Online Course Notes For Financial Markets – Anthony B. Sanders
Well, ain’t this a kick in the head.
US existing home sales YoY fell for the seventh straight month, -4.10% in September.
Existing home sales median price YoY has cooled to 4.2% YoY while inventory remains below the long-run average.
Is Fed Chair Jerome Powell really Mr. Freeze?
There is little doubt that Federal Reserve policies have resulted in mispriced risk and massive distortions in the economy. Fed Chairs Bernanke and Yellen were masters of distortion (keeping rates too low for too long) while Fed Chair Powell (Hurricane Jerome) is raising rates rapidly in the face of little-to-no inflation. Throw in Hurricane Florence and we have “The Mist” where fear changes everything.
Housing starts for September were released yesterday and, as expected, the numbers were down across the board (except for the West where it is seemingly always sunny).
1-unit starts (aka, single family detached) are still below 2000 levels thanks, in part, to The Federal Reserve dropping their target rate like a hammer to 1%. We got a massive construction response. That blew up, so The Fed dropped their target rate like a hammer … again from which Hurricane Jerome is only recently begun raising.
But it is with multifamily (5+ unit starts) that Fed rate increases are being daunting.
In a sense, The Fed destroyed the single family detached housing market (along with other misguided Federal programs) and now The Fed is applying its mist to the multifamily market.
Courtesy of the great Jesse’s Cafe Americain!
(Bloomberg) — The global dollar benchmark rate that everyone loves to hate and which regulators have marked for extinction approached a 10-year high Wednesday, adding to strains on some emerging economies and U.S. companies alike.
The London interbank offered rate still serves as the basis for trillions of dollars in loans and floating-rate securities globally, even though its replacement is gaining traction. Steeper U.S. interbank borrowing costs risk rippling across developing economies by tightening financial conditions and forcing local-currency benchmarks higher. It’s a development that could heighten investor concern at a time when a rising dollar has sparked worries about emerging-market borrowers’ ability to repay loans in the greenback.
Three-month U.S. dollar Libor is now 2.4496 percent, the highest since November 2008. The main driver is that traders are pricing in further Federal Reserve tightening. Officials’ latest quarterly forecasts indicate another rate hike this year followed by three more in 2019.
I wonder if The Fed’s rate hikes are contributing to the LIBOR meteoric rise?
Here is The Fed’s Magical Electric Belt to stimulate the economy!
Between Hurricanes Michael and Hurricane Jerome (Powell), mortgage refinancing applcations are taking a big hit.
The Mortgage Bankers Association (MBA) refinancing applications index fell 9% from the previous week as 30-year mortgage rate continued to rise.
Mortgage purchase applications fell 5.52% WoW, but it is in the “mean season” for mortgage purchase applications and there was a hurricane (Michael). And then you have hurricane Jerome (Powell) battering the mortgage markets.
In addition to Hurricane (weather and Federal government), there is also the decline in Adjustable Rate Mortgages (ARMs) since the financial crisis.
Here is the face of financial squalls: Hurricane Jerome (Powell).
The Good News! US industrial production YoY rose 5.14% in September, the highest growth rate since 2010.
The Bad News? Subprime mortgage lending is starting to boom … again. When lenders feel comfortable because of a booming economy and home prices things change … again.
As CNBC’ Diana Olick writes, “Thousands line up for zero-down-payment, subprime mortgages”
Borrowers can have low credit scores, but have to go through an education session about the program and submit all necessary documents, from income statements to phone bills.
They must go through counseling to understand their monthly budget and ensure they can afford the mortgage payment.
The loans are 15- or 30-year fixed with interest rates below market, about 4.5 percent.
“It’s total upside,” said AJ Barkley, senior vice president of consumer lending at BofA. “We have seen significant wins in this partnership. Just to be clear, when we get those loans with all the heavy lifting here, we’re over a 90 percent approval, meaning 90 percent of the people who go through this program that we actually underwrite the loans.”
While the Veterans Administration offers no-down payment loans to veterans and their families, there are few other programs like this. Most low-down payment programs require mortgage insurance, which can be costly. The NACA program does not.
