More From Brent Nyitray, CFA, MBA
Mortgage rates fall as bonds sell off, affecting homebuilders
The average 30-year fixed-rate mortgage rose 12 basis points as the ten-year yield rose 10 basis points, and TBAs sold off. With the refinance boom over, originators are overstaffed.
Why consumers are more conservative about housing than the pros
In the latest survey, consumers expect home prices to rise by 2.9% over the next 12 months. This is flat month-over-month and down 100 basis points year-over-year.
Why Fannie Mae securities rallied with bonds about 1/4
The main action driving TBAs specifically seems to be out of Washington, between the Fed purchases and the government’s policies to drive origination.
The end of the carry trade — Part 5
Back to Part 4 Impact on mortgage REITS The Treasury Department Financial Stability Oversight Council report mentioned the mortgage REIT sector specifically as at risk for a convexity event. A convexity event comes into play when interest rates move sharply. Because borrowers can prepay their mortgage without penalty, mortgage-backed securities are difficult to hedge in […]
Lennar reports increases in units and prices in 2nd quarter 2014
For the second quarter, Lennar reported $1.64 billion in revenues. This is an increase of 29% year-over-year. Homebuilding revenues increased 28%, to $1.6 billion from $1.3 billion in the second quarter of 2013.
Homebuilder sentiment leaps in June
The National Association of Homebuilder Sentiment Index is a closely-watched measure of future building activity The National Association of Homebuilders Sentiment Index measures the confidence of homebuilders. It gauges builder perceptions of current and future sales of single family residences and asks them to characterize them as “good,” “fair,” or “poor.” It also asks the […]
Distressed Home Sales Fall
Distressed Home sales are tracked by CoreLogic in their monthly Market Pulse Distressed Sales and shadow inventory are closely related. Distressed sales include Real Estate Owned (REO) and short sales. REO sales are generally foreclosures, while short sales are below the current outstanding debt on the property. Distressed supply will put a damper on pricing as […]
Why household formation drives homebuilder demand (Part 2)
Continued from Part 1 The state of the first-time homebuyer The first-time homebuyer has been in a difficult position post-crisis. Many college students graduated with high levels of student loan debt and grim job prospects. Given the harsh job market, many graduates decided to return to school, moved in with their parents, or moved in […]
Why mortgage rates have been flat with the bond market, at 4.17%
The average 30-year fixed-rate mortgage was flat at 4.17%, as the ten-year yield rose 1 basis point, while TBAs rallied. With the refinance boom over, originators are overstaffed
Backing Out of the Synageva BioPharma Deal, Part 3
Things like acts of war and natural disasters aren’t MACS unless they disproportionately affect Synageva relative to other early-clinical-stage biopharmaceutical companies.
Could the Rite Aid–Walgreens Merger Get Competitive?
In the Rite Aid–Walgreens merger, Walgreens is paying about 0.6x trailing-12-month revenues and 13.6x trailing-12-month EBITDA.
Why Did Bonds Barely React to the FOMC Minutes?
On July 6, the Fed released the minutes from the June FOMC meeting. The Brexit vote mainly overshadowed anything that came out of the June FOMC meeting.
Fannie Mae TBAs Rise with the Bond Market
For the week ending August 12, 2016, Fannie Mae TBAs ended at 103 24/32—up 4 ticks for the week. The ten-year bond yield fell by 8 basis points to 1.51%.
Recommendation: REITs are getting bullish—should you?
2013 was a very difficult year for mortgage REITs, as the Fed finally began to lighten its footprint in the mortgage market by reducing asset purchases.
Inventories Spike In November, Portending Weak December Sales
Sales fell 0.2% in November. Inventories increased 0.2%. Interestingly, the inventory build was with the retailers, not the manufacturers.
Jobs Report Postponed until Friday, May 8
The jobs report should have gone out last Friday. But the BLS decided to postpone it until this Friday, May 8. Unless the report is unusually good, the bond market will probably take it in stride.
