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

Morning Report: Existing Home Sales jump

Vital Statistics:


Last Change
S&P futures 3285 5.1
Oil (WTI) 41.84 -0.22
10 year government bond yield 0.59%
30 year fixed rate mortgage 3.02%


Stocks are flattish as earnings continue to pile in. Bonds and MBS are flat.


Initial Jobless Claims increased last week as we saw a wave of new COVID-10 cases. New claims increased from 1.3MM to 1.4MM


Despite the new COVID fears, the housing recovery is in full swing. Existing home sales rose 21% in June, to an annualized pace of 4.72 million. according to NAR. This is still down 11% on a YOY basis, but we are getting a lot of data points that show a meaningful recovery.

“The sales recovery is strong, as buyers were eager to purchase homes and properties that they had been eyeing during the shutdown,” said Lawrence Yun, NAR’s chief economist. “This revitalization looks to be sustainable for many months ahead as long as mortgage rates remain low and job gains continue.”

The median home price rose 3.5% YOY to $295,300, while inventory is at 4 months’ worth. The first time homebuyer percentage is approaching normalcy, at 35%. Historically it has been closer to 40%.


Speaking of housing, homebuilder Meritage Homes reported second quarter numbers yesterday. Orders increased 32% year-over-year. May and June were record selling months for the company, which focuses on entry-level homebuyers.

“Demand for new homes is being driven by historically low mortgage interest rates, a shortage of used homes for sale, and an increased need for homes that can accommodate entire families working from home more than ever before. Many of those families are choosing safe suburban communities rather than crowded urban centers and many often prefer to purchase a home virtually rather than physically,” he explained. “That is exactly what Meritage offers. 100% of our communities are open for both in-person and virtual sales, and our virtual selling capabilities have been very beneficial. More than half of our communities are designed for the entry-level market with a wide selection of affordable homes ready for quick move-in, while our streamlined design selection process in Studio M  allows first move-up customers to move quickly into a new home.”

The company took up guidance for full year earnings to about $9 bucks a share, when the Street was looking for about $6.


A record number of people are leaving the expensive urban areas to move to cheaper locations with more outdoor space and better weather. Phoenix, Sacramento, Austin, and Las Vegas are growing, while buyers flee New York City, Los Angeles and Sacramento. The subtext to all of this is remote working, which is a game-changer. From one realtor:

“We’re seeing tons of interest from clients moving to Austin from major cities on both coasts, particularly tech workers,” Vallejo said. “Buyers who have discovered they don’t love being quarantined in an apartment building in San Francisco or New York and can work remotely are looking for a house, and they can afford that here in Austin. I have a client moving from the Bay Area who just closed on a home site unseen, and another client from Portland who is in the process of buying a home here.”


Democrats are promoting a bill that would prohibit the GSEs and Ginnie Mae from charging fees for forbearances. Fannie and Fred introduced the idea of adding big LLPAs for loans in forbearance. The unintended consequence of forbearance has been a tightening of credit, particularly for government lending. Part of this is due to low or even negative servicing values for FHA and VA loans.


Home sellers are reaping gains of almost $76k according to ATTOM Data Solutions. Taking into account time held, this represents a return of 36% compared to the original purchase price. Of course if you take into account the equity you actually contributed, it is probably much higher.

Morning Report: Home Prices Rise

Vital Statistics:


Last Change
S&P futures 3235 -5.1
Oil (WTI) 42.34 1.22
10 year government bond yield 0.59%
30 year fixed rate mortgage 3.02%


Stocks are flattish as earnings continue to come in. Bonds and MBS are up after the Trump Administration took steps to close the Chinese Consulate in Houston.


Mortgage Applications rose 4% last week as purchases rose 2% and refis rose 5%. “Mortgage applications increased last week despite mixed results from the various rates tracked in MBA’s survey. The average 30-year fixed rate mortgage rose slightly to 3.20 percent, but some creditworthy borrowers are being offered rates even below 3 percent. As a result, these low rates drove a 5 percent weekly gain in refinances and a robust 122 percent increase from a year ago,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “There continues to be strong homebuyer demand this summer, as home shoppers have returned to the market in many states. Purchase activity increased again last week and was up 19 percent compared to last year – the ninth straight week of year-over-year increases.”


