Securitization Frenzy! Wall Street Repackaging Of Loans, Franchise Agreements, Royalties Surging As Alarm Sounds For Commercial Retail

Alarm!

I remember the surge in securitization of loans, receivables, etc during the housing bubble of the mid-to-late 2000s. Today seems like 2007 all over again.

(Bloomberg) — Bankers are repackaging everything from fast food franchises to fitness-center fees into bonds at the fastest clip since the global financial crisis as investors chase yield and inflation protection.

This year’s sales of U.S. asset-backed securities have already surpassed $300 billion, according to data compiled by Bloomberg — and more is expected by year-end. Post-crisis issuance records have also been set in private-label commercial mortgage bonds and collateralized loan obligations, which are also seen accelerating.

“Solar, consumer loans, container lease and whole business transactions to some degree all offer attractive yields and spreads,” said Dave Goodson, head of securitized credit at Voya Investment Management. “These so-called esoteric sectors remain well supported with plenty of money to invest.”

On Monday, Self Esteem Brands, a franchiser of businesses including its flagship gyms Anytime Fitness, priced a $505 million ABS that was backed by franchise agreements, royalties and fees. In whole business securitizations like these, companies mortgage virtually all their assets.

Last month, fried chicken restaurant chain Church’s Chicken sold a $250 million securitization backed by franchise and royalty collateral. Golden Pear Funding recently securitized litigation fees related to financial settlements on everything from personal injury cases to wrongful convictions. And Oasis Financial priced a similar deal linked to payments on medical liens.

Then we have this headline that will send chills through the CMBS market for retail space, particularly at a time when commercial real estate (particularly RETAIL) are trying to recover from COVID lockdowns and the growth of online shopping.

“Retailers Sound Alarm on Organized Theft as States Warn of Rise”

Retailers say shoplifting is getting more brazen in the U.S.: A California Nordstrom store was recently hit by a flash mob of more than 80 people who made off with designer goods, while more than a dozen people pilfered from a Louis Vuitton location in a suburb of Chicago.

On Tuesday, the impact of shoplifting reached Wall Street, with Best Buy Co. shares plunging after the electronics retailer said widespread theft contributed to a decrease in one gauge of profitability. Last month, Walgreens said it would close five San Francisco stores after theft rates there spiked.

Seemingly, no one learns from history. Or as the zen master Yogi Berra once said “It’s like déjà vu all over again.”

Or “You better cut the pizza in four pieces because I’m not hungry enough to eat six.”

Home Sales Rose 0.8% MoM In October As Investors Rushed Into The Market (Inventory Remains Thin, Median Price +13.1% YoY)

Fools rush in … or at least investors rush into the US housing market. Investors made up 17% of existing home purchases in October.

Inventory of homes remains depressed and with investors picking up 17% of homes for sale, the median price of existing homes rose to 13.1% YoY.

While existing home sales rose 0.8% MoM, they fell -5.79% on a YoY basis as M2 Money slowed.

It is lonesome town for inventory. But it will be a poor little fool for those buying into this thin inventory market if home prices correct.

President Biden has decided to nominate Fed Chair Jerome Powell for a second term in an effort not to rock the boat. Lael Brainard is nominated for Deputy Chair.

The Fed’s Gilded Age: A Tale of Today’s Housing Market (REAL Home Prices Rising At 14.6% YoY As REAL Hourly Earnings Fall (-0.41% YoY)

Welcome to The Fed’s Gilded Age … for housing! The gilded age refers to the thin-veneer of gold covering up problems in the late 1800s.

Today’s gilded age is largely fueled by The Federal Reserve’s uber-easy monetary policies combined with absurd Federal government policies. The result? Thanks to inflation, REAL home prices are growing at 14.6% YoY while REAL hourly earnings are declining (-0.41% YoY).

Redfin predicts a more balanced housing market in 2022. Part of their rationale is that they predict mortgage rates will rise to 3.6%. This growth in the mortgage rate is predicted to slow home price growth to 3.2% from double digit growth currently.