Initial jobless claims jump
Initial jobless claims rose to an annualized rate of 360,000 for the week ended May 10th Initial jobless claims are one of the few labor market indicators that are released every week. Unemployment is a profound driver of economic growth, and persistent unemployment has been the Achille’s heel of this recovery. While it seems like […]
Does the economy need a government spending shot in the arm?
Do we need a new New Deal? Construction spending doesn’t have to be simply residential (or private construction). Public construction also matters (however, it’s less than half of private construction dollars). The use of federal construction dollars to increase demand in the economy has been an issue of tremendous debate, with one side believing that […]
Retail sales increase 0.2% in July, homebuilder opportunity ahead
Retail sales data gives analysts insight into the strength of the consumer Consumption is the biggest driver of the U.S. economy and accounts for 70% of GDP. Consumption has been relatively subdued since the recession began, as Americans have boosted their savings rate and spent only on essentials. The real estate bubble drove consumption in […]
Strong economic data is causing the yield curve to steepen
The shape of the yield curve matters almost as much as the absolute level of interest rates to financial companies As a general rule, financial companies (banks, REITs) borrow short and lend long. What this means is that they lever their balance sheet by borrowing at short-term interest rates and generally invest in longer-maturity assets, […]
Fannie Mae TBAs Rally with the Bond Market
For the week ending April 1, Fannie Mae TBAs ended at 105 2/32. The ten-year bond yield, tradable through TLT, fell by 5 basis points to 1.7%.
A rebound in capacity utilization helps office REITs like SL Green
While most people don’t think of industrial data affecting office REITs, it does influence the top-line growth of commercial REITs like SL Green (SLG).
Why construction spending pulls back in June
Construction spending is just off its post-recession high, but it’s still depressed—current levels equate to mid-2003 spending levels—construction spending peaked at $1.2 trillion in March, 2006.
Economic optimism rebounds, but it still remains depressed
The IBD/TIPP Optimism Index increased by 3 points to 41.4 versus 38.4 in October. It’s well below its 12-month average of 45.
What to watch for in real estate next week
The week ahead Earnings season is pretty much over. Only five companies will report next week; nobody related to real estate is reporting. Next week is not all that heavy data-wise, although we will get the S&P Case-Schiller Home Price Index and Pending Home Sales. The Case-Schiller data will be from March, which should begin […]
KB Home swings to a profit and its turnaround stays on pace
Unlike some of the other builders, KB is a turnaround story. The company believes its strategic focus on first-time and move-up homebuyers is finally beginning to pay off.
Consumer confidence ticks down as Americans fret the economy
The Conference Board Consumer Confidence Index fell to 79.7, from an upward-revised 81.8 in August. (Consumer confidence in 1985 was 100.)
Consumers are tempering their home price appreciation expectations
The 2.3% home price expectation is much lower than the 6%–7% forecast we’re seeing out of the National Association of Realtors and the mid single-digit forecast we’re seeing from most Wall Street professionals.
D.R. Horton’s Gross Margins Fall Slightly
Like most other builders, D.R. Horton has been reporting lower gross margins due to sticker shock. Home prices have been increasing, but wage growth has been stagnant.
Construction Spending Fell in June
In June 2016, private construction fell 0.6%, and public construction fell 0.6% month-over-month.
GDP Will Be the Highlight This Week
We’re nearing the end of August—many investment professionals will be watching markets from the beach. The second revision to Q2 GDP will be out on Friday.
ISM manufacturing survey shows more manufacturing expansion
Overall increases in business activity and consumption are starting to drive more business for homebuilders.
The Fed maintains its policy on reinvesting QE assets
The Fed’s decision to reinvest QE assets in the markets affects REITs. It keeps a bid under TBAs, and it supports MBS values in general.
Why the FOMC minutes and weak payroll data drove REITS and builders
Last week, we had two important data points with the FOMC minutes from the December meeting and the Employment Situation report on Friday.
