Vital Statistics:
Stocks are flattish this morning as Donald Trump looks to ease some tariffs on automakers. Bonds and MBS are up.
Home prices rose 3.9% on a YOY basis according to the Case Shiller Home Price Index. “Even with mortgage rates remaining in the mid-6% range and affordability challenges lingering, home prices have shown notable resilience,” said Nicholas Godec, CFA, CAIA, CIPM, Head of Fixed Income Tradables & Commodities at S&P Dow Jones Indices. “Buyer demand has certainly cooled compared to the frenzied pace of prior years, but limited housing supply continues to underpin prices in most markets. Rather than broad declines, we are seeing a slower, more sustainable pace of price growth.”
The rental vacancy rate ticked up to 7.1% in the first quarter, according to the Census Bureau. The homeownership rate was flat at 65.1%. With asking rents falling, I think we are going to see shelter inflation return to normal in the coming months.
Mortgage REIT Two Harbors (which is heavily invested in MSRs, and owns Roundpoint) announced earnings yesterday. Book Value Per Share rose 4.4%. The company is defensively positioned at the moment: “Given the uncertain macroeconomic environment that we are currently in, we are focused on keeping our risk exposures low,” stated Nick Letica, TWO’s Chief Investment Officer. “You can see evidence of this in various dimensions across our portfolio at quarter-end, including lower notional mortgage exposure and lower spread exposure. We are also maintaining high levels of excess liquidity, even as the funding markets have remained liquid and well supported. But from dislocation, there is also opportunity. Agency RMBS spreads have widened in response to the pickup in volatility, increasing the levered returns available on that asset, while the low weighted average coupon rate of our MSR should continue to generate stable cashflows.”
The Dallas Fed Manufacturing Report showed manufacturing increasing at a modest rate, although tariffs are causing manufacturers to lower their outlook. New orders fell while prices paid increased. The general business conditions index was the lowest since May of 2020.