Following the financial crisis, lenders locked up, requiring much higher credit scores and at least 3 percent down payments. The subprime mortgage crisis was precipitated by lenders offering no-down payment loans with short-term “teaser” rates as low as zero. They asked for no documentation, and sometimes tacked interest onto later years of the loan, so-called, negative amortization loans. The NACA loans are all fixed rate with full documentation.
So far more than 10,000 potential borrowers have shown up at various NACA events in cities like Charlotte, North Carolina, and Atlanta, according to Marks, and more are planned. NACA receives a $3,000 commission on each loan.
A community organizer making a deal with a big bank. What could go wrong?
When The Fed Comes Marching Home … to normal interest rates.
It was inevitable. Federal Reserve rate hikes and balance sheet shrinkage is having the predicitve effect: killing mortgage refinancing applications.
And mortgage purchases applications SA have stalled in terms of growth with Fed rate hikes and balance sheet shrinkage.
WASHINGTON, D.C. (October 10, 2018) – Mortgage applications decreased 1.7 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending October 5, 2018.
The Market Composite Index, a measure of mortgage loan application volume, decreased 1.7 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 2 percent compared with the previous week. The Refinance Index decreased 3 percent from the previous week. The seasonally adjusted Purchase Index decreased 1 percent from one week earlier. The unadjusted Purchase Index decreased 1 percent compared with the previous week and was 2 percent higher than the same week one year ago.
The refinance share of mortgage activity decreased to 39.0 percent of total applications from 39.4 percent the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 7.3 percent of total applications.
The FHA share of total applications increased to 10.5 percent from 10.2 percent the week prior. The VA share of total applications remained unchanged at 10.0 percent from the week prior. The USDA share of total applications increased to 0.8 percent from 0.7 percent the week prior.
Yes, The Fed has begun its bomb run.
The bloom is off the rose for homebuilders. Yes, it had been a great run, fueled by The Fed’s zero-interest rate policy (ZIRP) and asset purchases (QE). But despite a roaring economy, SPDR S&P Homebuilders ETF have been falling since January as The Federal Reserve Open Market Committee (FOMC) sticks to their guns and keeps normalizing interest rates.
Yes, the Fed Dots Plot project indicates that there is still upside momentum to short-term interest rates.
And the Fed’s System Open Market Accounts (SOMA) show a declining inventory of Treasury Notes and Bonds to let mature.
So, let’s put on some groovy pants, put on Iron Butterfly, and chill.
Fannie Mae and Freddie Mac, the mortgage giants in seemingly perpertual conversatorship with the FHFA, have mortgage loans that are even more risky in terms of loan-to-value (LTV) ratios than during the catastrophic housing bubble of the 2000s.
The “good” news is that the average FICO (credit) score for Fannie and Freddie loan purchases is above those from the housing bubble. But the trend is worriesome.
In terms of Debt-to-income ratios (or Detes as Tom Haverford would say), the Detes are below housing bubble levels, but have been rising since the end of 2008.
These figures are from data taken from Fannie Mae’s and Freddie Mac’s online data. “Processed in Python.” With thanks to Hakeem Azoor.
I nominate Tom Haverford for FHFA Director!
Yes, The Federal Reserve helped keep interest rates low for a long time. Hence, they deserve their own march. The March of The Federal Reserve.
A positive jobs report and a roaring economy led to the US Treasury 10-year yield rising over 10 basis points today to 3.168%
As The Fed announced the end of QE3 in 2014 then began shrinking its balance sheet by allowing securities to mature, the 10-year T-Note yield has risen.
Fortunately, the US economy is running on all cylinders, so The Fed feels comfortable … for the moment .. to keep rates rising.
As a result, the US Treasury 10Y-2Y curve widened.
Pending home sales for August fell 2.5% YoY as mortgage rates continue to rise.
The worst hit? The West! High prices combined with rising mortgage rates are bad for the Golden State. Not to mention Governor Jerry Brown’s insane policies.
Is it Sunset on the sage for The Golden West?