Must-know: Why mortgage rates rose slightly as bonds sold off
Mortgage rates are the lifeblood of the housing market, which is why the Fed began conducting quantitative easing (or QE) in the first place. Lower rates allow homeowners to refinance.
Manufacturing activity keeps improving in the Mid-Atlantic region
The Richmond Fed Manufacturing Survey looks at business conditions in the Fed’s fifth district, which covers Washington, DC, Baltimore, Richmond, and Charlotte.
Business inventories rise slower than sales, good for activity
This series focuses on industrial and manufacturing releases that will affect the real estate sector. Since homebuilders are highly cyclical, housing analysts watch the manufacturing data closely.
Construction Supply Production Increases In December
Construction supplies increased 1.4% in December, a standout number. This might portend a more vibrant building season in 2015.
Foreclosure Completions Drop In October
Since foreclosures represent a process that may or may not wind up with the bank owning the home, foreclosure completions are a better indicator of foreclosure activity than foreclosure starts.
Wage Growth Could Be Picking Up
Average hourly earnings rose by 9 cents on a month-over-month basis in October and were up 2.4% YoY (year-over-year) to $25.20. However, wage growth is still barely outpacing inflation.
Last Week’s Housing Starts Came In Stronger than Expected
Last week we had some stronger-than-expected economic data with housing starts and building permits topping 1.1 million.
Investor outlook: Consumer price inflation meets the Fed’s target
This report will probably hold the hawks on the Fed at bay and allow them to continue to maintain ultra-low interest rates. The Fed wants to see annual inflation of about 2%.
Recommendation: Should REIT investors fear an accelerated taper?
Last week, we had some stronger-than-expected data with housing starts and some of the industrial production data. Does that mean the Fed will accelerate tapering?
Must-know: Why the jobs report slammed Ginnie Mae TBAs
Friday’s stronger-than-expected jobs report was the catalyst for a heavy sell-off in the bond market. The ten-year bond sold off by 15 basis points.
Import prices fall in May
Import prices are an important driver of inflation The Bureau of Labor Statistics releases its U.S. Import and Export Price Indices monthly. The report keeps track of import prices by locality, type, and fuel/non-fuel. It also separates commodities and non-commodities. Commodity prices tend to be more volatile than non-commodity prices, so it makes sense to […]
Why small business optimism continues to recover slowly
Small business accounts for roughly half of the U.S. gross domestic product (or GDP) and jobs.
Why the Producer Price Index increasing 0.8% in June will hurt homebuilders
The Producer Price Index measures inflation at the wholesale level Analysts have typically taken inflation at the wholesale level to predict inflation at the consumer level. In a normal business environment, producers pass these increased costs to consumers, which would decrease disposable income if wages didn’t rise accordingly. Investors consider a little inflation a good thing. […]
Could the Zulily Transaction Get Competitive?
There’s a tender and support agreement between the founding members and Liberty Interactive. These Zulily shareholders have agreed to the Liberty Interactive tender offer.
Weekly Realist real estate roundup (Part 2)
Back to Part 1 Mortgage-backed securities are the starting point for all mortgage market pricing, and they’re the investment of choice for mortgage REITs When the Federal Reserve talks about buying mortgage-backed securities (MBS), it’s referring to the To-Be-Announced market (usually referred to as the TBA market). The TBA market allows loan originators to take individual […]
Parsing Oracle-NetSuite Material Adverse Effect Clause: Part 1
In the merger deal between Oracle (ORCL) and NetSuite (N), the MAE clause lays out the circumstances under which Oracle can back out of the transaction.
Baker Hughes basics
Baker Hughes (BHI) is a leading supplier of oilfield services, products, technology, and systems to the worldwide oil and natural gas industry.
Why Did the Fed Increase Its Inflation Forecast?
The Fed has been consistently high in its inflation forecasts. At the June 2016 FOMC meeting, the Fed took up its 2016 inflation forecast from 1.6% to 1.7%.
