Morning Report: Online Black Friday sales surprisingly strong

Vital Statistics:

 

Last Change
S&P futures 3145 2.25
Oil (WTI) 56.39 1.24
10 year government bond yield 1.84%
30 year fixed rate mortgage 3.88%

 

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

 

A surprise election result in Germany over the weekend has pushed the German Bund yield up 8 basis points to negative 28 bps. Since global sovereign debt generally trades together, this will put some upward pressure on rates in the US.

 

We have quite a bit of economic data this week, with the ISM reports, construction spending and the jobs report. Given that the Fed is on hold, it probably won’t be that dramatic to the markets.

 

The FHFA lifted its conforming limits last week to $510,400 for a single family home. For high cost areas, the limit for a single family residence is now $765,500.

 

Pending Home Sales fell 1.7% in October, according to NAR. Lawrence Yun, NAR’s chief economist, noted the decline in inventory and a small rise in mortgage rates in October from September to, in part, explain this month’s signings drop. “While contract signings have decreased, the overall economic landscape remains favorable,” Yun said. “Mortgage rates continue to be low at below 4% – which will attract buyers – employment levels are strong and many recession claims have dissipated.”

 

Retailers are optimistic about the holiday shopping season after record online spending on Black Friday. The National Retail Federation estimates nearly 69 million Americans will scour the web for deals on everything from iPads and homeware to kids’ toys, and Adobe’s estimate of $9.4 billion would be a 19% increase on the same day a year ago.

 

Personal incomes were flat in October, while personal spending rose 0.3%. The PCE inflation indices were up 1.3%. The personal income number was a surprise, as wages and salaries have been growing, but falling interest income and rental income pulled down the number.

Morning Report: Home price appreciation accelerates in September

Vital Statistics:

 

Last Change
S&P futures 3134 1.25
Oil (WTI) 58.39 0.24
10 year government bond yield 1.74%
30 year fixed rate mortgage 3.93%

 

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

 

Jerome Powell spoke last night and said that the Fed cut rates this year as the economy wasn’t as strong as anticipated. He reiterated that the Fed won’t be making any moves unless things change “materially” in the US economy: “Monetary policy is now well positioned to support a strong labor market and return inflation decisively to our symmetric 2 percent objective. If the outlook changes materially, policy will change as well. At this point in the long expansion, I see the glass as much more than half full. With the right policies, we can fill it further, building on the gains so far and spreading the benefits more broadly to all Americans.”

 

Home prices rose 1.1% in the third quarter, according to the FHFA House Price Index. They are up 4.9% on a YOY basis. They added an interactive map, so you can drill down to MSA-level home price appreciation. Separately, the Case-Shiller home price index rose 3.2% on an annual basis in September.

 

Mortgage delinquency rates fell in October, according to Black Knight’s First Look. The Deep South still has the highest delinquency rates, while the West Coast and Mountain states have the lowest levels. Prepay speeds are up 134% on a YOY basis.

 

Redfin makes its predictions for the 2020 housing market.

  • a return of bidding wars
  • 30 year fixed rate mortgage stabilizes at 3.8%
  • home prices will rise in the Southeast as people get priced out of the cities

Morning Report: Quiet week ahead

Vital Statistics:

 

Last Change
S&P futures 3120 7.25
Oil (WTI) 57.79 0.24
10 year government bond yield 1.78%
30 year fixed rate mortgage 3.93%

 

Stocks are higher this morning after China agreed to take more steps to protect US intellectual property. Bonds and MBS are flat.

 

The upcoming week should be relatively quiet with the Thanksgiving holiday. SIFMA is recommending early closings for Wednesday and Friday. Wednesday will have some important economic data with GDP and personal incomes, but with the Fed on hold, economic data is going to take a backseat. Note Jerome Powell is expected to give a speech tonight after the market close.

 

The CFPB is taking a look at loan originator compensation, and is thinking about relaxing some of the rigid rules regarding variations in compensation. The biggest issue surrounds state loan programs, which are meant to make a mortgage more affordable and help get people into homes. Most of these programs have strict limits on how much the originator is permitted to make on a loan, and is often well below what the lender will make on normal conforming loans. This rule change will allow loan officers to lower their compensation to make these programs work financially for the lender. The Bureau is also looking at allowing lenders to decrease LO comp on loans where there are errors due to LO mistakes.

