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Stocks are higher this morning as we begin the Fed meeting. Bonds and MBS are up small.
Consumer confidence fell in October, according to the Conference Board. “Consumer confidence fell again in October 2023, marking three consecutive months of decline,” said Dana Peterson, Chief Economist at The Conference Board. “October’s retreat reflected pullbacks in both the Present Situation and Expectations Index. Write-in responses showed that consumers continued to be preoccupied with rising prices in general, and for grocery and gasoline prices in particular. Consumers also expressed concerns about the political situation and higher interest rates. Worries around war/conflicts also rose, amid the recent turmoil in the Middle East. The decline in consumer confidence was evident across householders aged 35 and up, and not limited to any one income group.”
I did a deeper dive into this phenomenon in my latest Substack article. Check it out and please consider subscribing.
Home prices rose 0.4% month-over-month and 2.6% year-over-year according to the Case-Shiller Home Price Index. We are definitely seeing a reversal of fortunes regionally, with the strongest areas of 2020-2022 (Phoenix, Las Vegas) underperforming, while the weakest areas since the Great Recession (New York, Chicago, Detroit) now outperforming.
The FHFA House Price Index increased 0.6% MOM and 5.6% YOY. “U.S. and regional house price gains remained strong over the last 12 months.” said Dr. Nataliya Polkovnichenko, Supervisory Economist in FHFA’s Division of Research and Statistics. “The South Atlantic division showed moderate weakness in August, while the remaining census divisions posted positive price appreciation from the previous month.”
Redwood Trust reported third quarter earnings yesterday. Book value fell by 5.3% as MBS spreads widened. The company purchased $800 million of jumbo loans, a big jump from Q2 and a year ago. Redwood has been increasing its counterparty exposure, focusing primarily on depository institutions. Business purpose originations of $411 million was marginally higher than Q2 and down 28% compared to a year ago.
Mortgage REIT AGNC Investment reported earnings per share that beat the street, although the company pre-announced lousy earnings a while ago. Book value per share fell 14% compared to the second quarter. “A complex set of domestic and global factors, including heightened geopolitical risks, Treasury supply concerns, and an approaching inflection point in the Federal Reserve’s monetary policy, drove the significant volatility and underperformance in the Treasury and other fixed income markets,” said Peter Federico, the Company’s President and Chief Executive Officer. “In environments in which Treasury securities experience considerable price instability and the market struggles to find a new equilibrium, Agency MBS typically underperform, which was indeed the case in the third quarter. As challenging as this period has been for all bond market participants, the current opportunity for both levered and unlevered investments in Agency MBS remains historically attractive on both an absolute and relative basis. Once the uncertainties associated with the current market environment subside, we believe that a durable and attractive investment environment will emerge.”
MCM announced its new Artificial Intelligence Fallout Analytics Service: “CloseLytics Pro” MCM’s founder states: “The guessing game of what’s my mortgage pipeline exposure is over….” MCM’s AI based neural network software system “CloseLytics Pro” utilizes the latest data science techniques and AI to accurately predict which loans will close with or without renegotiations in all market conditions. The system is designed to be self-correcting with automatic back testing and reporting. MCM has over 29 years of experience with managing mortgage pipeline risk using state of the art OAS technology and proven statistically based fallout analytics and has been developing and using AI tools for over 10 years. CloseLytics Pro can be integrated with any Pipeline Risk Management System or hedge advisory service. The system not only can provide singular closing rate predictions on an individual loan basis it also provides forecasts by loan for any range of market movement. For more information , contact Dean Brown @ 858 483 4404 x101
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