Morning Report: Bonds rally on Middle East tensions

Vital Statistics:

 

Last Change
S&P futures 3227 -30.25
Oil (WTI) 63.07 2.04
10 year government bond yield 1.83%
30 year fixed rate mortgage 3.95%

 

Stocks are lower this morning on tensions in the Middle East. Bonds and MBS are up.

 

The US killed an Iranian military commander in Iraq last night, which has sent oil prices up a few bucks, and the 10 year bond yield down to 1.83. The risk-off trade is in  full swing with equity markets falling and S&P futures down a percent. It is too early to tell if the market is overreacting (hint – it usually is) but you might get a window here to pull in some loans.  Might be a good time to review any refis that missed the boat last month.

 

We will get the minutes from the December FOMC meeting around 2:00 pm. Probably wouldn’t be market-moving on a normal day, but with the volatility from the Middle East situation all bets are off. Be careful locking around that time.

 

Foreclosure starts hit a 14 year low, according to Black Knight Financial. In November, 33,500 foreclosures were started, which was a 26% decline on a YOY basis. IIRC, there were weather-related issues that boosted the number last year, so that may be partially driving the drop. We did see a tick up in delinquencies, but they are still down 5% YOY. Prepays are more than double last year, which means the refi boom may still have some legs.

 

The Spring Selling season has historically kicked off right about Super Bowl Sunday. This year, it seems to be accelerating. In fact, some of the homebuilders are noting that traffic remains strong (Toll Brothers noted an acceleration through November and early December). “As shoppers modify their strategies for navigating a housing market that has become more competitive due to rising prices and low inventory, the search for a home is beginning earlier and earlier,” said George Ratiu, senior economist at realtor.com. “With housing inventory across the U.S. expected to reach record lows in 2020, we expect to see this trend continue into the new year.”

 

 

Morning Report: Welcome to 2020

Vital Statistics:

 

Last Change
S&P futures 3251 20.25
Oil (WTI) 61.07 0.04
10 year government bond yield 1.88%
30 year fixed rate mortgage 3.95%

 

Stocks are higher this morning after China eased reserve rates overnight. Bonds and MBS are flat.

 

Announced job cuts (in other words, press releases discussing layoffs) fell to 32,845 in December according to outplacement firm Challenger, Gray and Christmas. “Confidence was high heading into the last month of the year. With some resolutions occurring in the trade war and strong consumer spending in the fourth quarter, companies appear to be taking a wait-and-see approach as we head into 2020,” said Andrew Challenger, Vice President of Challenger, Gray & Christmas, Inc. “The sectors with the highest number of cuts this year were all dealing with trade concerns, emerging technologies, and shifts in consumer behavior. We tracked a lot of hiring activity in these industries as well as cuts,” said Challenger. Separately, initial jobless claims fell to 222k last week.

 

Mortgage Applications fell by 5% as purchases and refis fell by the same amount. “The 10-Year Treasury yield increased [the week ending December 20] amid signs of stronger home building activity and solid consumer spending, leading to a rise in conventional conforming and jumbo 30-year mortgage rates to just under 4 percent,” said Mike Fratantoni, MBA Senior Vice President and Chief Economist. “With this increase, conventional refinance application volume fell 11 percent. Refinance applications for government loans did increase, even though rates on FHA loans picked up. The change in the mix of business has kept the average refinance loan size smaller than we had seen earlier this year.”

 

The Trump Administration is saying that a Phase 1 deal is done, and everyone is waiting on translation. “It’s got great stuff in it,” he [Trade Advisor Peter Navarro] said. “It’s got essentially the same chapter we had in the May deal that the Chinese walked away from on intellectual property theft. So that’s a good deal….For Wall Street … financial market access for the banks, insurance companies and credit card companies,” he added.

 

Happy new year, and here’s to a prosperous 2020, with housing starts above 1.5 million, originations over $2.2 trillion and a 30 year fixed rate mortgage below 3.5%. Hey, it could happen.

