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Morning Report: Housing starts fall


Vital Statistics:

Stocks are flattish as earnings continue to come in. Bonds and MBS are up.

Housing starts retreated in June, falling 8% on both a MOM and YOY basis to a seasonally adjusted annualized level of 1.43 million. Building Permits fell 4% MOM and 15% YOY to 1.5 million. This month’s numbers showed a striking shift away from multi-family towards single-family.

Single family permits rose 2.2% MOM while permits for 5+ units were down by 13.5%. On a year-over-year basis permits for multi-fam were down 33%. The number of multi-fam units under construction (red line) is at record levels, while single family units under construction (blue line) is in the middle of its historical range.

Given that the US population has increased 65% since the beginning of this graph, you should expect to see an upward trend. This is the bullish story for the economy – housing has punched under its weight since the bubble burst, and this will probably be a driver of the economy going forward.

Mortgage Applications rose 1.1% last week, according to the MBA. Purchases decreased 1.1% while refis rose 7%. Refis are still down about a third compared to a year ago. “Mortgage rates declined last week, as markets responded positively to incoming data showing that U.S. inflation continues to cool. Most rates in our survey declined, with the 30-year fixed rate falling to 6.87 percent,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Refinance applications increased more than 7 percent, but that activity accounted for only 28 percent of applications and was more than 30 percent behind last year’s pace. Despite last week’s lower rates, purchase applications decreased, as home purchase activity is still being held back by low housing supply and rates that are still much higher than a year ago.”  

Western Alliance reported second quarter earnings yesterday, with EPS in line with the Street and revenue growth above. Deposits grew by $3.5 billion, while book value per share rose 3.7%. Net interest margin decreased, while provisions for credit losses were up on a quarterly basis but down on an annual basis.

“Western Alliance continued to successfully execute its balance sheet repositioning strategy and return to normal business operations by bolstering liquidity and capital, sustaining profitability and expanding core client relationships,” said Kenneth A. Vecchione, President and Chief Executive Officer. “Quarterly deposit growth of $3.5 billion lowered our HFI loan-to-deposit ratio to 94%, with total insured and collateralized deposits representing 81% of deposits and available liquidity coverage of 276% of uninsured deposits. We achieved net income of $215.7 million and earnings per share of $1.96 for the second quarter 2023, which resulted in a return on tangible common equity of 18.2%. Tangible book value per share climbed 3.7% quarterly to $43.09, or 17.5% year-over-year, with a CET1 ratio of 10.1%.”

Mortgage banking volume was $11.5 billion, up 44% compared to Q1 but down 15% compared to a year ago. Gain on sale was up big, rising to 43 basis points compared to 26 basis points in Q1 and 13 a year ago. Maybe we are seeing some green shoots in mortgage banking at long last.

The stock is up 1.5% in early trading after rising 9% yesterday.

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Housing Starts Decreased Sharply to 1.434 million Annual Rate in June

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