While this scenario is plausible, it will require a change in direction of the 10-year Treasury yield which has been declining since 1981. 5.39% YoY inflation may encourage The Fed to raise rates.

Today’s REAL 30-year mortgage rate is -3.08% while the REAL 10-year Treasury yield is -4.67%. It will require a reduction in inflation AND an increase in the nominal rate to get to 3.6%.

With the Freddie Mac 30-year survey rate at 3.10, will a 50 basis point increase in mortgage rates send the market crashing? Not likely.

After all, the US economy is under the thumb of The Federal Reserve.

October Country! US 1-Unit Housing Starts Decline -10.6% YoY As Housing Sentiment Crashes (High Housing Price Inflation Is Hurting)

US housing starts for October were less than expected. A 1.5% increase MoM was expected, but housing starts actually fell -0.7% MoM.

5+ unit (multifamily) starts were up 6.82% MoM. 1-unit single family detached units were down -3.89% MoM. Permits to build were up 4% MoM.

On a YoY basis, 1-unit start declined -10.6% as M2 Money growth continues to fall.

And 1-unit housing starts have fallen with the rapid decline in home buying sentiment.

1-unit starts have slowed to pre-COVID levels, thanks in part to The Federal Reserve’s money printing bonanza which may never end.

As housing sentiment crashes (due to rapid home price growth), we are seeing the demand for multi-family housing rise. 5+ unit (multifamily) starts were up 6.82% MoM in October.

It is October after all as winter sets in.

US Dollar, Gold, Ethereum SOARING As Fed Loses Control Of Inflation

As inflation seems unstoppable by The Federal Reserve, we are seeing the US Dollar, Gold and Ethereum soaring in price.

Persistent inflation is here to stay.

Yup, The Fed is firing blanks.

COVID And The CMBX Cliff (Retail and Office Sectors Still Limping Along Thanks To Shutdowns And Fearmongering)

Nothing has been the same since Covid struck in early 2020.

CMBX BBB-, the reference basket for CMBS 6, was climbing to around $95 prior to the Covid outbreak and resulting recession. The CMBX reference basket is now at $72.25.

CMBX 6 is largely composed of retail and office, both hit hard by Covid and the ensuing lockdowns and fearmongering by the Federal government and main street media.

Escape From LA II? Corelogic Home Price Index UP 18% YoY, But Forecast To Slow To 1.9% YoY In 2022

Yes, home prices are still growing at a super-hot pace of 18%, according to Corelogic.

But the forecast for home price growth is for 1.9% YoY in 2022.

As home price growth crashes back to earth as wages don’t keep pace with home prices.

Home prices have been growing in most states out west where The Fed’s money pump has resulted in a boom in second homes and people escaping high tax California and Oregon for Nevada, Idaho, Arizona (again), Utah and Montana. The east coast is seeing the Carolinas booming along with Florida and Indiana. Escape from New York?

Escape from LA … to Arizona, Nevada, Idaho and Utah?

Invitation Homes Boosts Rents 11% As Housing Shortage (And Fed Stimulus) Persist

(Bloomberg) — The largest owner of U.S. rental houses isn’t seeing any let-up in demand, or in its ability to increase rents.

Invitation Homes Inc., which owns more than 80,000 single-family rentals, raised prices by nearly 11% in the third quarter, according to a statement. The company boosted rents by 8% on renewals and 18% when leasing homes to new tenants. Rates are rising fastest in the Southwest, where rents increased 30% on new leases in Las Vegas, and 29% in Phoenix.

“It’s a little bit crazy,” Chief Executive Officer Dallas Tanner said on a conference call with investors Thursday. “There just isn’t enough quality housing available right now.”

Rising rents have been a staple of the economy since early Covid lockdowns lifted in the middle of last year. Surging purchase prices have pushed homeownership out of reach for first-time buyers.

