April 22, 2020 - Market Update

Mortgage applications decreased 0.3% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending April 17, 2020.  The Refinance Index decreased 1% from the previous week and was 225% higher than the same week one year ago. The Purchase Index increased 2% from one week earlier.  The FHA share of total applications increased to 10.3% from 9.5% the week prior. The VA share of total applications decreased to 13.8% from 14.3% the week prior. The USDA share of total applications remained unchanged from 0.4% the week prior. 

FHFA announced midmorning that mortgage servicers are only obligated to advance four months of missed borrower principal and interest payments on loans in forbearance (covid-19).  If loan remains in this status after four months, it will be treated like a natural disaster event and remain in the MBS pool rather than being purchased out of it.  This was done to combat any liquidity concerns from covid-19 forbearance and delinquent loans. 

According to the National Association of Realtors’ seasonally adjusted index, existing home sales fell 8.5% in March which equates to 5.27 million units.  Since most real estate related business has come to a temporary halt (deemed non-essential), inventory is plummeting.  The caveat here is that the print captured closed contracts in late January and February, before covid-19 unleashed its wrath on the economy.  It’s safe to assume that this number could continue falling at greater magnitude in the coming months.   

The market narrative in risk assets remained static day over day as equities and crude continued to come off.  The more notable downside in stocks was driven by software companies.  IBM came out Monday evening stating that clients are shifting into “cash conservation mode” forcing many projects to be put on the back burner until the economy finds its footing again.  This is expected to be a drag on earnings and was felt during Tuesday’s session.  Selling picked up across some of the software giants such as IBM, Salesforce, and Paycom.  WTI May made its way back into positive territory and closed at $10.01 but Monday’s move was enough to spook investors who were long in out month contracts.  As a result, selling pressure increased and June/July contracts plummeted 20-30%.  Producers across the board are having discussions around curbing oil output as storage capacity and supply surplus continue to be the main catalysts behind price volatility.

Over the last four weeks, 22 million jobs have been lost, 13.3% of the labor force. Add the initial unemployment rate of 3.5%, and the unemployment rate is 16.8%. By the end of the month, it will be meaningfully higher. However, many of those not working will not be considered technically unemployed as they will not be actively seeking work, pushing the officially reported unemployment rate down, possibly quite considerably.