’s restrictive level of rates can take the edge off demand in order to bring inflation back to our target,” Barkin said in a speech to the Columbia Rotary Club in South Carolina. If the economy slows more significantly, the Federal Reserve has enough “firepower” to support it, Barkin noted. He also said that the full impact of the Fed’s tightening has yet to be felt.

The Atlanta Fed’s GDP Now Index still sees a robust 3.3% growth rate for Q2.