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.

Morning Report: Housing’s contribution to GDP hits a 13 year high.

Vital Statistics:


Last Change
S&P futures 3255 6.6
Oil (WTI) 40.23 0.32
10 year government bond yield 0.55%
30 year fixed rate mortgage 2.98%


Stocks are higher as earnings continue to come in. Bonds and MBS are flat.


Personal incomes fell 1.1% in June while consumer spending rose 5.6%. The inflation numbers are all well below the Fed’s 1% target.


I saw a piece yesterday discussing the jump in the homeownership rate. The 2.9 percentage point increase in the rate was highly unusual (in statistical parlance, an 8 sigma event) which almost certainly points to measurement or data errors. For one thing, we don’t have anywhere near that amount of existing home sales during the quarter to justify that move. While the direction is almost certainly correct, the number looks overstated and probably will be revised downward later.


homeownership rate


Regardless of the homeownership rate measurement issues, demand is so strong that nearly half the home sales last year were never seen in person by the buyer. This is the highest share since 2015, when professional investors were the big buyers, looking to fix and rent single family properties. “Sight-unseen offers will likely continue to climb in the coming months,” said Redfin Chief Economist Daryl Fairweather. “By the end of the 2020 homebuying season, the majority of homebuyers will have made a sight-unseen offer. The pandemic has changed the way many people view homes, and on top of that, the market is highly competitive. If you aren’t using this strategy, another buyer who is could beat you to the punch.”


Housing as a percentage of GDP climbed to a 13 year high, albeit in a pretty unusual GDP print. Housing contributed 16.2% of GDP, as opposed to sub 15% in the prior quarter. Note that we are still way below historical levels. There is incredible pent-up demand.

housing GDP


Some borrowers who went into forbearance are finding themselves hit with unexpected bills when the period ends. Not sure if this is a one-off, but Washington will almost certainly try and make hay with these sorts of situations.

Morning Report: Second Quarter GDP drops by a third

Vital Statistics:


Last Change
S&P futures 3218 -38.6
Oil (WTI) 40.23 -1.12
10 year government bond yield 0.55%
30 year fixed rate mortgage 2.98%


Stocks are lower after a lousy GDP print. Bonds and MBS are up.


Today is a big day for earnings, with heavyweights such as Google, Amazon and Apple all reporting.


GDP fell by 32.9% in the second quarter, which was driven by a 34.6% drop in consumer spending, partially offset by 18% increase in Federal spending. Note that these are annualized growth rates, so the economy didn’t really shrink by 33% in the second quarter. Still it was probably the worst print since the Great Depression. NPR puts the quarter from hell in perspective:




The FOMC didn’t make any changes in its FOMC statement, although Jerome Powell mentioned that the rate of improvement in the economy is decelerating, which many are taking to mean he expects a double-dip recession.


Initial Jobless Claims came in at 1.4 million again.


Pending Home Sales increased 16% according to NAR. “It is quite surprising and remarkable that, in the midst of a global pandemic, contract activity for home purchases is higher compared to one year ago,” said Lawrence Yun, NAR’s chief economist. “Consumers are taking advantage of record-low mortgage rates resulting from the Federal Reserve’s maximum liquidity monetary policy.”  Consumers are beating feet out of the cities. The Northeast reported a 54% increase in pending home sales from May to June, but sales are still just about flat YOY.


The demand is pushing home prices to record highs. “When the pandemic helped tip the U.S. economy into recession, most homeowners and home buyers braced for falling house prices,” says Chief Economist Danielle Hale. “That’s what happened in the last recession. But that’s not what we’re seeing in today’s market. We had a housing shortage already, and the pandemic has created conditions that have only worsened it.” It kind of amazes me that people are comparing this recession to the last one, which was caused by a burst residential real estate bubble. The two aren’t remotely comparable, at least as far as housing is concerned.

Morning Report: Homeownership rate jumps

Vital Statistics:


Last Change
S&P futures 3221 8.6
Oil (WTI) 41.33 -0.12
10 year government bond yield 0.58%
30 year fixed rate mortgage 2.98%


Stocks are flattish as we await the Fed’s decision at 2:00 pm this afternoon. Bonds and MBS are up.


Mortgage Applications fell 0.8% last week as purchases declined 2% and and refis fell 0.4%. “Mortgage rates remained near record lows for conventional loans last week, and refinances in the conventional sector continued to slightly increase. However, rates on FHA loans rose, leading to an almost 18 percent drop in FHA refinances,” said Mike Fratantoni, MBA Senior Vice President and Chief Economist. “Homebuyers stepped back slightly, and there was a larger drop in purchase application volume for FHA, VA, and USDA loans. This trend, along with the fact that average loan sizes are increasing, indicate that prospective first-time buyers are being impacted more by the rising economic stress caused by the resurgence in COVID-19 cases, as well as the uncertainty on how the next round of government support will take shape.”


