Stocks are lower this morning as higher interest rates dampen investor sentiment. Bonds and MBS are down.
Bonds didn’t like the stronger than expected ISM report yesterday, and Susan Collins stressed that the Fed will have to hold rates at restrictive levels for longer.
While the Fed Funds futures don’t see another rate hike at the September meeting, they do see a roughly 50% chance for another rate hike sometime this year.
Nonfarm productivity rose 3.5% in the second quarter of 2023, which was a touch below street expectations of 3.6%. This was driven by a 1.9% increase in output and a 1.5% decrease in hours worked. Unit labor costs rose 2.2%, which was driven by a 5.7% increase in compensation and a 3.5% increase in productivity.
Note that these are second quarter numbers, so they are pretty old.
Mat Ishbia (the CEO of United Wholesale) urged the FHFA to intervene with the buybacks being issued by Fannie and Freddie. “They are making billions, and lenders are barely scraping by, but they continue to make them buy back loans for small reasons here, little things that happened on a loan that maybe are not impacting the borrower’s success in that loan,” Ishbia said. “The industry is up in arms and is very frustrated with the amount of repurchases Fannie Mae and particularly Freddie Mac are pushing back on lenders,” Ishbia said. “A lot of trade groups, a lot of people are talking about it, and it’s impacting lenders, impacting mortgage people, and impacting consumers at the end of the day as well.”
The average principal and interest payment on a mortgage rose to $2,306. This number excluded taxes and insurance. This is a 60% increase (or about $871) over the past two years, driven by rising rates and home prices. This affects cash-out refis as well.
“Rates aren’t just hampering prospective homebuyers, though. While tappable equity levels have returned to near- record highs, rising rates are having a clear impact on how – and how much – equity mortgage holders are willing to withdraw from their homes. All in – including first-lien cash-out refis and second-lien home equity loans and lines – we saw mortgage holders withdraw $39B in equity from their homes in Q2 2023. That’s up slightly from Q1’s $37B, but only about half the volume of Q2 2022, before interest rates began to climb. Historically, from 2010-2021, mortgage holders pulled out just under 1% of available equity each quarter. But over the last three quarters, that share has fallen to 0.4%, which suggests rising rates have resulted in a roughly 55% decline in equity withdrawals. In essence, over the last 15 months, there’s been nearly $200B less equity withdrawn – and reinjected into the broader economy – than might otherwise have been, due in large part to elevated interest rates.”
Even though mortgage rates are super-high, is holding credit card debt which costs 20% a better option than a cash-0ut refinance at 7.5%?
The Fed released its Beige Book yesterday, and the key word was “modest.” In Fed-speak, “modest” = “meh.” Economic growth was “modest” in July and August. On the subject of prices, they said: ” Most Districts reported price growth slowed overall, decelerating faster in manufacturing and consumer-goods sectors. However, contacts in several Districts highlighted sharp increases in property insurance costs during the past few months. Contacts in several Districts indicated input price growth slowed less than selling prices, as businesses struggled to pass along cost pressures. As a result, profit margins reportedly fell in several Districts.
Does this sound like we are getting 5.6% GDP growth in Q3?