Morning Report: Housing starts jump

Vital Statistics:


Last Change
S&P futures 3384 6.6
Oil (WTI) 42.24 0.52
10 year government bond yield 0.68%
30 year fixed rate mortgage 2.93%


Stocks are higher this morning on strong numbers out of WalMart and the Home Despot. Bonds and MBS are up small.


It looks like we are getting bipartisan push-back against the 50 basis point adverse market fee. Trump criticized the fee, and we have a chorus of Democrats opposed to it as well. It seems like no one is actually supporting this move. This is as just about every industry group lines up against it as well.


Housing starts increased to a seasonally-adjusted annual rate of 1.5 million in July, which is a 23% increase from a year ago. Building permits came in at 1.5 million as well, which is a 9% increase from last year. Certainly the COVID-related pause is over, and we are approaching the highs of earlier this year.

housing starts


Mortgage delinquencies increased to 8.2% in the second quarter, compared to 4.4% in the first quarter and 4.5% a year ago.

The COVID-19 pandemic’s effects on some homeowners’ ability to make their mortgage payments could not be more apparent,” said Marina Walsh, MBA Vice President of Industry Analysis. “The nearly 4 percentage point jump in the delinquency rate was the biggest quarterly rise in the history of MBA’s survey. The second quarter results also mark the highest overall delinquency rate in nine years, and a survey-high delinquency rate for FHA loans.

The conventional delinquency rate rose to 6.7% while the FHA delinquency rate rose to 15.7%, the highest rate since the survey began in the late 70s. DQs spiked in NY, NJ, FL, NV, and HI.


The number of loans in forbearance decreased to 7.2% last week, according to the MBA. Interesting data point on non-QM: big NQM investor MFA Financial said that roughly a third of its non-QM portfolio was in forbearance (though many were still paying). Ginnie remains a rough spot, with 9.5% in forbearance, and that doesn’t include the Ginnie loans which have been bought out of pools.




Morning Report: Builder sentiment close to record highs

Vital Statistics:


Last Change
S&P futures 3377 16.6
Oil (WTI) 42.64 0.02
10 year government bond yield 0.69%
30 year fixed rate mortgage 2.95%


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


The MBA is pushing Congress to rescind the “adverse market refinance fee,” which is the 50 basis point increase announced by the GSEs last week.

Requiring Fannie Mae and Freddie Mac to charge a 0.5% fee on refinance mortgages they purchase will raise interest rates on families trying to make ends meet in these challenging times,” Killmer said. “This means the average consumer will be paying $1,400 more than they otherwise would have paid. Even worse, the September 1 effective date means that thousands of borrowers who did not lock in their rates could face unanticipated cost increases just days from closing.

As many have pointed out, the irony of the Fed pushing down mortgage rates by buying mortgage backed securities in the market versus FHFA trying to raise mortgage rates via the fee is striking.


There isn’t a lot of market-moving data this week, although we have a good amount of housing data with the NAHB Housing Market Index, Existing Homes Sales, and Housing starts.


Homebuilder Sentiment is close to record highs, according to the NAHB. The index rose to 78 in August from 72. 50 is considered neutral. Take a look at the chart below, it looks like we are pretty much at the record highs of the late 90s. Those highs were then followed by a 50% jump in housing starts.



Home prices are rising across the board, but rural properties are seeing the biggest increases, rising 11%.

We’ve been speculating about increasing interest in the suburbs and rural areas since the start of the pandemic,” said Redfin economist Taylor Marr. “Now we’re seeing concrete evidence that rural and suburban neighborhoods are more attractive to homebuyers than the city, partly because working from home means commute times are no longer a major factor for some people. And due to historically low mortgage rates, interest is turning into action. There will always be buyers who choose the city because their jobs don’t allow for remote work or they place a premium on cultural amenities like restaurants and bars—which will eventually come back—but right now the pendulum is swinging toward farther-flung places.

Redfin rural prices


New Home purchase applications are up 39% YOY, according to the MBA. That said, the COVID-19 pandemic has wreaked havoc with seasonal adjustments, so that number could be overstated.