Morning Report: Welcome to 2020

Vital Statistics:

 

Last Change
S&P futures 3251 20.25
Oil (WTI) 61.07 0.04
10 year government bond yield 1.88%
30 year fixed rate mortgage 3.95%

 

Stocks are higher this morning after China eased reserve rates overnight. Bonds and MBS are flat.

 

Announced job cuts (in other words, press releases discussing layoffs) fell to 32,845 in December according to outplacement firm Challenger, Gray and Christmas. “Confidence was high heading into the last month of the year. With some resolutions occurring in the trade war and strong consumer spending in the fourth quarter, companies appear to be taking a wait-and-see approach as we head into 2020,” said Andrew Challenger, Vice President of Challenger, Gray & Christmas, Inc. “The sectors with the highest number of cuts this year were all dealing with trade concerns, emerging technologies, and shifts in consumer behavior. We tracked a lot of hiring activity in these industries as well as cuts,” said Challenger. Separately, initial jobless claims fell to 222k last week.

 

Mortgage Applications fell by 5% as purchases and refis fell by the same amount. “The 10-Year Treasury yield increased [the week ending December 20] amid signs of stronger home building activity and solid consumer spending, leading to a rise in conventional conforming and jumbo 30-year mortgage rates to just under 4 percent,” said Mike Fratantoni, MBA Senior Vice President and Chief Economist. “With this increase, conventional refinance application volume fell 11 percent. Refinance applications for government loans did increase, even though rates on FHA loans picked up. The change in the mix of business has kept the average refinance loan size smaller than we had seen earlier this year.”

 

The Trump Administration is saying that a Phase 1 deal is done, and everyone is waiting on translation. “It’s got great stuff in it,” he [Trade Advisor Peter Navarro] said. “It’s got essentially the same chapter we had in the May deal that the Chinese walked away from on intellectual property theft. So that’s a good deal….For Wall Street … financial market access for the banks, insurance companies and credit card companies,” he added.

 

Happy new year, and here’s to a prosperous 2020, with housing starts above 1.5 million, originations over $2.2 trillion and a 30 year fixed rate mortgage below 3.5%. Hey, it could happen.

Morning Report: Home Prices rise.

Vital Statistics:

 

Last Change
S&P futures 3221 -4.25
Oil (WTI) 61.17 -0.44
10 year government bond yield 1.90%
30 year fixed rate mortgage 3.95%

 

Stocks are lower as we put 2019 into the books. Bonds and MBS are up.

 

The bond markets close at 2:00 pm this afternoon. Most warehouse banks will stop doing wires at that time.

 

It looks like we have a trade deal with China, which should take trade off the front burner for a while.

 

Pending home sales increased 1.2% in November, according to NAR. “Despite the insufficient level of inventory, pending home contracts still increased in November,” said Lawrence Yun, NAR’s chief economist, noting that housing inventory has been in decline for six straight months dating back to June 2019. “The favorable conditions are expected throughout 2020 as well, but supply is not yet meeting the healthy demand.”

 

House prices rose 0.2% MOM and 5% YOY according to the FHFA House Price Index. Separately, the Case-Shiller index rose 0.4% MOM and 2.2% YOY.

 

Wishing you all a prosperous new year. Here is to the roaring 20s

Morning Report: Wages increasing especially at the low end

Vital Statistics:

 

Last Change
S&P futures 3242 4.25
Oil (WTI) 62.17 0.44
10 year government bond yield 1.94%
30 year fixed rate mortgage 3.94%

 

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

 

The upcoming week should be relatively quiet with New Year’s right in the middle of the week. Tomorrow, the bond market will close at 2:00 pm as well. The jobs report looks like it will be postponed until next week as well.

 

The USMCA (aka NAFTA 2.0) should help ease the housing shortage in the US by allowing more imports of building materials at cheaper prices. “The U.S. residential construction and remodeling industries rely on tens of billions of dollars in building materials sourced from Mexico and Canada annually because America cannot produce enough steel, aluminum and other materials and equipment to meet the needs of the domestic housing industry,” NAHB said in a statement. FWIW, I don’t know that building materials are the issue – lumber prices are down 33% from the peak in 2018 – but I guess every little bit helps. The biggest constraint is labor and land. And those are more about immigration policy and zoning.