Why foreclosure starts dropped 35% from last year as prices rose
Foreclosure starts are closely watched by investors, realtors, and homebuilders alike because they forecast future housing supply. Foreclosure timelines can vary widely by state.
Why foreclosure starts ticked up in October but are still falling
Foreclosure starts are closely watched by investors, realtors, and homebuilders alike because they forecast future housing supply.
Why the FOMC Statement Is Constructive on the Economy
The FOMC didn’t change its characterization of the economy. The labor markets are improving, economic growth slowed, and household spending moderated.
Wages Dipped Slightly in December: Here’s Why
Average hourly earnings fell by 1 cent on a month-over-month basis in December 2015 and were up 2.5% year-over-year to $25.24. Average weekly hours were flat at 34.5.
D.R. Horton Maintained Its Gross Margins
D.R. Horton’s gross margins held steady at 19.9% in the fourth quarter of 2015. However, they fell on a YoY (year-over-year) basis from 20.5% in the fourth quarter of 2014.
The Jobs Report: This Week’s Highlight for REIT Investors
We’ll get a lot of important economic data this week, and the biggest release will be the jobs report on Friday.
Mortgage Rates Are Not Buying The Rally Yet
The average 30-year fixed-rate mortgage decreased six basis points to close at 3.92%. The ten-year bond rose and yields decreased by 15 basis points.
The Jobs Report Is the Highlight of This Short Week
The bond market will be most sensitive to the jobs report, particularly to wage inflation. REITs such as MFA Financial will also focus on the jobs report.
Must-know: Home prices increase 7.4% YoY
The 7.4% year-over-year (or YoY) gain resembles the gains we saw during the bubble years. On a month-over-month basis, the increase was only 1.2%. It was decent. The prices for ex-distressed sales increased 6.8%. Prices are still 11.9% below their peak in April 2006.
April Federal Housing Finance Agency House Price Index rose 7.4%, good for investors
The Federal Housing Finance Agency (FHFA) House Price Index The FHFA House Price Index differs from the other house price indices like Case-Schiller and Radar Logic in that it only looks at houses with mortgages guaranteed by Fannie Mae and Freddie Mac. This means all the home prices are below the conforming threshold, which is $417,000. […]
Capacity Utilization falls in May
Capacity utilization is a bellwether of economic activity Capacity utilization is a good top-down macroeconomic indicator, which helps forecast the labor market, final demand, consumption, and inflation. While manufacturing is no longer the primary driver of the U.S. economy, it still influences the economy to a large degree, particularly for unskilled workers. U.S. manufacturing is […]
Index of Leading Economic Indicators takes a breather in August
The Index of Leading Economic Indicators (or LEI) is a business cycle indicator. It’s based on 11 different economic statistics—average workweek, initial jobless claims, new orders, building permits, unfilled durable goods, commodity prices, consumer expectations, stock prices, and money supply.
Home Prices Hit New Records: What Does This Mean for REITs?
The recent 5.5% year-over-year gain for home prices has put the FHFA House Price Index about 3% past its April 2007 levels.
Ginnie Mae securities catch a bid as bonds rally, reaching 105 5/32
The front-month Ginnie Mae TBA drifted higher as bonds rallied. After starting the week at 105 17/32, they added about 5/8 of a point to close at 105 5/32.
Why rising asset prices are driving consumer confidence higher
The CCI is one of the oldest consumer surveys, originally started as a mail-in survey in 1967. It asks respondents whether certain conditions are positive, negative, or neutral.
Consumer Confidence dips in May but still improving.