Morning Report: Homes selling at record pace

Vital Statistics:


Last Change
S&P futures 3356 25.6
Oil (WTI) 42.44 0.82
10 year government bond yield 0.68%
30 year fixed rate mortgage 2.85%


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


Inflation remains muted. The producer price index (which measures wholesale inflation) rose 0.6% month-over-month, but is down 0.4% on a year-over-year basis. The consumer price index rose 0.6% MOM and is up 1% YOY. This is well below the Fed’s target of 2%.


Mortgage applications rose 6.8% last week as purchases increased 2% and refis increased 9%. “Mortgage rates fell across the board last week, as investors grew less optimistic of the economic rebound given the resurgence of virus cases,” said Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting. “Loan types such as the 30-year fixed, 15-year fixed, and jumbo all reached survey lows. Refi activity responded to these lower rates, with the refi share reaching almost 66 percent of all applications, its highest level since May. And the refi index jumped 9 percent, reaching its highest level since April, as both conventional and government applications for refinances increased.”


United Wholesale is offering a 1.99% 30 year mortgage. Of course you are going to have to pay points to get that rate, and some of it will depend on broker comp.


Solution to the affordable housing issue? Converting COVID-driven office and hotels to affordable housing. “That’s going to free up a lot of commercial space, which can be converted to affordable housing,” U.S. Housing and Urban Development Secretary Ben Carson said of the pandemic in a June 24 Fox News interview. “We are very much looking at that right now, looking at ways to be able to facilitate that transformation.” This model was used in the Rust Belt to help revitalize abandoned downtown areas.


The pace of homebuying is accelerating. According to Redfin, 46% of sellers are accepting an offer within two weeks. Home sale prices were up 9% YOY to a new high of $311,000. Meanwhile, on the supply side, listings are down 2.7% and the active inventory of homes for sale is down 28%. The list-to-sale ratio is 99%, a record.

Morning Report: M&A in the mortgage space

Vital Statistics:


Last Change
S&P futures 3372 23.6
Oil (WTI) 42.83 0.52
10 year government bond yield 0.63%
30 year fixed rate mortgage 2.85%


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


Job openings increased to 5.9 million at the end of June according to the JOLTs jobs report. Hires fell to 6.7 million, but that was the second-highest reading for the series. The quits rate fell to 1.9%, which is to be expected during a recession.


Small Business optimism slipped in July, according to the NFIB. “This summer has been challenging for many small business owners who are working hard to keep their doors open and remain in business,” said NFIB’s Chief Economist Bill Dunkelberg. “Small business represents nearly half of the GDP and this month we saw a dip in optimism. There is still plenty of work to be done to get businesses back to pre-crisis numbers.”


The Intercontinental Exchange bought Ellie Mae from private equity firm Thoma Bravo for $11 billion last week. Note Thoma Bravo paid $3.7 billion for Ellie Mae just a year before. The Intercontinental Exchange is best known for owning the New York Stock Exchange, but it has been building a mortgage business. ICE owns MERS and Simplifile, and believes the acquisition of Ellie Mae gives it access to the entire mortgage value chain, from origination to post-closing. Analysts did raise their eyebrows on the announcement conference call regarding the price, but it does make strategic sense for ICE to do the acquisition. That said, Ellie Mae is expected to do about $470 million in EBITDA this year, and 23x EBITDA is not cheap.


Black Knight is buying Optimal Blue as well. On the earnings conference call, Black Knight explained some of the reasoning behind the acquisition:

Sure. Good morning Tien-Tsin. Thank you. Yeah, we’re obviously very excited with Optimal Blue. We think that there are a lot of opportunities there. In addition to the reasons that we’re excited to acquire them, they’ve got a really sticky network effect in their marketplace where they bring mortgage originators and investors together. And we see a lot of cross-sell opportunity in terms of us selling some of our capabilities into their client base and for them to sell some of those capabilities to our client base. So as we look at it, from that perspective, we think there are, as you can imagine with any acquisition, you always find the obvious. And then there’s always hidden gems, we always look for, and we see some of those as well, such as, the trading platform that they have. We’ve been talking about that for a while, adding our loans — seasoned loans on top of that, as well as all of our data and our analytics that have tremendous insight into those loans and facilitating trading. So we see a lot of areas of revenue synergy from that perspective.


