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 analysts saw a slow week and a disappointing Black Friday
The initial reports regarding Black Friday shopping look like we’re seeing the first actual decline in seven years.
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.
What Will Arbs Think of the MRD-RRC Deal?
This transaction is a classic merger arb core position. The companies are reasonably big and liquid and the deal makes strategic sense. It’s fairly safe.
Weekly Realist real estate roundup (Part 4)
Back to Part 3 The recent bond market sell-off bumps up mortgage rates again Mortgage rates are the lifeblood of the housing market, which is why Bernanke and the Fed began conducting quantitative easing (or QE) in the first place. Lower rates allow homeowners to refinance, which increases their disposable income and helps stimulate economic growth. Lower […]
FOMC Meeting Should Be a Non-Event This Week
The big event for investors will be the April FOMC meeting. Investors are assigning a 0% probability that the Fed will hike rates next week.
What You Need to Know about the Abbott Labs Side of the Alere-Abbott Merger
Abbott Laboratories is a leading pharmaceutical company that also makes diagnostic products, nutritional products, and vascular products.
Toll Brothers’ Gross Margins Fall on a Year-over-Year Basis
In the fourth quarter of 2015, Toll Brothers’ (TOL) gross margins, excluding interest and write-downs, fell to 22.3% compared to 26.8% a year ago.
Personal consumption jumps in August: We are spending money again!
Personal income is the income a person receives from all sources. This includes wages and salaries, government transfer payments, other labor income, proprietor’s income, and rental income.
Mortgage Rates Rise as Bond Yields Increase
Mortgage rates are the lifeblood of the housing market. The Fed’s plan to help the housing market started when it pushed rates lower to allow people to refinance.
Mortgage Refinance Applications Rise
Mortgage refinance applications, as measured by the MBA Refinance Index, rose 16.7% from 1,693 to 1,902 for the week ending August 28.
Weekly economic recap – Dovish comments from the Fed
The 10-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 […]
FOMC Meeting Is the Highlight of the Week Ahead
This week contains some important data with housing starts, industrial production, and retail sales. The FOMC meeting will be the highlight on June 14 and 15.
New Home Sales Impressed Wall Street while GDP Disappointed
The week ending May 27 was dominated by a big upward surprise in new home sales and a disappointing GDP revision on Friday.
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.
Simon Property Sends a Bear Hug Letter to Macerich
Simon Property (SPG) has proposed to buy Macerich (MAC) for $91 a share, half of which will be cash and half of which will be SPG stock at a fixed ratio.
Why bonds rallied from the FOMC to a possible government shutdown
The ten-year bond rallied throughout the week as the market digested the implications of the FOMC (Federal Open Market Commitee) meeting.
Ginnie Mae TBAs Fall 5 Ticks
The ten-year bond yield fell by 1 basis point for the week ending November 20. Ginnie Mae TBAs fell 5 ticks to go out at 103 25/32.
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 […]
Consumer sentiment falls, another warning about the economy?
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 […]
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.
Ginnie Mae TBAs Caught a Bid on Last Week’s Bond Market Rally
Like Fannie Mae TBAs, Ginnie Mae TBAs caught a bid and picked up 18 ticks to 104 17/32, underperforming Fannie Mae TBAs.
Background on Macerich
Macerich is in the second tier of large retail REITs. It’s a player in the community or power shopping center segment, along with Kimco Realty (KIM).
Must-know: Why bonds rallied on weak economic and jobs reports
Bonds followed through on last week’s rally with another rally. After closing out the prior week at 2.66%, interest rates moved lower in response to the weak first quarter GDP report.
Why pay attention to last week’s extremely important releases?
Last week had some extremely important economic data, with the ISM report, construction spending, GDP, and the jobs report. The advance estimate of first quarter GDP came in at 0.1%.
Consumer Sentiment Lifts In December
The performance of tenants is a critical driver of vacancy rates and returns. While mall REITs aren’t directly exposed to consumer spending, consumer spending is still a critical driver.
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 […]
Must-know: Why the future looks bright for homebuilders
It’s important to remember that while growth is coming from distressed levels, current production is still well below historical averages.
Could The Fresh Market Deal Become Competitive?
The $28.50 purchase price was a high premium of over 24% to where The Fresh Market was trading on March 11, 2016—the day before the deal was announced.
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 […]
Kansas City Fed Manufacturing Report shows moderating activity
The general business conditions index slipped 4 points to +6, coming off the the best reading in two years in May. Interestingly, the reason for moderation in factory growth was attributed to a difficulty in finding qualified workers.
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.
Why low mortgage origination volumes are bad for REITs
Mortgage originators have had a difficult time over the past year, as rates have begun rising. The increase in interest rates pretty much stopped the refinance boom in its tracks.
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.
Choosing the Proper Election in the Time Warner Cable Deal
Time Warner Cable (TWC) shareholders have a choice in the transaction. They can elect to receive $100 cash plus .5409 shares of Charter (CHTR) or $115 plus .4562 shares of Charter.
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.
Could the Apollo-ADT Transaction Get Competitive?
The $42 purchase price was a high premium of over 50% to where ADT (ADT) was trading on February 12, 2016, the Friday before the deal was announced.