Invitation’s properties, which tend be more centrally located than those owned by other institutional landlords, have been especially popular. And tenants tended to stay put: The company had a record-low turnover rate in the quarter, which reduced the expenses associated with preparing a house for leasing.

Invitation’s shares rose slightly to $40.77 at 12:49 p.m. New York time after the company raised its expectations for full- year revenue and net operating income. The stock is up 37% for the year.

As Milton Friedman once said, “If you put the federal government in charge of the Sahara Desert, in 5 years there’d be a shortage of sand.” In this case, The Federal government and Federal Reserve were put in charge of the Covid epidemic and we have shortages of almost everything. Including housing.

I don’t have Invitations rent growth chart, but here is Zillow’s YoY rent chart against The Fed’s balance sheet.

The good news? The 11% increase is almost half of the 20% YoY Case-Shiller National home price index.

Here is Treasury Secretary Janet Yellen making housing supply disappear.

US Home Price Growth Hits 20%! While Fed’s Inflation Target Is 2% (Phoenix AZ Growing At Whopping 32.4% YoY!)

The Federal Reserve is dominating the news today as two Fed regional Presidents have resigned (Rosengren [Boston] and Kaplan [Dallas]) for trading irregularities.

Speaking of The Fed, their target rate for inflation is 2%. Yet the Case-Shiller 20 metro home price index just rose to 20% YoY for July. Yes, house price growth is 10 times The Fed’s target rate!!

Now, it is September 28, so this is a report of happenings two months ago. Well, now you know why The Fed ignores housing despite being the largest asset is most household’s portfolio.

A measure of prices in 20 U.S. cities gained 19.9% in July. Phoenix led the way with a 32.4% surge. New York (17.8%), Boston (18.7%), Dallas (23.7%), Seattle (25.5%) and Denver (21.3%) were among the cities that posted record year-over-year increases.

The housing market is over, under, sideways, down thanks to The Fed pumping trillions into a market with limited available inventory.

The Fed is not talking about housing. Or the fact that home prices are growing at 10 times the rate of The Fed’s inflation target.

The Fed Helped Create Housing Bubble I And Then Helped Create Housing Bubble II: The Sequel (Case Study Of Phoenix AZ Home Price Bubble)

Phil Hall of Benzinga wrote a series of excellent articles in four parts for MortgageOrb (although “The Orb” has removed his name). Here are the links to his stories.

https://mortgageorb.com/the-fall-and-rise-of-the-housing-market-part-one

https://mortgageorb.com/the-fall-and-rise-of-the-housing-market-part-two

https://mortgageorb.com/the-fall-and-rise-of-the-housing-market-part-three

https://mortgageorb.com/the-fall-and-rise-of-the-housing-market-part-four

After re-reading these excellent articles on the housing bubble and crash, I thought I would take the opportunity to present a few charts to highlight the housing bubble, pre-crash and post-crash.

Here is a graph of Phoenix AZ home prices. Note the bubble that peaked in mid 2006. The Phoenix bubble correlates with the large volume of sub-620 FICO lending and Adjustable-rate mortgage (ARM) lending. Bear in mind, many of the ARMs prior to 2010 were NINJA (no income, no job) ARM loans.

What happened? Serious delinquenices at the national levels spiked as The Great Recession set in and unemployment spiked.

Since the housing bubble burst and surge in serious mortgage delinquencies, The Federal Reserve entered the economy with a vengeance. And have never left, and increased their drowning of markets with liquidity.

The Fed whip-sawing of interest rates in response to the 2001 recession was certainly a problem. They dropped The Fed Funds Target rate like a rock, then homebuilding went wild nationally and home prices soared thanks to Alt-A (NINJA) and ARM lending. But now The Fed is dominating markets like a gigantic T-Rex.

Oddly, then Fed Chair Ben Bernanke never saw the bubble coming. Or the burst.

Speaking of pizza, Donato’s from Columbus Ohio is my favorite. Founder’s Favorite is my favorite, but they do offer the dreaded Hawaiian pizza (ham, pineapple, almonds and … cinnamon?)

Bleech!