Meanwhile, CoreLogic continues to be pursued by Cannae (which sold Optimal Blue to Black Knight). Cannae is offering $65 in cash for Corelogic, and hopes to call a special meeting of stockholders to replace half of CoreLogic’s Board.


30 day delinquencies increased in May to 7.3% of all mortgages, according to CoreLogic. Frank Martell, CEO of CoreLogic had this to say:

“Government and industry relief programs have helped to cushion the initial financial blow of the pandemic for millions of U.S. homeowners. COVID-19 and the resulting pressures continue to influence the economic activity of many households. Barring additional intervention from the Federal and State governments, we are likely to see meaningful spikes in delinquencies over the short to medium term.”


Meanwhile, the number of mortgages in forbearance fell for the 8th straight week, according to the MBA. Forbearances fell by 23 basis points to 7.44% of homes with a mortgage. Many borrowers who were making payments while in forbearance decided to exit their plans.

Morning Report: PennyMac crushes it

Vital Statistics:


Last Change
S&P futures 3346 3.6
Oil (WTI) 41.83 -0.52
10 year government bond yield 0.55%
30 year fixed rate mortgage 2.85%


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


The week after the jobs report is usually data-light and this week is no exception. We will get inflation data and productivity, but neither should be market-moving. We will also have Fed-Speak on Monday, Tuesday and Wednesday.


PennyMac reported strong second quarter earnings, with EPS rising from $0.92 to $4.39 per share. Production was $37.6 billion and the company earned $538 million in pretax income from origination, or about 143 basis points. Servicing was a drag however, losing $62 million.


79% of renters had paid their August rent by the 6th, according to the National Multifamily Housing Council. “Over the past few months apartment residents have largely been able to meet their housing obligations. In no small part, this is due to the enhanced unemployment benefits enacted under the CARES Act and significant steps by apartment owners and operators to help their residents. These unemployment benefits that have proven so important to so many households have now lapsed, meaning greater financial distress for millions and the potential worsening of America’s housing affordability crisis,” said David Schwartz, NMHC Chair, and CEO and Chairman of Chicago-based Waterton.


Bidding wars continue, according to Redfin. Over half of their offers were competitive. “Bidding wars may slow down if interest rates tick up again, which could happen if we get good news about a coronavirus vaccine or more clarity around the outcome of the upcoming U.S. presidential election,” said Redfin chief economist Daryl Fairweather. “At the same time, we may still be in the early innings of the pandemic migration wave. If coronavirus cases continue to climb, more employers will likely make flexible remote work policies standard procedure, which will drive further migration out of large, expensive cities. As a result, we may see bidding wars gain more traction in suburban areas and small towns.”



The rocket launches

Vital Statistics:


Last Change
S&P futures 3331 -13.6
Oil (WTI) 41.63 -0.52
10 year government bond yield 0.53%
30 year fixed rate mortgage 2.85%


Stocks are lower this morning after the jobs report. Bonds and MBS are flat.


Jobs report data dump:

  • Nonfarm payrolls up 1.7 million
  • Unemployment rate 10.2%
  • Average hourly earnings up 0.2% MOM / 4.8% YOY

Overall, it shows the job market is on the mend, although it is probably taking longer than people would like. At this point, smaller businesses (especially restaurants and retail) are folding.


