Death of a Giant – over the weekend 166-year-old Credit Suisse was forced to sell to UBS. This bank financed everything from railroad to tech companies and catered to the wealthy elite. While they survived 2008, the were injured and never fully recovered. In the past decade they suffered from scandals, and bad investments. After a couple of their large shareholders (including Saudi Arabian Investment Fund) pulled out they quickly became insolvent and with the backing of the Swiss Government UBS was forced to step up and buy their poorly run rival. An interesting twist in this take over is that shareholders received some compensation, while the CoCo bondholders got nothing.
Mortgages Rates improved again this week as the price of Mortgaged Backed Securities (MBS) increased in response to inflation data and global banking instability. Rates are up approximately 2% from this time last year.
Banking – the Fed’s balance sheet increased by nearly $400B over the last two weeks as banks are turning to the lender of ‘last resort’ to maintain liquidity. The Fed currently charges 4.375% on these funds. Deutsche bank is the latest European bank under pressure after the UBS takeover of Credit Suisse. During this takeover equity holders received money before the Bond Holders (normally bond holders are considered first position) which caused a sell off of among Deutsche Bank bond holders. The Fed raised their interest rate by 0.25% and Powell mentioned that inflation is still not coming down – which we have actually seen quite a bit of progress in most areas. Inflation persists in airline fares, pet services, streaming, and auto insurance/maintenance. If you strip out food, energy, and shelter costs the year over year rate is closer to the Feds goal of 2.1% (normally the core focus only strips food and energy). It’s important to remember that data on shelter lags behind by a couple of months.
Home Sales – NAR’s Existing Home Sales report showed that sales increased 14.5% in February, the largest increase since July 2020. On a year over year basis sales are down 22%, which is a significant improvement from 37% in January. Supply is very tight at 2.6 months, where 4.6 months is considered normal. Homes are on the market for an average of 34 days with 57% of homes on the market for less than 30 days.
Rents – Core Logic’s Single Family Rent Index showed that SFR rents are up 5.7% year over year, which is down from 5.7% last reading. this deceleration will eventually reflect in inflation reports.
Mortgage Applications – to purchase homes increased by 2% last week and are down 36% year over year. Refinances increased by 5% last week and are down 68% year over year.