Quicken is looking to raise $3.8 billion from its IPO. It intends to sell $150 million shares to the public at $20 to $22 per share. The new shares will trade under the symbol RKT. No formal date for the IPO has been announced yet.


Home prices rose 4.5% annually in May, according to the Case-Shiller Home Price Index. Price increases declined compared to April, however. I suspect that home prices appreciation will re-accelerate in June as lower rates and higher demand push prices back up. Given what companies like Redfin are reporting, bidding wars are now commonplace, and non-contingent offers (without financing or inspections) are winning the day.


HUD is tightening requirements for self-employed borrowers and the use of rental income to qualify, effective immediately.


Consumer confidence fell in July after a big surge in June. Reports of new COVID flare-ups in California, Texas and Florida dampened sentiment. Interesting factoid: despite the unemployment rate and jobless claims, the percentage that think jobs are “plentiful” is higher than those that think jobs are “hard to get.” Not what you would normally expect with double-digit unemployment.


The homeownership rate increased to 67.9% in the second quarter, according to Census. This is the highest percentage rate since 2007. The jump is dramatic and I guess represents the urban renters fleeing to the suburbs. I wonder if there were data issues though and it might be revised downward later.


homeownership rate

Morning Report: The FOMC meets

Vital Statistics:


Last Change
S&P futures 322 -10.6
Oil (WTI) 41.45 -0.12
10 year government bond yield 0.6%
30 year fixed rate mortgage 2.98%


Stocks are lower this morning as the FOMC meeting begins. Bonds and MBS are flat.


The FOMC meeting begins today, and we will get the announcement tomorrow. The Fed is considering the idea of basically controlling the entire yield curve, which means it essentially sets interest rates by diktat. The Fed is reaching into its historical toolbox and returning to the Truman Administration, where the Fed pushed down rates to limit the government’s borrowing costs. Japan has experimented with the same policy. Note that the rest of the world more or less relies on the 10 year US bond yield to determine the correct price of risk, and taking that number out of the hands of the market is playing with fire. IMO, we have a sovereign debt bubble of epic proportions, with negative yields all over the globe. Like all bubbles, this one will probably blow up too, once inflation returns. I have no idea what it will look like, but I can almost assure you that politicians, the media, and academia will blame the free market and not a bunch of academics sitting in a room trying to manipulate the price of money the way the Soviets manipulated the price of corn, tractors or gasoline.


Durable Goods orders rose 7.3% last month, which was higher than expectations. Core Capital Goods orders (kind of a proxy for business capital expenditures) rose 3.3%.


The MBA reported that the share of loans in forbearance fell for the 6th straight week. Reported loans in forbearance decreased by 6 basis points to 7.74%, or about 3.9 million homeowners. Ginnie loans ticked up, while Fannie / Freddie loans fell.


The Senate GOP has released their $1 trillion coronavirus relief proposal, which will include another $1,200 payment to individuals, more payroll protection money, but a reduction in the additional unemployment benefits from $600 a week to $200 a week. Democrats are complaining about the drop in unemployment benefits. The increased benefits will probably get get reinstated to get enough support to get it through the House. Both parties realize that as we approach the election, it will get harder to pass anything.


New COVID cases are slowing in Arizona, Texas and Florida.


Homebuilder D.R. Horton reported a 10% increase in revenues for the quarter ended June 30. Net orders were up 38% in units. Orders were up 50% year-over-year in May and June. Note D.R. Horton has a lot of Texas exposure, which is seeing an increase in COVID cases.

The Company believes the increase in demand since May has been fueled by increased buyer urgency due to lower interest rates on mortgage loans, the limited supply of homes at affordable price points across most of the Company’s markets, and to some extent the lower levels of home sales from mid-March through early April which caused some pent-up demand.

D.R. Horton stock is up 4% pre-open


We saw similar order growth for MDC Holdings as well. Orders increased 5% in the June quarter and were up 53% in the month of June.

Our results this quarter reflect the favorable industry dynamics in place today, including a low interest rate environment, a lack of available supply and a highly motivated buyer. They also reflect our continued shift in focus to the more affordable segments of the market and the benefits of our build-to-order strategy, which caters to the wants and needs of a large segment of the buying population. We believe that providing homebuyers with flexibility and choice at an affordable price is a winning strategy for our company. Given the favorable market conditions we are experiencing, we now believe that we may achieve as many as 8,000 home deliveries for the 2020 full year, which would be a 15% increase from the prior year.

MDC stock is trading up 6% pre-open.