Rocket Mortgage priced its IPO yesterday after it was downsized by 43%. The stock performed reasonably well, popping 20% on the day. With the stock trading here, Quicken is valued at $43 billion, with a P/E of 47 and a price to book of almost 12. I guess the question here is how much you are willing to pay for the steak and how much for the sizzle. Last year Quicken originated $145 billion in loans, while PennyMac Financial originated. $118 billion. Quicken earned 62 basis points on that origination to PennyMac’s 33 bps. Yet Quicken’s market cap is almost 11 times PennyMac’s. There are some companies that trade at huge premiums to their competitors: Tesla versus Ford, versus Barnes and Noble back in the day. A huge multiple doesn’t necessarily imply a lousy investment. But you are paying up for the sizzle here. When the Fed starts hiking rates, Quicken will suffer a drop in volume just like everyone else will.


Intercontinental Exchange (the parent company of the New York Stock Exchange) just bought Ellie Mae from private equity firm Thomas Brave for $11 billion. ICE also owns MERS and Simplifile, so this continues the company’s expansion into the mortgage space.

Twenty years after we founded Intercontinental Exchange to provide a transparent trading platform for the energy industry, and following two decades of providing continued innovation to help customers navigate global markets, we are pleased to announce the acquisition of Ellie Mae, which will help us similarly transform the mortgage marketplace,” said Jeffrey C. Sprecher, Founder, Chairman and CEO of Intercontinental Exchange. “Our planned acquisition represents a one-of-a-kind opportunity to add an extraordinary enterprise with great leadership to our family. It will also enhance ICE’s growth strategy in mortgage technology, with complementary products and a wide array of customers and stakeholders who will benefit from our core and proven expertise in operating networks and marketplaces.


PennyMac Financial reported second quarter earnings yesterday, with production increasing to $37.6 billion. Earnings per share increased from $0.92 in the second quarter of 2019 to $4.39 a share. The company also hiked its dividend by 25%.


While forbearances in general are falling, Ginnie Mae forbearances are still rising.

Morning Report: Quicken IPO prices below expectations

Vital Statistics:


Last Change
S&P futures 3315 -3.6
Oil (WTI) 42.53 -0.52
10 year government bond yield 0.52%
30 year fixed rate mortgage 2.85%


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


Initial Jobless Claims fell to 1.1 million last week from 1.4 million the week before. Claims are going in the right direction, but claims over 1 million are still super high.


Congress is still negotiating a second relief package. Supposedly the two sides are “trillions of dollars off.” The sticking point is size and the target. Democrats want something along the lines of the initial $3.4 trillion plan, including $1 trillion for state and local governments (read deep blue states and cities). Republicans want something much smaller, and have little interest in bailing out places like Portland, Seattle, and New York City.


Goldman is out with a call this morning that a COVID vaccine could upend the bond markets and cause a rotation out of stocks. FWIW, I don’t see how the bond market can fall off without the Fed ending purchases and a resurgence of inflation. We are certainly seeing anecdotal evidence of inflation, but nothing yet that shows up in the numbers.


Quicken’s IPO Rocket Mortgage (RKT) priced yesterday at $18 per share. The company will sell 100 million shares at that price This was below the initial price talk of 150 MM shares at $20 – $22 a share. I am not sure when it will open for trading. After the IPO CEO Dan Gilbert will control 79% of the vote.


Zillow is back to Zillow Offers in 24 markets. This is where Zillow will buy your house, fix it up for sale and then sell it. The company recently teamed up with homebuilder D.R. Horton to buy the existing homes of people who buy a new one.


Mortgage credit increased in July according to the MBA. “Credit availability rose slightly in July – the first increase in eight months – as the supply of certain types of adjustable rate mortgages (ARMs) and jumbo loans increased. The improvement was more of a leveling off from the precipitous drop earlier this spring. Credit availability is still over 30 percent lower than a year ago and near its lowest level since 2014,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “The July data signals that lenders saw conditions improve this summer, as forbearance requests flattened, and record-low mortgage rates spurred strong levels of purchase and refinance activity.”

Morning Report: 25% of homebuyers are leaving due to the Coronavirus

Vital Statistics:


Last Change
S&P futures 3313 13.6
Oil (WTI) 43.33 1.52
10 year government bond yield 0.54%
30 year fixed rate mortgage 2.85%


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


The Northeast is still dealing with the aftermath of Isiasis. Power is out all over the place.