 

lumber

 

Wages are increasing, which reflects a tighter labor market. According to the NY Fed, the average wage rose to a record high of $69,181 in November. Further, wages are rising 4.5% for the bottom 25% and only rising 2.9% for the top 25%. So, definitely good news for the first time homebuyer, who is likely younger and lower paid.

 

 

Morning Report: Upbeat housing forecast from Fannie Mae

Vital Statistics:

 

Last Change
S&P futures 3252 7.25
Oil (WTI) 61.78 -0.04
10 year government bond yield 1.88%
30 year fixed rate mortgage 3.97%

 

Stocks are higher as investors are largely taking the day off. Bonds and MBS are up.

 

Mortgage applications fell by 5% last week as purchases and refis both fell by the same amount. “The 10-Year Treasury yield increased last week amid signs of stronger homebuilding activity and solid consumer spending, leading to a rise in conventional conforming and jumbo 30-year mortgage rates to just under 4 percent. With this increase, conventional refinance application volume fell 11 percent,” said Mike Fratantoni, MBA Senior Vice President and Chief Economist. “Refinance applications for government loans did increase, even though rates on FHA loans picked up. The change in the mix of business has kept the average refinance loan size smaller than we had seen earlier this year.” 

 

Fannie and Freddie both took up their estimates for 2020 economic growth and housing forecasts. Underpinned by a strong labor market, housing will finally take a leadership position in economic growth. “Housing appears poised to take a leading role in real GDP growth over the forecast horizon for the first time in years, further bolstering our modest-but-solid growth forecasts through 2021,” said Fannie Mae Senior Vice President and Chief Economist Doug Duncan. “In our view, residential fixed investment is likely to benefit from ongoing strength in the labor markets and consumer spending, in addition to the low interest rate environment. Risks to growth have lessened of late, as a ’Phase One’ U.S.-China trade deal appears to be in place and global growth seems likely to reverse course and accelerate in 2020. With these positive economic developments in mind, we now believe that the Fed will hold interest rates steady through 2020.”

 

The actual numbers are here. They see housing starts rising to 1.315 million units, and the 30 year fixed rate mortgage falling to 3.6%. Origination volume is expected to fall slightly to $2.04 trillion from $2.15 trillion in 2019. Purchase volume is expected to increase and refis are forecasted to fall. GDP growth is expected to come in at 1.9%

Morning Report: Inventory shortages hit existing home sales

Vital Statistics:

 

Last Change
S&P futures 3233 7.25
Oil (WTI) 60.5 -0.04
10 year government bond yield 1.90%
30 year fixed rate mortgage 3.97%

 

Stocks are higher as we head into what promises to be a dull week. Bonds and MBS are flat.

 

Markets will be closed on Wednesday, and we will have an early close tomorrow. The only economic numbers will be new home sales and that is it. No Fed-speak, etc.

 

Durable Goods orders fell 2% in November, however, Boeing’s issues are probably coming into play here. Ex-defense and aircraft they rose 0.8%. Capital expenditures rose 0.1%.

 

The third and final estimate for Q3 was unchanged at 2.1%. Consumption spending was revised upward to 3.2% and inflation remained in check, rising 1.6% YOY. FWIW, Q4 GDP estimates are coming in at 1.3% – 2.1%.

 

Personal incomes rose 0.5% in November, while personal consumption rose 0.3%. The income number was much higher than the 0.3% expectation, which shows that people are getting wage increases, especially at the lower income levels.

 

Existing home sales fell 1.7% in November, according to NAR.  The median home price rose 5.4% to 271,300 largely do to constrained inventory, which sat at 3.7 months’ worth of sales. First time homebuyers accounted for 32% of sales. “The consensus was that mortgage rates may rise, but only incrementally,” Yun said. “I expect to see home price affordability improvements, too. This year we witnessed housing costs grow faster than income, but the expectation is for prices to settle at a more reasonable level in the coming year in line with average hourly wage growth of 3% on a year-over-year basis.”