US Existing Home Sales Bounce Back In June (+20.7% MoM) While FHFA Home Price Index Declines -0.3% MoM In May

Weird, whacky stuff in housing news.

Let’s start with the FHFA’s home price index for May. It fell -0.3% MoM.

Existing home sales rose 20.7% MoM in June after falling -9.7% in May. Nice rebound!

Inventories of existing homes for sale remains low. Median price for existing home sales rose 3.5% MoM in June.

If existing home sales continue their recovery, sweet dreams are made of this.

US Home Prices Soar 4.73% YoY In April As Average Hourly Rise 7.76% YoY (No Where To Run, No Where To Hide)

When US Treasury yields below 1% for maturities less than 20 years,

households are incentivized to invest in the stock market and real estate. As such, it is no surprise that the Case-Shiller national home price index rose 4.73% YoY in April.

At the same time, average hourly earnings for US workers rose 7.76% YoY in April and 6.75% in May.

Phoenix led in YoY price growth at 8.8% with Chicago at the bottom with 1.4% growth.

It doesn’t look like The Fed will pull the plug on its prodigious asset buying anytime soon.

“I swear that I will not meaningfully reduce The Fed’s footprint in the economy.”

U.S. May Existing-Home Sales Fell 9.7% to 3.91m Rate – Lowest Since 2010 (Inventory Low, Median Prices High)

The Covid-19 epidemic is taking its toll on existing home sales. US existing home sales declined 9.7% in May to the lowest level since October 2010.

Inventory of existing home sales remain low despite historic low interest rates while the median price of existing home sales continues to soar.

During the housing bubble, both inventories and home prices rose together. But the reverse has happened since 2012.

Even The Federal Reserve can’t fight a virus. Although The Fed can create asset bubbles.

There is no escaping The Federal Reserve and their bubble-making powers!

Why Residential Mortgage Rates Won’t Rise Over The Next Two Years (Ultra Bond Futures Trading At An Ultra Premium)

Mortgage lenders should rejoice at the continuing low level of 30-year mortgage rates and the 10-year Treasury yield.

The Covid-crisis can be seen in the following chart, starting in January 2020. It has been all downhill since January 1st in terms of rates and yields. With the exception of the blip in the Freddie Mac US Mortgage Market Survey 30 Year Homeowner Commitment rate around March 19, 30-year mortgage rates are barely above 3%.

The US Ultra Bonds futures price continues to trade at an ultra-premium.

The ultra premiums in ultra bond futures indicates that the Covid shutdowns are likely to return. Or continue to ravage the economy. And endless interference in markets by The Federal Reserve.

US Housing Starts 1-Unit Decline 17.8% YoY In May Despite Historic Fed Stimulus (Covid-19 Shutdown Damage)

US 1-unit housing starts declined 17.8% YoY in May, another indicator of the damage done by the economic shutdown due to the Covid-19 epidemic.

1-unit housing starts YoY are back to 2006 levels where the ALT-A / subprime virus struck with far more damage.

Notice that The Federal Reserve didn’t react with rate cuts until Q4 2007 that continued through 2008. Notice that the US is back to 25 basis points again, but with 7.09 TRILLION on their balance sheet … and all we get is -17.8% YoY decline.

Meanwhile, mortgage purchase applications have rebounded nicely.

MBA purchase applications have rebounded nicely despite the government shutdown. But in spite of the historic (or hysteric) monetary stimulus from The Federal Reserve, the US in no where the housing bubble years.

Time for more snake juice?

Here is a video of Fed Chair Jerome Powell trying to cope with the blowback from Covid-19.

US New Home Sales Decline 6.2% YoY In April Despite Near-Record Low Mortgage Rates (Case-Shiller Home Price Index STILL Rising)

According to the US Census Bureau, sales of new homes fell 6.2% YoY in April.

No, it does not look like new home sales from the housing bubble burst of the ALT-A, private label MBS years.

Yes, near record low mortgage rates are helping to mitigate the horrid effects of the COVID-19 fiasco.

Home prices in March, according to the lagged Case-Shiller national home price index rose 4.4% YoY. COVID-19 epicenters Seattle and New York City both managed to see YoY gains in home prices in March. (Phoenix AZ is leading the nation in YoY home price growth at 8.2%, nearly twice the national average).

So far the COVID-19 epidemic does not look like the notorious housing bubble burst of the second half of the 2000-2010 decade of The Big Short frame. But the CMBX BBB- index of commercial mortgage-backed securities is getting crushed by retail, hotel and office losses.

Although this has nothing to do with real estate, this Bloomberg headline grabbed my attention: “Macron Pledges $9 Billion in Stimulus to Help French Carmakers.” Hey Macron, how about telling Renault, Citroën and Peugeot to make cars that buyers in US want to buy!

US Existing Home Sales Plunge 17.8% In April, Worst Since 2010 (Lower-end Housing Hit The Worst)

According to the National Association of Realtors (NAR), US existing home sales in April plunged 17.8% from March, the largest drop since 2010.

Existing homes sales MoM is the white line, the Mortgage Bankers Association 30-year rate is the blue line.

Given how unemployment is differentially hurting lower-wage workers, it is not surprising that existing home sales in the $0-$100,000 range fell 33% in April.

While $500k-$750k home sales fell by “only” 12.2%.

Existing home sales inventory remains low while median home price of existing home sales rose 2% from March to April.

