JOLTs – The Daily Tearsheet

Morning Report: Job openings exceed unemployed by over 1 million

Vital Statistics:

	Last	Change
S&P futures	2751.25	6.5
Eurostoxx index	364.16	1.38
Oil (WTI)	53.66	0.58
10 year government bond yield		2.69%
30 year fixed rate mortgage		4.43%

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

It looks like a shutdown may be avoided, as Congress has come up with a plan to allocate some funds to a smaller, cheaper border wall than Trump was looking for. The President hasn’t committed to signing anything yet, but it looks like he will go along.

The labor market continues to be on fire, as the number of job openings hit 7.3 million, a series record. The number of job openings exceeds the number of unemployed by over 1 million. Construction led the increase with a jump of 88,000, some of which is probably seasonal. The quits rate was unchanged at 2.3%, although it increased for the private sector while decreasing for government. The quits rate is a leading indicator for wage growth.

Mortgage Applications fell 3.7% last week as purchases fell 6% and refis fell .01%.

Ellie Mae is being taken private in a $3.7 billion transaction. Private Equity firm Thomas Bravo will pay $99 a share for the stock, and has allowed a 35 day “go-shop” provision, which permits Ellie Mae to seek higher bids.

Small business optimism is returning to normal levels after spiking to all time highs in 2017 and 2018 according to the National Federation of Independent Businesses. Uncertainty in Washington, exacerbated by the lengthy government shutdown is making small business worried about the future. That said, they continue to hire, though they are more cautious about expansion plans.

Morning Report: Fed Minutes out today

Vital Statistics:

	Last	Change
S&P futures	2577	4.5
Eurostoxx index	348.5	3.89
Oil (WTI)	50.86	1.06
10 year government bond yield		2.74%
30 year fixed rate mortgage		4.48%

Stocks are higher this morning as optimism for trade talks with China is offset by pessimism over the government shutdown. Bonds and MBS are down.

The minutes from the December FOMC meeting are scheduled to come out at 2:00 pm EST. Given the massive change in sentiment over the past month, they will be the most interesting in a while. Generally these are not market-moving events, but today could be an exception, especially since rates have dropped so much recently. I would be leaning towards higher rates as investors get a reality check about how strong the economy really is.

Job openings fell to 6.9 million in November, according to the JOLTS job openings report. The quits rate edged down to 2.3% from 2.4%, which is surprising given the bump in wages from Friday’s jobs report. Overall, it continues to show a strong labor market – there are almost 900k more open positions than there are unemployed people. There is a skills gap to be addressed, but the jump in the unemployment rate shows that the long – term unemployed are beginning to return to the labor force and look for a job.

The drop in rates is finally beginning to show up in mortgage applications. The MBA reported that applications increased 24% from the previous week. Refis rose 35%, and the refinance percentage of applications is the highest since February 2018. Purchases were up 17%. Rates fell anywhere from 9 to 20 basis points depending on the product. While there is some holiday noise in the numbers, they are also being depressed by the government shutdown.

Amerisave is buying the retail mortgage operations of TMS as they focus more on servicing and fintech than origination.

Morning Report: Mortgage Applications fall, Blue Wave never materializes

Vital Statistics:

	Last	Change
S&P futures	2782	25
Eurostoxx index	366.66	0.41
Oil (WTI)	62.93	0.71
10 year government bond yield		3.20%
30 year fixed rate mortgage		4.96%

Stocks are higher this morning after Midterm elections. Bonds and MBS are flat.

Democrats took a narrow 7 seat majority in the House last night, while Republicans increased their majority in the Senate. There were largely no surprises last night – urban voters stayed reliably Democrat, rural voters stayed reliably Republican, however some suburban voters flipped from Republican to Democrat. That change could have been due to either (a) the tendency of educated voters to skew more Democrat, or (b) tax reform. I wonder if tax reform played a part, since higher income suburban voters probably got hit the hardest from the deduction limits on property taxes and state / local taxes.

One takeaway from the election: Progressive darlings flopped. Beto O’Rourke, Richard Cordray, and Andrew Gillum all lost. So while the energy in the D party is with the resistance, that doesn’t necessarily mean the voters are there too. The Blue Wave never materialized. The other takeaway: The Never Trump Republicans (the John McCains and the Bob Corkers) are gone as well. So DC is going to be more polarized than ever.

