I Hope You Are All More Optimistic Than The Rest Of The Market Seems To Be. Also, Here's What Happened Today --- Apologies For The Late Post | (12.20.22)
“We can complain because rose bushes have thorns, or rejoice because thorns have roses.” - Alphonse Karr
What Happened Today:
• The United States Census Bureau released updated monthly housing starts and building permit figures which measure the annualized number of new residential buildings that began construction and annualized number of new residential building permits issued in the previous month, respectively. Many consider building starts to be a leading indicator of U.S. economic health because construction produces a wide-reaching impact on different sectors of the market. For instance, jobs are created for construction workers, subcontractors, inspectors, and various construction services purchased by the builder. Not to mention the raw materials that are ordered and the supply chain logistics that go into delivering them to a work site. Likewise, building permits are significant as a gauge for economic health because they mark future construction activity before it even happens. Permits serve as a sort of “window into the future.” According to the Census Bureau, housing starts came in at 1.43 million which was better than the market forecast of 1.40 million and in line with last month’s reading figure (also 1.43 million).1 Meanwhile, building permits came in at 1.34 million which was under the market expectation of 1.48 million and last month’s reading of 1.51 million.
TL;DR — There were more construction starts than the market anticipated, and fewer future builds that received new building permits.
• According to ATTOM research, U.S. mortgage loan originations fell by 47% in Quarter 3, 2022, when compared to the same quarter a year ago. Moreover, this drop marks the largest fall on a year-over-year basis in the last 21 years. Interestingly, it is non-bank lenders, especially those that focus on non-qualified mortgages (“non-QM”), that have taken the largest hits. For added context, a non-QM loan is a loan that is qualified for using methods of income verification outside of traditional methods used for “qualified mortgage” loans — such as with conventional and FHA financing. There are various reasons that a borrower might want to utilize a non-QM loan program (as well as various programs) with many of the borrowers/home buyers being small business owners or real estate investors. For some, including First Guaranty Mortgage Corp. and Sprout Mortgage, the current market environment (as well as internal financial issues) have led to bankruptcy filings. Curiously though, and according to CoreLogic, non-QM mortgages have made up ~4% of loan originations in 2022, nearly double the ~2% seen just two years ago (2020).2
TL;DR — Non-bank & non-QM lenders have been hit the hardest by deteriorated credit market conditions (some going out of business) despite non-QM loans growing in popularity.
Chart Of The Day:
The below graph illustrates the share of survey respondents who are optimistic that next year (2023) will be “better” than the year they’ve just had (2022). More specifically, this study conducted by IPSOS found that just 65% of people are optimistic that next year will be an improvement compared to their lives over the past twelve months.3 The worst part, this is a 12% decrease from 2021 and the lowest score in the history of the survey! To be honest, this data is a major bummer and I hope these survey respondents are completely wrong — meaning they have excellent 2023s. Additionally, this survey has somewhat motivated me to be more mindful about reporting the reasons market participants should be optimistic even during a market downturn/recessionary environment.
Average Global Optimism Heading Into 2023
TL;DR — The people have spoken and they are NOT optimistic about 2023.
Source: United States Census Bureau — Building Permits Survey (BPS)
Source: ATTOM research & CoreLogic