November 8th, 2024
QUICK ECONOMIC UPDATE:
1. FOMC Chair Powell's speech on November 7th: Economic activity is growing steadily, but labor market conditions have loosened slightly, and unemployment is up, though still low (4.1%). Inflation is moving closer to the 2% target but is still higher than desired. The Federal Reserve is focused on reaching both maximum employment and 2% inflation over time, and currently sees the risks to both goals as balanced. To support this, the Fed lowered interest rates by 0.25% and continues reducing its holdings of government securities. It will keep monitoring the economy and adjust policies if necessary to meet its goals.
Q3 GDP came in at 2.8%, missing the estimated 3%, but still a healthy number
Personal income rose .30% in September, while consumer spending increased t0 .5%, higher than the consensus .4%: this is a critical component to strong economic conditions
Non-Farm payrolls, with only $12k new jobs added in October was likely affected by job strikes and the hurricanes in October as Powell mentioned and quickly played down as the September job print was the highest monthly gain since March with 254,000 jobs added
The 10-Year UST has dipped from its election highs above 4.43%, currently sitting at 4.29%, still ~65bp above the mid September lows.
Inflation prints were uneventful and in line with expectations, new data releases coming out next week
2. The Mortgage Bankers Association reports that life insurance companies increased their commercial and multifamily loan volumes by 60 percent from the first to the second quarter of 2024. With $12.8 billion in new loans issued, life companies now hold 16 percent, or $753 billion, of the $4.7 trillion in outstanding commercial real estate (CRE) debt. In comparison, lending by depositories grew by only 21 percent during the same period. Despite this slower pace, banks remain the largest holders of outstanding CRE debt, accounting for 38 percent, or $1.78 trillion, according to the MBA.
Interesting to Note: While life insurance companies are extending debt with terms of 7 to 20 years, many borrowers are opting for shorter terms, anticipating lower interest rates in the near term. Some life-co lenders are accommodating these requests, but often at higher rates due to the inverted yield curve. Life insurance companies have also increased their share of construction lending and bridge lending as many have multiple accounts of varying risk tolerance in which to deploy capital.
3. The Basel III endgame proposal, which would increase capital requirements for large banks (the latest draft by around 9% for the largest institutions), may be scrapped under a new Republican administration led by Donald Trump, potentially easing regulatory pressures on the banking sector. This shift could lead to increased lending, share buybacks, and a more favorable environment for bank mergers, particularly benefiting regional lenders. While some analysts predict a surge in bank M&A activity and reduced regulatory scrutiny, there are concerns about the broader economic risks, including trade tensions and inflation. The KBW regional banking index clearly liked the election results and is on track to close over 10% higher this week after surging 13.5% on Wednesday.
4. "In FY 2024, SBA supported 103,000 financings to small businesses, the highest level across SBA’s core programs since 2008, as well as 18,000 loans to households for disaster recovery; the agency also increased its annual capital impact to $56 billion, a 7% increase over FY 2023. The expansion of the portfolio was driven by dramatic growth in the 7(a) Loan Program’s smallest loans—those under $150,000" SBA 2024 Capital Report linked below
5. Unsurprisingly, bank loan workouts have increased significantly in 2024. As of May of this year, 22 Billion in loans received modifications by lenders, compared with $16.8 Billion in all of 2023.
6. HUD has issued draft program changes reducing DSCR to 1.15x and increasing the LTV to 87% for market rate refinances (80% for cash out). With a 35 year fixed-term and a 35 year amortization, HUD is a great tool for multifamily refinances that are proceeds sensitive.
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