US Housing Starts Crash In April Thanks To COVID-19 Lockdown (Despite Declining Mortgage Rates)

US housing starts in April crashed to their lowest level since 2015 despite near-record low mortgage rates.

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1-unit starts declined 25.4% from March to April. But it is the 5+ unit starts (apartment) that suffered a 40.31% MoM decline.

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It appears that The Fed’s snake juice isn’t working.

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Worst Property Debt Crash in Years Looms for Workout Specialists (Fitch Says 26% of CMBS Borrowers Asked About Payment Relief)

First it was on-line shopping spearheaded by Amazon that helped crush physical retail space. Then the knock-out punch was the government shutdown of the the US economy.

(Bloomberg) — Emptied out malls and hotels across the U.S. have triggered an unprecedented surge in requests for payment relief on commercial mortgage-backed securities, an early sign of a pandemic-induced real estate crisis.

Borrowers with mortgages representing almost $150 billion in CMBS, accounting for 26% of the outstanding debt, have asked about suspending payments in recent weeks, according to Fitch Ratings. Following the last financial crisis, delinquencies and foreclosures on the debt peaked at 9% in July 2011.

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Special servicers — firms assigned to handle vulnerable CMBS loans — are bracing for the worst crash of their careers. They’re staffing up following years of downsizing to handle a wave of defaults, modification requests and other workouts, including potential foreclosures.

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“Everything is happening at once,” said James Shevlin, president of CWCapital, a unit of private equity firm Fortress Investment Group and one of the largest special servicers. “It’s kind of exciting times. I mean, this is what you live for.”

No Relief

A surge in residential foreclosures helped ignite the last financial crisis. Now, commercial real estate is getting hit because the economic shutdown has shuttered stores and put travel on ice.

Not all of the borrowers who have requested forbearance will be delinquent or enter foreclosure, but Fitch estimates that the $584 billion industry could near the 2011 peak as soon as the third quarter of this year.

There’s no government relief plan for commercial real estate. Bankers usually have leeway to negotiate payment plans on commercial property, but options for borrowers and lenders are limited for CMBS.

Debt transferred to special servicers from master servicers, mostly banks that handle routine payment collections, is already swelling. Unpaid principal in workouts jumped to $22 billion in April, up 56% from a month earlier, according to the data firm Trepp.

Make Money

Special servicers make money by charging fees based on the unpaid principal on the loans they manage. Most are units of larger finance companies. Midland Financial, named as special servicer on approximately $200 billion of CMBS debt, is a unit of PNC Financial Services Group Inc., a Pittsburgh-based bank.

Rialto Capital, owned by private equity firm Stone Point Capital, was a named special servicer on about $100 billionof CMBS loans. LNR Partners, which finished 2019 with the largest active special-servicer portfolio, is owned by Starwood Property Trust, a real estate firm founded by Barry Sternlicht.

Sternlicht said during a conference call on Monday that special servicers don’t “get paid a ton money” for granting forbearance.

“Where the servicer begins to make a lot of money is when the loans default,” he said. “They have to work them out and they ultimately have to resolve the loan and sell it or take back the asset.”

Hardball

Like debt collectors in any industry, special servicers often play hardball, demanding personal guarantees, coverage of legal costs and complete repayment of deferred installments, according to Ann Hambly, chief executive officer of 1st Service Solutions, which works for about 250 borrowers who’ve sought debt relief in the current crisis.

“They’re at the mercy of this handful of special servicers that are run by hedge funds and, arguably, have an ulterior motive,” said Hambly, who started working for loan servicers in 1985 before switching sides to represent borrowers.

But fears about self-dealing are exaggerated, according to Fitch’s Adam Fox, whose research after the 2008 crisis concluded most special servicers abide by their obligations to protect the interests of bondholders.

“There were some concerns that servicers were pillaging the trust and picking up assets on the cheap,” he said. “We just didn’t find it.”

Troubled Hotels

Hotels, which have closed across the U.S. as travelers stay home, have been the fastest to run into trouble during the pandemic. More than 20% of CMBS lodging loans were as much as 30 days late in April, up from 1.5% in March, according to CRE Finance Council, an industry trade group. Retail debt has also seen a surge of late payments in the last 30 days.

Special servicers are trying to mobilize after years of downsizing. The seven largest firms employed 385 people at the end of 2019, less than half their headcount at the peak of the last crisis, according to Fitch.

Miami-based LNR, where headcount ended last year down 40% from its 2013 level, is calling back veterans from other duties at Starwood and looking at resumes.

CWCapital, which reduced staff by almost 75% from its 2011 peak, is drafting Fortress workers from other duties and recruiting new talent, while relying on technology upgrades to help manage the incoming wave more efficiently.

“It’s going to be a very different crisis,” said Shevlin, who has been in the industry for more than 20 years.

Ya think?

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We will see shortly if this is a phantom punch or not.

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Oyster Stew! WTI Crude Spot Rises 21%, US Jobless Claims Up 4.43 Million (But Slowing), New Home Sales Decline -15.4% MoM In March

I feel like we are in the Three Stooges film “Oyster Stew.” Every time we look for good news, more bad news come out.

But here is some good news.

WTI Crude oil is up 21.26% this morning .. to $16.71 a barrel (still low).

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And while US jobless claims rose 4.43 million the past week, the US is several weeks past the peak. (Knock on wood).

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But back to crude. Saudi oil is still negative for heavy and medium crudes to the USA.

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Now for the oyster eating the cracker.

US new home sales fell -15.4% MoM in March.

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As I said, oyster stew.

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