The Thomson Reuters/University of Michigan Consumer Confidence Index is a leading indicator for the U.S. economy The Thomson Reuters/University of Michigan Consumer Confidence Index is an important indicator of the consumer’s perception of the U.S. economy. Similar to other consumer confidence measures, it asks consumers about their views on the current economic conditions, and their […]
Weekly economic recap: why REITs are crushed while homebuilding is bullish
The ten-year bond is the basis for all mortgage pricing Long-term interest rates are priced off the benchmark long-term bond, which is the ten-year Treasury. These days, the ten-year bond reacts to economic data through the Federal Reserve’s asset purchase program, also known as quantitative easing (QE). As a general rule, economic data that shows […]
Ginnie Mae TBAs rally before the Fed meeting
Mortgage-backed securities are the starting point for all mortgage market pricing and the investment of choice for mortgage REITs When the Federal Reserve talks about buying mortgage-backed securities, it’s referring to the To-Be-Announced (also know as the TBA) market. The TBA market allows loan originators to take individual loans and turn them into a homogeneous product […]
Why The Fed Continues To Anticipate Lower Unemployment
At the March 2013 meeting, the Fed was forecasting that 2015 unemployment would be 6.7%–7%. Now, the Fed is forecasting that unemployment will be 5.2%–5.3%.
Merger must-knows: The shareholder vote and 90% tender condition
Once the SEC approves the proxy, a vote is scheduled. Usually, the last condition for a deal is the vote of the target shareholders.
Why did the Ginnie Mae TBAs catch a bid on the bond market rally?
The front-month Ginnie Mae TBA drifted higher as bonds rallied. After starting the week at 105 4/32, they traded 7/16 higher to close at 105 18/32.
The End Of Quantitative Easing Could Make Mortgage REITs Vulnerable
Big agency REITs like Annaly (NLY) and American Capital Agency (AGNC) took the chance to deleverage their balance sheets after the warning in the spring of 2013.
Bloomberg consumer comfort index hits a post-recession high, good for homebuilders
The Bloomberg Consumer Comfort Index rose to -28.3 for the week ending June 23 The Bloomberg Consumer Comfort Index is a weekly sentiment index that covers three critical variables: respondents’ perception of the state of the economy, their evaluation of their personal finances, and whether it’s a good time to purchase goods and services. The […]
Is the Cigna–Anthem Merger a Setup?
The Cigna–Anthem merger deal will be subject to all sorts of headlines that will affect the spread. You can make a decent return trading around the position by keeping your head .
Home Prices Keep Climbing, and Here’s What It Means
The latest Existing Home Sales report shows available inventory at 4.7 months and a market that’s tilted heavily in favor of sellers.
The Risk-to-Reward Ratio of the Cigna–Anthem Merger
If the Cigna–Anthem merger closes, you end up making about $35 a share. If the deal breaks, then you would have to cover at $52 a share.
Fannie Mae mortgage-backed securities fall nearly 3 points in a week
Mortgage-backed securities are the starting point for all mortgage market pricing and the investment of choice for mortgage REITs When the Federal Reserve talks about buying mortgage-backed securities, it’s referring to the To-Be-Announced (TBA) market. The TBA market allows loan originators to take individual loans and turn them into a homogeneous product that can be […]
How D.R. Horton plans to address the first-time homebuyer
D.R. Horton CEO Donald Tomnitz said that the first-time homebuyer will drive the next leg in the sector and has been underserved in this recovery.
January Saw Unemployment Drop below 5%
In January 2016, the unemployment rate fell from 5.0% to 4.9%, or by about 7.8 million people. The underemployment rate was flat at 9.9%.
Why the HARP refis dry up as rates rise, lowering prepay speeds
HARP was designed to help people who wanted to stay in their home and who had adjustable-rate mortgages where they wouldn’t be able to afford the payment once the mortgage adjusted upward.
Why home price appreciation has saved MFA Financial
MFA Financial is a REIT that invests in both agency and non-agency mortgage-backed securities MFA Financial (MFA) is a mortgage real estate investment trust (REIT) that invests in both agency (government-guaranteed) and non-agency (non-guaranteed) mortgage-backed securities (MBS). Its portfolio is primarily invested in hybrids, adjustable-rate mortgages (ARM), and 15-year fixed-rate mortgages. It chooses to invest […]
A Closer Look at the August 15 Drop in Housing Starts
Housing starts fell from a downward-revised ~1.16 million to ~1.13 million in August 2015. This was below Wall Street estimates of just over 1.16 million.