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.
Parsing the Heartland–Global Payments MAE Clause, Part 3
Let’s continue our discussion on the Heartland–Global Payments merger. The MAE clause is one of the first things that arbitrageurs look at in a merger agreement.
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.
Why strong payroll growth is shaping REIT and homebuilder stocks
We had quite a few important economic releases last week, starting with construction spending, which came in lower than expected. But the prior month was revised upward in a big way.
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 […]
Empire State Manufacturing Rebounds
The General Business Conditions Index shows that Empire state manufacturing has rebounded. Of those surveyed, 33% reported better conditions.
Why real estate investors should focus on overseas events
The bond market has been reacting strangely to domestic reports lately, which probably means something international is causing some sort of flight to safety.
Important Indications: The Salix Situation Is Competitive
What sort of process did Salix run in January? Did it only solicit a few potential buyers? It must have, since Endo made an unsolicited offer and the bidding is now public.
Good credit conditions help commercial REITs like Boston Properties
Increased credit availability is extremely important to commercial REITs like Simon Property Group (SPG), Boston Properties (BXP), Kilroy (KRC), Vornado (VNO), and S.L. Green (SLG).
Lots of Real Estate Numbers ahead: Here’s What You Need to Know
This week will have a lot of valuable data for real estate investors. We have some important earnings this week too.
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 […]
Time Warner Cable and Charter Merger: What Could Stop the Deal?
Between Time Warner Cable and Charter Communications, the MAC clause lays out the circumstances under which Charter can back out of the deal.
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).
October FOMC Minutes Show the Economy Is Improving
According to the October FOMC minutes, the Fed members noted that industrial production had fallen, which they attributed to the rise in the US dollar.
Why does Vornado report an increase in funds from operations?
Many REITs use funds from operations, including office REITs like Vornado (VNO), S.L. Green (SLG), and Boston Properties (BXP) as well as retail REITs like Simon Property (SPG) and General Growth Properties (GGP).
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 […]
Must-know: Can the government do something for the economy?
There has been a tug-of-war between the left-wing prescription of using the government to cushion the blows of a difficult economy and the right’s version of “let the markets clear.”
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.
Why mortgage rates declined after the FOMC maintained its course
Interest rates fell sharply across the board as the Fed voted to maintain its current rate of asset purchases. The market was betting heavily that the Fed would begin to reduce purchases.
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.
Foreclosure Completions Fell in November: What Does It Mean?
Foreclosure completions fell by 4,000 units to 33,000 in November, according to CoreLogic. Completions fell 19% YoY (year-over-year).
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.
December FOMC Statement Cheers Stock Investors
Yesterday, the Federal Reserve ended its September FOMC meeting. It changed its language regarding interest rate normalization going forward.
What Kind of Return Will the IGATE–Capgemini Spread Yield?
To turn this into a reasonable return, you’re looking at a July close. This isn’t outside the realm of possibility, but it could be tough, especially since there’s a shareholder vote.
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.
Will the MRD-RRC Deal Get Competitive?
Range Resources’ (RRC) offer of $15.75 per share was a 17% premium to Memorial Resource Development’s (MRD) price before the deal was announced.
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.
Sales fell, increasing business inventories in August 2014
Business inventories are important economic drivers, especially when they build. Historically, recessions start with a buildup of inventory.
Geographic Results for Toll Brothers in Fiscal 2Q16
In Toll Brothers’ North segment, the ASP (average selling price) rose from $630,000 to $705,000 in fiscal 2Q16.
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.
Stocks fall and bonds rally in the FOMC statement
Yesterday, the Federal Reserve ended its September FOMC meeting. It changed its language regarding interest rate normalization going forward.
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.
Employment Rises, Labor Force Participation Rate Remains Unchanged
The unemployment rate has been falling, so why doesn’t the average citizen feel better about the economy? The reason is the labor force participation rate remained unchanged at 62.8% in November.
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%.
What Economic Data Will We See This Week?
The week after the jobs report is usually very data-light, and this week is no exception. None of the economic reports this week will be market-moving.
Simon Property increases funds from operations and keeps dividend
Occupancy percentage increased to 96.5% from 95.1% a year ago—an increase of 140 basis points.
Must-know: What to watch for in real estate this week
Mortgage real estate investment trusts (or REITs) like American Capital Agency (AGNC) and Annaly (NLY) will focus on data that will move the bond market.
Must-know: Thinking about quantitative easing going forward
The Fed currently supports $4 trillion in assets with about $55 billion in equity. Under any other entity, that would be considered an unthinkable leverage ratio.
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 has the recovery taken so long to arrive?
The recovery hasn’t been satisfying. Due to consumption and consumer deleveraging, the necessary spending isn’t generated to pull the economy out of its slow growth pattern.
Fannie Mae TBAs Fell by 9 Ticks
Fannie Mae TBAs ended the prior week at 103 17/32. They fell nine ticks to go out at 103 8/32 for the week ending December 18.
US Home Prices Rise 5.1% Year-over-Year
In January 2015, home prices grew 0.3% month-over-month, up 5.1% year-over-year. Prices are now within 3.5% of their April 2007 peak.