 

The investment community (firms like Blackrock, PIMCO, and Fidelity) are encouraging the Trump Administration to include an explicit government guarantee for Fannie and Freddie loans in its housing reform. The Trump Administration’s plan to privatize the GSEs does not contemplate an explicit government guarantee – and they would like to reduce the size of the government’s footprint in the mortgage market. Note they never had one – the GSEs were “government sponsored” entities, which doesn’t mean “government guaranteed.” Fannie and Fred were always public-private hybrids. Any sort of explicit government guarantee would require legislation, and that is probably going to be almost impossible absent another crisis.

 

 

Morning Report: Goldman sees a break in the clouds

Vital Statistics:

 

Last Change
S&P futures 3109 5.25
Oil (WTI) 58.39 0.24
10 year government bond yield 1.76%
30 year fixed rate mortgage 3.93%

 

Stocks are higher this morning on no real news. Bonds and MBS are flat.

 

Existing home sales rose 1.9% in October, better than expected. Lawrence Yun, NAR’s chief economist, said this sales increase is encouraging and he expects added growth in the coming months. “Historically-low interest rates, continuing job expansion, higher weekly earnings and low mortgage rates are undoubtedly contributing to these higher numbers,” said Yun. “We will likely continue to see sales climb as long as potential buyers are presented with an adequate supply of inventory.” The recent increase in building permits is seen as a positive sign for the sector. Inventory remains tight, however at only a 3.9 month supply. Note that D.R. Horton just reported a 9% increase in units sold, so we are seeing more supply come on to the market.

 

The index of leading economic indictators fell 0.1% in October, driven by weakness in manufacturing. This points to slowing growth ahead.

 

Despite the LEI numbers, Goldman is predicting a “break in the clouds” for the economy going forward. They anticipate a 30 basis point pickup in global growth next year to 3.4%, and for the US economy to grow at a 2.3% pace. “We expect the global growth slowdown that began in early 2018 to end soon, in response to easier financial conditions and an end to the trade escalation,” the forecast said. “Although much could still go wrong, the news on trade policy – both US-China and issues related to Brexit – has gotten better in recent weeks.” They anticipate the 10 year bond yield will rebound to 2.25%.

Morning Report: FOMC minutes confirm no move in December

Vital Statistics:

 

Last Change
S&P futures 3110 1.25
Oil (WTI) 57.39 0.74
10 year government bond yield 1.76%
30 year fixed rate mortgage 3.93%

 

Stocks are flat this morning after China invited the US for trade talks in Beijing despite the resolution backing Hong Kong. Bonds and MBS are down small.

 

In economic data, initial jobless claims were flat at 227,000 last week and the Philadelphia Fed manufacturing survey improved.

 

The CFPB is conducting an assessment of the TRID rule. There doesn’t appear to be any specific issues the CFPB is looking to address, but it is part of the Trump Administration’s push to eliminate unnecessary burdens on business.

 

Independent mortgage banks had their best quarter in 7 years as pretax production profit rose to 74 basis points from 64 in the prior quarter. “A surge in refinance activity and a healthy purchase market led to robust mortgage volume in the third quarter, pushing up production profits to a high not seen since the fourth quarter of 2012 ($2,256 per loan),” said Marina Walsh, MBA Vice President of Industry Analysis. “The increase in profits was primarily driven by declining production expenses and higher loan balances, which mitigated the effects of lower basis-point revenue.” Interestingly, production revenue and secondary marketing income fell. The purchase share of the market fell from 74% to 60%.

 

Bold prediction: Within the next two years, we will see the majority of loans go through the entire process without any human involvement. It will be a much more mechanized process.

 

The minutes from the Fed confirmed the market’s view that the central bank will be out of the picture for a while. They removed the “act as appropriate” language in order to signal that stance. From the minutes:

 

In describing the monetary policy outlook, they also agreed to remove the “act as appropriate” language and emphasize that the Committee would continue to monitor the implications of incoming information for the economic outlook as it assessed the appropriate path of the target range for the federal funds rate. This change was seen as consistent with the view that the current stance of monetary policy was likely to remain appropriate as long as the economy performed broadly in line with the Committee’s expectations and that policy was not on a preset course and could change if developments emerged that led to a material reassessment of the economic outlook.