Morning Report: Fed week

Vital Statistics:


Last Change
S&P futures 3218 14.6
Oil (WTI) 41.54 0.22
10 year government bond yield 0.58%
30 year fixed rate mortgage 2.98%


Stocks are higher this morning in anticipation of further stimulus out of DC. Bonds and MBS are flat.


The FOMC will meet this week. There should be no changes to monetary policy, but perhaps there will be discussions about further measures the Fed could take to support the economy.


Aside from the Fed, we will get the first pass at second quarter GDP on Thursday. The consensus is a decline of 35%. Friday will have personal income and outlays. We will also get consumer confidence numbers this week.


Black Knight is acquiring Optimal Blue from Cannae Holdings. “Optimal Blue is a business that we have respected for many years. By bringing Optimal Blue into the Black Knight family, we will be adding industry-leading product, pricing and eligibility (PPE) capabilities to our already robust set of solutions and enhancing our already comprehensive data and analytics capabilities,” said Anthony Jabbour, CEO of Black Knight. “In addition to Optimal Blue’s high-quality and passionate management team, we are pleased and honored to be partnering with two experienced and successful investors in Cannae and THL, both of which we have known and respected for a long time and are confident will provide meaningful value-add.” Cannae is trying to acquire CoreLogic, which just reported earnings this morning.


1 in 3 homeowners could save $300 a month on their mortgage payment by refinancing. This works out to be 15.6 million homeowners. That said, many are unable to refi due to tighter credit these days. “Mortgage lenders are being exceptionally cautious about who they lend to, in part due to a fear of borrowers who immediately request forbearance on the loan, before the loan can be sold on by the issuer,” said Jeff Tucker, economist at “This is putting pressure on lenders to effectively narrow their credit box, especially reducing access for borrowers with FICO scores below 700.”


Jumbo mortgages are no longer the cheapest mortgages around. In mid-July, the average rate on a jumbo was 3.77%, about 40 basis points higher than the typical conforming rate. This reversed a trend that had been in place since 2015. Blame COVID and the resulting stress in the financial markets. Jumbo and non-QM securitizations dried up in March and have yet to return. Forbearance is an issue as well, with 10% of jumbos in forbearance versus 8% for all mortgages.


The Trump Administration reversed a particularly aggressive reading of the Affirmatively Furthering Fair Housing rule implemented by the Obama Administration which attempted to Federalize local zoning restrictions. Despite all the howling in the media, we are just going back to the standard that existed from 1968 through 2015.

Morning Report: New Home Sales rise

Vital Statistics:


Last Change
S&P futures 3212 -15.1
Oil (WTI) 41.34 -0.22
10 year government bond yield 0.59%
30 year fixed rate mortgage 3.02%


Stocks are lower this morning on weakness in overseas markets. Bonds and MBS are flat.


New Home Sales rose to a seasonally-adjusted annual rate of 776k, an increase of 14% from March and 7% from a year ago. Despite the big increase, we are still way below historical levels, which are insufficient to keep up with population growth and incremental demand.


new home sales


The index of leading economic indicators improved in June, but still exhibited weakness for the economy overall.

“The June increase in the LEI reflects improvements brought about by the incremental reopening of the economy, with labor market conditions and stock prices in particular contributing positively,” said Ataman Ozyildirim, Senior Director of Economic Research at The Conference Board. “However, broader financial conditions and the consumers’ outlook on business conditions still point to a weak economic outlook. Together with a resurgence of new COVID-19 cases across much of the nation, the LEI suggests that the US economy will remain in recession territory in the near term.”

Wells Fargo supposedly put people into forbearance who were merely interested in getting information about it. This prevents borrowers from refinancing their mortgages. Apparently, it is hard for borrowers to get out of forbearance, even if they want to. Note that Elizabeth Warren is on the shortlist for Joe Biden VP candidates, which means the financial sector will get plenty of vitriol out of DC heading into the election. Wells has already cut its dividend 80%, and may have to suspend it in order to keep the politicians and activists happy.


Home asking prices are up 13% from last year, according to Redfin. The ratio of sales price to asking price hit a record of 99% in early July, while the number with a price drop hit an all-time low at 34.4%. Not only that, the late summer slowdown doesn’t look like it is going to happen either: “The housing market usually slows down in July and August when people take time off for vacations,” said Washington, D.C. area Redfin agent Kris Paolini. “This year though, a lot of vacations have been cancelled, and buyers who had previously given up their search are being lured back by low mortgage rates. The market has stayed hot through the summer and it doesn’t look like we’ll see the typical slowdown in August, either.” If schools are closed this fall, the whole seasonal dynamic of moving kind of disappears.

asking prices