Mortgage Credit News by Louis S Barnes - March 26, 2021

The rapid rise in long-term rates paused this past week but the bond market failed tries to a lower level, as well as failing tries at the Fed and common sense. Brace thyself for higher.
The Fed. Powell and predecessor Yellen, now at Treasury testified to Congress this week. Asked about the run up in the 10-year T-note, they were offhand, said it was a normal reaction to an improving economy. No matter what they really think, markets get the message: okay with us. We may or may not have started the increase (ain’t sayin’), but it has intercepted incipient bubbles in houses and stocks, and is a very nice cushion for the announcement of the end of QE. Whenever, we’ve already had a pre-tantrum.
If the Fed has no plans to intercept the increase -- not near these levels -- then up she goes. We may find a stable level somewhere north of here, helped by the diminished refi volume, but we will be at risk for another steep run-up if Covid retreats quickly and the economy normalizes.
Wall Street has an aphorism for every situation. Today, “A market which will not rise on good news is destined to go lower.” Today we got the Feb core PCE deflator, the Fed’s favorite measure of inflation, up 0.1% and mired at 1.4% year-over-year and bond prices fell again, rates up.
Bad data. Markets (and a lot else) depend on good data. Lord knows the salespeople on Wall Street can’t be trusted. Nor politicians, the web, neighbors nor relatives, nor preachers nor scientists nor medics. We need hard data, raw data un-fiddled, non-“clarified” which we can read ourselves.
Some data suffers from bad structure and conception all of the time, and occasionally from temporary confusion. Among the former, no series of information is worse than housing. You’d think that the nation’s largest asset class and businesses would have competent information.
This week, straight-faced, NAR reported a 6.6% drop in sales of existing homes in February. Media tisk-tisked, oh-how-sad, trouble! Not. The existing-sales series is the change from the prior month. The change from any January to February is immaterial, low-volume weather-effected months. A good outfit like www.calculatedriskblog.com pointed out the third-best February ever, up 9.1% from Feb 2020, which by the way will be the last useful year-over-year comparison because Covid set in last March. We’ll begin to compare new months to non-Covid 2019.
Covid hash is spilled all over the place. February personal income fell 7.1% from stimulus-heavy January, signifying nothing. GDP data will not be worth reading until late this year, if then. “Personal Consumption Expenditures” are growing along at 2.3% annualized, the true (low) speed of recovery.
Mortgage disorder. Fannie and Freddie are in the hands of the FHFA, whose director wishes to “privatize” them, a functional end to them and the mortgage system in the US these last 50 years, and an end to housing and the economy and a few other things. The director, Mark Calabria was confirmed by the Senate two years ago to a five-year term, has no board to answer to nor any other supervision. The Supreme Court will rule this summer on the ability of a president to discharge the director, and the constitutionality of an unsupervised single-director. If the Court finds presidential authority, Calabria will be fired while the sound of the gavel still echoes.
Calabria is one of the no-matter-what haters of government. He can’t fold the Fannie-Freddie conservatorship without the Treasury Secretary, which ain’t happenin’ now. But Calabria can undermine, and did so this week. Under the cover story that the agencies give too much help to second homes and rental financing, he installed a murky limitation on annual lending in those categories. The greatest damage so far is to their refinancings, but adapting to the new rule is still underway. Rough benchmarks on screens today: an 80% owner-occupied purchase loan is still close to 3.25%. If a second home, should be the same, but now close to 3.50% -- and a refi 4.125% plus one point. The purchase of a rental with 25% down: about 3.875%. A refi... 4.50% and two points.
Covid. Someday, maybe next year we can stick with economics. Today... still trying to make sense of medics and scientists of all kinds, and trying to leave the room peacefully after someone intones, “Trust the scientists!”
They are human. They have the same need for fame as the rest of us. They are dependent on funding which is as biased as the rest of us. They are well-trained against jumping to conclusions, but medicine in general struggles to form and manage public policy. And they have to deal with us.
Oxford’s World of Data has US single dosage at 40% of Americans, doubled in 30 days. However, the compassionate people we are, most doses have been given to the wrong people. We correctly prioritized caregivers. But if our intention was the quickest possible stomp on Covid, don’t give it to old people! We are the most vulnerable if we catch it, but we are the most serious about not catching it. By prioritizing the best-behaved mask-and-distance people, we’ve gotten the least result.
I can dream. If we wanted a quick suppression, round up everybody aged 18-29 by Social Security Number (SS knows who and where we are) and shoot ‘em up. They are the highest intensity spreaders.
Oh, well. We are juicing so many people so fast, and among populations who told pollsters they would not be vaccinated that we are going to see big declines in cases soon -- weeks, not months. Despite (gulp) 70,000 new cases detected daily in the US. Despite “science” and CDC yelling about mutations, inventive means of infection, increasing travel and hotel use, and unauthorized openings (movies!).
If those are not big-enough unknowns, we have ahead the truly unquantifiable: how long will the Covid-fearful resist returning to normal even when new cases collapse?

The 10-year T-note five years back, the grey shading indicating recession, this week’s trading added in red. The excursion above 2.50% (mortgages pushing 5.00%) was driven by the Fed’s last try at pre-empting too many jobs. So, even if rates continue to rise, they don’t have far to go -- until the Fed’s next experiment takes hold... trying \to increase inflation to 2%:

World of Data https://ourworldindata.org/covid-vaccinations , vaccinations by nation or region with very little lag. Computed as single-stick, not the lagging “complete vaccination” favored by scaremongers. Scale is sticks per 100, same as percent. The European failure is hard to interpret except as cultural illness. BTW: so, Brexit was a bad idea, the rejection of Eurocrats without justification? And China, the world’s new great empire... really?

These last two slides are from Colorado https://covid19.colorado.gov/data. We are a good place to watch, a center of travel (global, vacation, and business), urban and rural and resort. The hospital data is very close to real time, admissions reporting automated. The crash since mid-March may be a lag in data. The second slide always greys-out the period of likely lag in reportings -- at the parent site you’ll see different slicing and dicing, but the date of onset which matters (not date of positive test), and there appears to be a drop-off crossfooting with the drop in hospital admissions. Vaccine effect underway?