 

Translation: We aren’t moving in December. Note the Fed Funds futures agree with that assessment, although they are predicting more cuts in 2020. FWIW, the Fed generally tires to avoid modifying policy in the months leading up to an election for fear of appearing political. That said, the March futures are pricing in about a 25% chance of a cut.

 

fed funds futures

 

Is the REO-to-Rental trade finally done? Blackstone has finally exited its entire position in Invitation Homes, which it created in the aftermath of the financial crisis. Invitation was one of the first to buy up distressed properties and rehab them to rent. Turns out Blackstone tripled its money on the trade.

Morning Report: Senate resolution complicates trade negotiations

Vital Statistics:

 

Last Change
S&P futures 3111 -6.25
Oil (WTI) 55.69 -0.74
10 year government bond yield 1.74%
30 year fixed rate mortgage 3.96%

 

Stocks are lower this morning as tensions increase between China and the US over Hong Kong. Bonds and MBS are up.

 

The Senate passed a resolution last night supporting democracy for Hong Kong and urging China to not use violence to suppress the demonstrations. This will undoubtedly complicate trade negotiations, and will push the markets to more of a “risk-off” (stocks down, bonds up) posture. Bond yields are lower this morning, with the 10 year trading at 1.74%.

 

Mortgage Applications decreased by 2.2% last week on a seasonally adjusted basis as purchases rose 6.7% and refis fell 7.7%. Veteran’s Day influenced the numbers. “U.S. and China trade anxieties and protests in Hong Kong pulled U.S. Treasuries lower last week, and the 30-year fixed mortgage rate followed the same path, dipping below 4 percent,” said Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting. “Despite lower rates, mortgage applications decreased 2.2 percent, driven by an 8 percent slide in refinance activity. Rates have stayed in the same narrow range of around 4 percent since July, so we may be starting to see the expected slowdown in refinancing as the pool of eligible homeowners shrinks.”

 

The retailers are announcing earnings and the markets are looking for indications of how this year’s holiday shopping season will shake out. Target and WalMart both announced strong earnings and took up their Q4 guidance. These two stocks are a bellwether for John Q Public’s spending habits.

 

The FOMC minutes will be out at 2:00 pm today. The minutes usually aren’t market-moving, but given the somewhat abrupt change in the Fed’s posture there is always the possibility that we could see some action. Just be aware when locking around that time.

 

 

 

 

Morning Report: Big jump in building permits

Vital Statistics:

 

Last Change
S&P futures 3128 6.25
Oil (WTI) 56.29 -0.74
10 year government bond yield 1.81%
30 year fixed rate mortgage 3.94%

 

Stocks are higher this morning on no real news. Bonds and MBS are flat

 

Housing starts came in a little light, at 1.31 million but the big news was the permits number, which rose to 1.46 million. This is up almost 15% compared to October 2018 and is the highest print since the bubble years. The action was in the Northeast and the South. Completions were up big as well, coming in at 1.26 million, which is up double digits compared to last month and a year ago.

 

building permits

 

The MBA reported that applications for new home purchases increased by 9% from September and by 31.5% from a year ago. “The new home sales market continues to be strong and was reinforced by October’s increase in applications for new home purchases,” said MBA Associate Vice President of Economic and Industry Forecasting Joel Kan. “At an annual pace of 791,000 units, our estimate of new sales has reached its highest level since the inception of our survey in 2012. Home builder sentiment remains close to 18-month highs, and housing starts and permits have increased for four straight months. These are promising signs for the housing market, as the rise in new and existing housing supply has led to slower home-price growth and improving affordability.”

 

While a couple data points don’t necessarily indicate a trend yet, we might finally start seeing new home construction begin to meet the pent-up demand out there. And if this is finally happening, GDP forecasts are probably too low.

 

The Home Despot reported disappointing third quarter earnings and lowered FY 2019 guidance. Comp store sales were up, but tariffs are taking a bite out of earnings. The stock is down 5% pre-open.

 

Home prices rose 5.4% in October, according to Redfin. “Low mortgage rates are propping up homebuyer demand and juicing prices, said Redfin chief economist Daryl Fairweather. “However, home sales have been slow to grow since there are so few homes for sale and not many new listings hitting the market, especially affordable ones. The market is split: It’s a seller’s market for moderately priced homes, but a buyer’s market for pricier homes.”