What will the election mean for markets? Nothing. Gridlock is generally positive for the stock market, and the bond market is being driven by the Fed. Oh, by the way there is a Fed FOMC meeting starting today.

There were about 7 million job openings at the end of September, according to the JOLTs report. This is a decrease of about 285k jobs from August’s record 7.3 million number. The quits rate was flat at 2.4%. While anecdotal evidence abounds regarding the inability of companies to fill positions and retain workers, that has yet to really show up in the government’s numbers.

Home prices rose 5.6% MOM in September, according to CoreLogic. They estimate that 38% of all MSAs are now overvalued, when looking at home prices versus incomes. Just under 20% were undervalued. Of course overvaluation / undervaluation is a moving target, so that can all change if incomes rise, especially if mortgage rates stay the same. Betting on a flattening yield curve late in an economic cycle is usually a decent bet, especially after the Fed finishes a round of monetary tightening.

Mortgage credit availability increased in October according to the MBA Mortgage Credit Availability Index. “Credit availability increased in October, driven largely by an expansion in the supply of conventional credit, while government credit fell slightly over the month,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting. “Reversing a trend from last month, lenders made more conventional and low down payment programs available to prospective borrowers. This increase in supply was likely in response to a growing number of first-time home buyers in the market, as home price appreciation has slowed and wage growth has picked up. Jumbo credit availability also expanded last month, with the jumbo index increasing again to its highest level since the survey began.”

Last week’s drop in interest rates didn’t have much of an effect on mortgage applications, as the MBA’s index fell 4%, driven by a 3% drop in refis and a 5% drop in purchases. Activity hit a 4 year low.

Zillow is getting into the home buying business in Houston, by making cash offers for homes from qualified sellers and then listing the home for sale. It looks like Zillow is selling this as a service to make it easier to sell a home rather than just real estate speculation, but who knows? We do know that Z-estimates are often wildly inaccurate, so Zillow might not have such a big edge.

Morning Report: Home Prices increase 6.8%

Vital Statistics:

	Last	Change
S&P futures	2856	6
Eurostoxx index	391.01	2.35
Oil (WTI)	69.62	0.61
10 Year Government Bond Yield		2.96%
30 Year fixed rate mortgage		4.58%

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

There were 6.7 million open jobs in June, according to BLS. The all-important quits rate was unchanged at 2.3%. The quits rate is a leading indicator for wage growth and is a stat the Fed follows closely. The quits rate was highest in the South and Midwest, and lowest in the Northeast. If you look at industry groups, one group stands out with a quits rate that is going nowhere. Financial Services.

Home Prices rose 0.7% MOM in June, according to CoreLogic. They are up 6.8% YOY and forecast to rise another 5% over the coming year. Rising mortgage rates and home prices are affecting sales in the high cost markets. They also surveyed renters and found that affordability is the biggest reason why they aren’t interested in buying a home. For older renters, affordability isn’t the biggest issue – probably convenience is – although a jump in bankruptcy filings in the senior citizen demo is on the rise. We are seeing large pockets of overvaluation on the coasts, but the interior of the country is undervalued.

Freddie Mac is trying a new program to enhance rental affordability: providing low-interest loans to developers who promise to cap rental inflation. This is certainly a less intrusive way to deal with the affordable housing problem. The West Coast is finding that affordable housing mandates are pushing developers to scrap projects entirely and local governments are being pushed to override zoning restrictions. Freddie’s program is a way to incentivize the private sector into doing something: “Maybe there’s a way we can help change incentives,” said David Brickman, an executive vice president at Freddie Mac and head of its multifamily division. “We can provide an economic basis for private, profit-oriented developers to pursue a strategy where they didn’t raise rents by quite as much. You’re taking some of the opportunity to hit a home run off the table but arguably making it more likely you can hit a single or a double.”

Washington is hoping to address the affordable housing crisis by allowing tax credits for low-income renters who spend more than 30% of their income on rent. Cory Booker’s plan also looks to ease some of the regulatory burden in building new housing as well as introduce a new savings plan for renters.

What is it with tech companies who have a competitive edge wanting to diversify into hyper-competitive low-margin businesses? The latest is Zillow, which has decided it is time to get into the mortgage business. Wall Street panned the move, sending the stock down 20%. Part of the decline was due to lousy earnings, but still….