The White House and House Democrats are getting closer on a second COVID stimulus bill.


Mortgage Applications fell 5.1% last week as purchases fell 2% and refis fell 7. “Mortgage rates dropped to another record low last week, falling below the previous record set three weeks ago to 3.14 percent,” said MBA Associate Vice President of Economic and Industry Forecasting Joel Kan. “Refinance activity decreased–despite the decline in rates–but the current pace remains more than 80 percent higher than a year ago when rates were over 4 percent.”


25% of homebuyers are moving because of the pandemic. “Somewhat counterintuitively, the coronavirus-driven recession is propping up the housing market,” said Redfin chief economist Daryl Fairweather. “Homebuyer demand is surging despite GDP taking a historic nosedive in the second quarter, largely because Americans value the home more than ever and are willing to prioritize housing even as they cut back on other expenses. Additionally, the Fed is using low interest rates to stimulate the economy, which is giving buyers more purchasing power and boosting home sales. But even with low rates, widespread unemployment and financial uncertainty mean not everyone who wants to buy a home is able to.”


Payrolls only increased by 167,000 last month according to ADP. That said, June was revised upward.

Morning Report: Isiasis heads up the East Coast.

Vital Statistics:


Last Change
S&P futures 3277 -16.6
Oil (WTI) 40.53 -0.32
10 year government bond yield 0.53%
30 year fixed rate mortgage 2.98%


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


Tropical Storm Isaisis is heading up the East Coast today. Don’t be surprised if people (including the office) lose power.


Trump is mulling executive action to see if he can extend the stimulus payments, eviction moratorium, or institute a payroll tax cut. Since Congress controls taxing and spending he cannot. This is campaign fodder and nothing else. He also is supposedly demanding some sort of cut for the government if / when Microsoft buys Tick Tock.


Construction spending fell 0.7% MOM and was more or less flat on a YOY basis. Residential construction 1.4% MOM and 0.4% YOY.


Home Prices rose 4.9% YOY, according to CoreLogic. “Mortgage rates hit record lows this spring, which enhanced affordability for home buyers,” said Dr. Frank Nothaft, chief economist at CoreLogic. “First-time buyers, and millennials in particular, have jumped at the opportunity to achieve homeownership.” FWIW, CoreLogic sees home price appreciation flattening out, and I just don’t see that as a possibility given the supply / demand imbalance and the effect of lower interest rates.



Morning Report: Sell City, Buy Country

Vital Statistics:


Last Change
S&P futures 3285 26.6
Oil (WTI) 40.23 0.32
10 year government bond yield 0.56%
30 year fixed rate mortgage 2.98%


Stocks are higher this morning on stronger than expected overseas economic strength. Bonds and MBS are flat.


The upcoming week will be mainly about the jobs report. The Street is looking for 2MM jobs to be added in July, with unemployment expected to drop to 10.5%. Other than that, we will still have a lot of earnings reports to deal with.


“Sell City, Buy Country.” Mortgage Applications for suburban homes are surging as people flee the citites, according to the CEO of Caliber Home Loans. Health concerns, the ability to work from home, and the attraction of more space are the big drivers.


Speaking of real estate prices, home price appreciation in late July was up 11%, according to Redfin, which was the fastest home price appreciation since 2011. The sale-to-list ratio was 99%, the highest since 2012.

“One of the first things I have to do with many of my buyers here in Houston is educate them on the reality that many houses are selling for more than asking,” explained Houston Redfin agent Melanie Miller. “You can’t wait around for a price drop. Rather, homes that are priced right are receiving offers at or above full price within three days of being listed, so serious buyers need to be ready to act quickly.”

“The shortage of homes for sale makes people think ‘maybe I should wait until things get cooler’, but unless we start to see a huge surge of new listings, things aren’t going to cool down much,” said Dosch. “Even new construction is selling out faster than it is being built. The shortage has extended into rentals too. A lot of people are living with family and friends now because it’s too hard to enter the market.”

Home prices


Zillow just announced that its workers are permitted to work from home indefinitely.