Could a Competing Bid Back up the Dell-EMC Merger?
In the Dell-EMC merger, EMC has been pushed into a sale process by Elliott Management, which had seats on the Board of Directors.
Aggregate home equity increases 9% in Q113
Corelogic puts out a quarterly report on aggregate home equity in the U.S. Corelogic’s Home Equity Report analyzes changes in home equity from a number of different perspectives. Home equity can be used to predict default rates, and we saw a large number of strategic defaults early in the housing bust as professional investors realized […]
New York PMI falls in May
The Institute of Supply Management index assesses the state of manufacturing in the New York City Metropolitan Area The Institute of Supply Management (ISM) New York Purchasing Manager’s Index (PMI) is similar to the ISM PMI , however, it covers the New York City area. The ISM PMI looks at various business indices, like new […]
Consumers Are Tempering Their Bullishness on Real Estate Prices
Rising real estate prices can be positive for non-agency REITs. However, they can be negative for agency REITs.
Massive mortgage market transformation: The return of subprime?
The mortgage market is undergoing a massive transformation as the private label mortgage market returns.
Jump in leading economic indicators shows an improving economy
After increasing by 0.5 in July, the Index of Leading Economic Indicators rose by 0.2 to end at +0.7. Overall, the index indicates an economy that’s slowly mending.
Why Ginnie Mae securities followed bonds lower
The ten-year bond sold off, with yields increasing from 2.19% to 2.27%. Ginnie Mae TBAs followed, dropping from 104 23/32 to 104 20/32.
Allergan–Pfizer merger: What Does Pfizer Make besides Viagra?
The Allergan–Pfizer merger will change Pfizer’s domicile to Dublin, Ireland, and allow them to gain access to overseas cash without a US repatriation tax.
NFIB Small Business Survey flashes warning signs for REITs
The National Federation of Independent Business Optimism Survey is a finger on the pulse of small business.
The FOMC Leaves The Big Question About Jobs Unanswered
There was no discussion of the “speed limit” issue in the July FOMC minutes. This is generally a “cyclical versus structural unemployment” issue.
Could the Plum Creek Timber-Weyerhaeuser Merger Get Competitive?
In the Plum Creek Timber-Weyerhaeuser merger, Weyerhaeuser is paying about 7.4x trailing-12-month revenues and 25.4x trailing-12-month EBITDA.
Why homebuilder sentiment hits post-bubble highs, helping stocks
Homebuilders are in a better position than the smallest construction firms in that they have easy access to credit.
Could the Lam Research-KLA-Tencor Merger Get Competitive?
In the Lam Research-KLA-Tencor merger, Lam Research is paying about 3.9x trailing-12-month revenues and 14.8x trailing-12-month EBITDA.
ISM PMI shows manufacturing back in expansionary territory
The Institute for Supply Management Index assesses the state of manufacturing in the United States. The Institute for Supply Management Purchasing Manager’s Index (ISM PMI for short) is similar to the other regional PMI indices, however, it covers the entire country. The ISM PMI looks at various business indices, like new orders, production, employment, supplier […]
Fannie Mae TBAs rally as Ben Bernanke soothes the bond market, better for mortgage REITs
Mortgage-backed securities are the starting point for all mortgage market pricing, and they’re the investment of choice for mortgage REITs When the Federal Reserve talks about buying mortgage-backed securities, it’s referring to the To-Be-Announced market (usually referred to as the TBA market). The TBA market allows loan originators to take individual loans and turn them into […]
August foreclosure completions tick up but homebuilders unaffected
Increases in foreclosure activity correlate with lower home prices because distressed properties tend to trade at a discount to non-distressed properties.