Morning Report: Quits rate jumps in May

Vital Statistics:

	Last	Change
S&P futures	2781	-11
Eurostoxx index	382.05	-4.2
Oil (WTI)	73.29	-0.82
10 Year Government Bond Yield		2.85%
30 Year fixed rate mortgage		4.53%

Stocks are lower this morning after Trump threatened tariffs on $200 billion worth of Chinese goods. Bonds and MBS are flat.

China has vowed to retaliate if the Trump Administration follows through on its threat to impose 10% tariffs on about $200 billion worth of Chinese goods. Since China imports far less than $200 billion from the US, they may have to come up with other measures to retaliate – anything from denying visas to limiting tourism and increasing regulatory measures. Strategists are beginning to warn that the trade war could derail the recovery.

Inflation at the wholesale level increased in June, according to the PPI. The headline number rose 0.3% MOM / 3.4% YOY. Ex food and energy, it was up 0.3% / 2.8% and ex food energy and trade services 0.3% / 2.7%. Services and motor vehicles drove the increase.

Donald Trump nominated Brett Kavanaugh to the Supreme Court yesterday. He is generally a regulatory skeptic, and has ruled against overreach in the past. He has already weighed in on the CFPB, which he believes is uncon stitutional. From CFPB vs PHH, writing for the majority: “The CFPB’s concentration of enormous executive power in a single, unaccountable, unchecked Director not only departs from settled historical practice, but also poses a far greater risk of arbitrary decision-making and abuse of power, and a far greater threat to individual liberty, than does a multi-member independent agency. The overarching constitutional concern with independent agencies is that the agencies are unchecked by the president, the official who is accountable to the people and who is responsible under Article II for the exercise of executive power.” That said, Kennedy was already considered a vote against the CFPB, so the nomination won’t move the needle there.

Kavanaugh has also ruled against the EPA, which generally ignored the “cost” side of the “cost / benefit” analysis of regulations during the Obama Administration. Overall the regulatory environment for the financial industry could get a little easier with Kavanaugh on the Court.

Speaking of the CFPB, Brian Johnson has been tapped to be the #2 of the agency. He replaces Leandra English, who resigned last week.

Small business optimism remains elevated despite trade concerns, according to the NFIB Small Business Optimism Survey. Employment continues to grow, with 1 in 5 firms adding employees in June on net. Sales are up overall, but margins appear to be facing pressure from higher labor and input prices. Credit needs are being fully met.

Job openings fell to 6.6 million in May, which was just off the record high of 6.8 million set in April. Hires were strong at 5.8 million, led by health care and social assistance. The big number was the quits rate, which is one of the best leading indicators of wage inflation. It rose to 2.4%.

The big question remains: how much slack is there really in the labor market? Most of the official numbers imply there is none. Yet, there is only modest wage inflation. I suspect the employment-population ratio tells the real story, and that number has yet to really recover from the Great Recession. Demographics are part of the story, but as people work longer, the assumption of 65 = retirement might have to change. I suspect many of those who are retired would gladly take a job if offered.

For the construction sector, the number of unfilled jobs hit a record high. That sector has been facing labor constraints for quite some time, and this partially explains why housing starts have been so far below what is needed to meet demand.

Mortgage Applications increased 2.5% last week as purchases rose 7% and refis fell 4%. Last week included the 4th of July, so there are all sorts of adjustments baked into that number. Refis fell under 35%, the lowest number since August 2008. ARMS decreased to 6.3%. Overall rates fell about 3-4 basis points last week.

Meanwhile, the MBA’s mortgage credit availability index improved last month as increases in conventional and jumbo availability offset a contraction in government.

Morning Report: Number of job openings equals number of unemployed

Vital Statistics:

	Last	Change
S&P futures	2747	1.75
Eurostoxx index	388.56	0.45
Oil (WTI)	64.56	-0.19
10 Year Government Bond Yield		2.91%
30 Year fixed rate mortgage		4.54%

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

Job openings continue to creep upward, hitting 6.7 million in April, which is just about the number of unemployed people in the country. Job openings increased in manufacturing, but fell in finance. The quits rate was flat MOM at 2.3% and is up about 20 bps since last year. The quits rate is a strong predictor of wage inflation, as it measures people leaving jobs to take new, higher paying ones. Below is a chart of the quits rate versus wage growth. Wage inflation is a bit more volatile, but the correlation is pretty tight.

