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.

 

quits rate

 

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: Foreclosure starts lowest in 18 years

Vital Statistics:

 

Last Change
S&P futures 2720 4
Eurostoxx index 362.25 3.31
Oil (WTI) 54.26 -0.3
10 year government bond yield 2.70%
30 year fixed rate mortgage 4.40%

 

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

 

Donald Trump stressed bipartisanship and unity at the State of the Union address, and reiterated his demands for border wall funding but stopped short of invoking emergency powers to get one built. Predictably, the reaction to the speech fell along partisan lines.

 

Mortgage Applications fell 2.5% last week as purchases fell 5% and refis rose 0.3%. This was a disappointment given that rates fell about 7 basis points, however the prior week had the MLK holiday adjustment so maybe there is some technical adjustment noise happening. Despite lower rates on a YOY basis, applications are down about 2% annually.

 

The service sector continued to grow in January, albeit at a slower pace, according to the ISM Non-Manufacturing Report. Some of this may have been government shutdown-driven. Employment rose, while new orders fell.

 

Foreclosure starts in 2018 decreased to 576,000, the lowest level in 18 years. Foreclosure completions were 175,000, another 18 year low. These numbers are 40% below their pre-recession averages. Higher loan quality in the aftermath of the credit crisis is a contributing factor, however the performance of refinances are better than purchases, which also is driving these numbers.

 

Housing reform and CFPB regulations may be headed for a conflict if what is called the “GSE patch” is not renewed when it expires in 2021. The CFPB discourages loans with debt to income ratios above 43%, but also permits GSE backed loans to fall under the QM umbrella, even though they permit DTIs up to 50%. Roughly a third of GSE loans fall in the 43-50% DTI range, which could become non-QM loans once the patch expires. The Urban Institute recommends that the GSEs replace the DTI rule with a 150 basis point cap over APOR to determine eligibility under QM.

 

Home prices rose 0.1% MOM and 4.7% YOY according to CoreLogic. Since house prices have been rising faster than incomes, affordability has suffered. Falling interest rates masked that issue most of the post-crisis period, but the music has stopped. CoreLogic now estimates that 33% of the housing stock in the US is now overvalued.¬† Separately, Redfin now estimates that the West Coast is a buyer’s market.

 

Corelogic overvalued