Home prices fell 0.3% MOM, but are still up 4.9% YOY, according to the FHFA House Price Index. “U.S. house prices posted a small decrease in May compared to April but remained 4.9 percent higher than a year ago,” according to Dr. Lynn Fisher, Deputy Director of the Division of Research and Statistics at FHFA. “The May HPI results are based on contracts for sale signed in late March and throughout April, which was a period when many states announced stay-at-home orders. The number of transactions powering the FHFA HPI in May was down by just over 30 percent compared to a year ago, reflecting the early effects of COVID-19 shutdowns. Based on the rebound in mortgage applications for home purchases and pending home sales in May, we expect the number of transactions increased somewhat in June.”


The number of Americans considering a new home purchase has been relatively unaffected by COVID, at least according to numbers by the NAHB. I guess there is a push-pull effect going on. On one hand, COVID and the riots are pushing renters out of the cities, but on the other hand, economic uncertainty is making potential buyers more cautious.


Chris Waller and Judy Shelton were approved by the Senate Banking Committee to join the Federal Reserve Board. Judy Shelton has expressed support for the gold standard, and has questioned whether bank deposits should be insured. These thoughtcrimes make her toxic for Democrats. The two now go to the Senate for a full vote.


Note we will have the FOMC meeting next week, where further stimulus measures will be discussed. The credit tightening in the mortgage market will almost certainly be an issue, although I don’t know what the Fed can do about that since it is being driven by the CARES Act, not necessarily financial markets.

Morning Report: Median home prices rise

Vital Statistics:


Last Change
S&P futures 3216 2.1
Oil (WTI) 40.34 -0.22
10 year government bond yield 0.61%
30 year fixed rate mortgage 3.02%


Stocks are flattish as we head into the heart of earnings season. Bonds and MBS are flat as well.


Aside from earnings, we should have a quiet week on the data front, with only new home sales on Friday. There will be no Fed-speak ahead of the FOMC meeting next week.


Quicken disclosed that it earned between $3.35 and $3.55 billion in the second quarter, according to its updated prospectus.


The US median home price rose 3% in June, according to Redfin. “The market has remained very competitive even as we’re getting towards the late summer months when things usually begin to cool off,“ said Redfin Detroit agent Tony Orlando. “We saw a spike in homebuying immediately after real estate reopened in May, and ever since then we’ve been busy. At this point, homebuyers are assuming that they’ll have to pay a lot more for a home than they initially expected due to all the competition. Today’s record-low mortgage rates help with that some, but the upfront costs are still a tough pill to swallow.”


Redfin median price



Morning Report: Servicing becomes a political target

Vital Statistics:


Last Change
S&P futures 3214 19.1
Oil (WTI) 40.74 0.41
10 year government bond yield 0.61%
30 year fixed rate mortgage 3.02%


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


Housing starts came in at 1.19 million, right about in line with expectations. Building permits came in at 1.24 million. Separately, the NAHB Housing Market Index, a measure of homebuilder sentiment, increased again.


The number of mortgages in forbearance plans declined again, according to Black Knight Financial Services. A net 27,000 mortgages exited forbearance last week, bringing the total down to 7.77%.


The House is reviewing the forbearance guidelines from servicers during the pandemic. Of course the panel members were mainly fair housing lawyers and Ed DeMarco, not actual lenders or servicers, so it was one-sided. Suffice it to say they aren’t happy. Expect this subject to become a bigger issue for Democrats to pound on since this is an election year, and nobody in DC or the media understands this business in the first place. I wouldn’t be surprised to see some kvetching about lender FICO overlays on FHA loans as well.

Morning Report: Delinquencies spike in April

Vital Statistics:


Last Change
S&P futures 3200 -19.1
Oil (WTI) 40.74 -0.41
10 year government bond yield 0.61%
30 year fixed rate mortgage 3.02%


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


Initial Jobless claims came in at 1.3 million. It is surprising to see so many claims given the state of re-opening, however it seems like many small businesses are still closing down as a result of the COVID shutdown. There is talk of additional stimulus out of Washington, along with the end of the additional $600 a week for the unemployed.


Retail Sales increased 7.5% in June, well above the 5.2% forecast. The control group, which excludes gas, autos, and building products rose 5.7%. This is overall good news for the economy as consumption is the biggest driver.


Overall delinquencies rose to 6.1% in April, according to CoreLogic. The hardest hit states were the NYC area: NY, NJ, CT, as well as the deep south states of LA and MS. You can see how fast the DQ rate spiked in the chart below:

30 day DQ


Single family authorizations fell 10% in June, according to BuildFax, although activity might be stabilizing as builders learn to work within the restrictions of COVID. Certainly the demand is there, as first time homebuyers try and escape the cities. Note we will get housing starts and building permits tomorrow.