The ISM non-manufacturing index rose in May to 58.6. The current level historically corresponds to a GDP growth rate of around 3.5%. Tariffs are weighing on many sectors however.

The House Financial Services Committee will hold a hearing tomorrow to discuss transparency and accountability at the CFPB. This hearing is the result of a memo from Mick Mulvaney, which recommended that the CFPB be subject to Congressional appropriation, that major rules be passed by legislation, that there be an independent Inspector General, and recommended that the agency report to the President.

Home prices rose 1.2% in April, according to CoreLogic. On a YOY basis, they are up 6.9%. They expect home price appreciation to moderate over the next year and increase about 5%. Much of the country’s real estate is becoming overvalued, according to CoreLogic’s model – in fact, over half. The valuation metric is based on incomes, which is why an expensive market like San Francisco may appear fairly valued, while areas on the Gulf Coast may seem overvalued.

The first time homebuyer accounted for almost half the Freddie Mac purchase market, the highest since 2012, when Freddie first started tracking this statistic. The Bloomberg headline is terrible – the first time homebuyer does not account for almost half of mortgages. 40% are refis and the first time homebuyer is about 32% of existing home sales.

Over the past 2 years, about 4.4 million jobs have been added in the US. How many houses have been built? 2.4 million. Great illustration of just how acute the housing shortage is.

Morning Report: Number of unemployed equals number of job openings

Vital Statistics:

	Last	Change
S&P futures	2680	9.75
Eurostoxx index	390.81	0.81
Oil (WTI)	70.9	1.84
10 Year Government Bond Yield		3.00%
30 Year fixed rate mortgage		4.63%

Stocks are higher this morning after the US pulled out of the Iran deal. Bonds and MBS are down, with the 10 year trading over 3% again.

The Iran deal was never ratified by the Senate, so it never reached the level of “treaty.” It was basically a deal with the Obama Admin and Iran.

Oil had a volatile day yesterday and is rallying again. China is the biggest customer of Iranian oil, so in theory it shouldn’t affect the US all that much, but WTI will follow Brent on the relative value trade. Note that a sustained oil price over $70 is estimated to be about a 0.7% drag on GDP growth.

Inflation at the wholesale level moderated last month, with the producer price index rising 0.1% MOM and 2.6% YOY. Ex-food and energy, the index rose 0.1% / 2.3% and the core rate rose 0.1% / 2.5%.

Job openings hit 6.6 million last month, which is a new record for the index, which goes back to early 2000. The quits rate increased to 2.3%. The quits rate has been stuck in a 2.2% – 2.3% range for what seems like forever. Fun fact: The number of job openings has hit the number of unemployed for the first time.

The labor shortage is particularly acute in construction, which is part of the reason why housing starts have been short of demand. This shortage has extended to home remodeling as well.

While everyone seems to focus on the CPI / PPI / PCE inflation measures and imagines that a single point estimate accurately reflects the cost of living, it doesn’t. First the relative weights of different goods and services differ. For example, PCE and CPI will weight healthcare differently, as well as owner-equivalent rent. The St. Louis Fed notes that the differences in inflation between regions of the US can be substantial as well.

Mortgage Applications fell 0.4% last week as purchases fell 0.2% and refis fell 1%. Tough times for the smaller originators.

Despite the slim pickings out there, mortgage credit has contracted a bit this year. Overall, it was a mixed bag, as government credit contracted on less streamlines while conventional increased as jumbos rose. Government credit has been tightening since early 2017, when the government began to crack down on serial VA IRRRL shops.

How have things changed at the CFPB or the (BCFP) under Mick Mulvaney? Despite the ululating in the press, not that much. One of the panelists warned industry lawyers not to advise their clients that the CFPB is relaxing its enforcement activities. So far, the biggest change we have seen is that the name has been changed back to the Bureau of Consumer Financial Protection, which was the way it was written into Dodd-Frank.

Fair Housing groups are suing HUD over Ben Carson’s delay of the Obama-era re-interpretation of AFFH – affirmatively furthering fair housing. Their complaint is that HUD didn’t provide advance notice before suspending the rule,. which would have required communities to “examine and address barriers to racial integration and to draft plans to desegregate their communities.” HUD delayed the compliance deadline until 2024. In practice, this means that HUD wants communities to change or eliminate their zoning ordinances to include more multi-family housing in wealthier neighborhoods.