Specialty Capital News & Views: March 25, 2024

In this week’s write up we wanted to share our views on the housing market and the Fed Funds Rate decision.

Home Sales and Cash Buyers: Home sales for February surged by 9.5%, marking the largest increase since February 2023, reaching an annualized rate of 4.38 million units. Remarkably, a significant portion of these sales (one third) were cash transactions.

Housing Starts and Building Permits: Construction of new homes rebounded strongly in February, increasing by 10.7% to a pace of 1.52 million units annually, the largest gain in nine months. Building permits, which indicate future construction activity, also rose by 1.9% to the same annual rate.

Single Family Residential Construction: Home builders focused on ramping up construction of single-family residences, likely in response to the persistent shortage of housing inventory. We remain aggressive in our offerings in the construction SIC due to these demand/supply factors.

Commercial Financing Trends: There’s been a shift in financing trends, with more customers seeking revenue-based financing. Our submission intake data can confirm this uptick. However, there’s a noted decline in the quality of the paper we are seeing on our side. Defaults have slightly risen in most recent cohorts but nothing too alarming. Qualified customers are also exhibiting caution, leading to a slowdown contract out conversions.

Our view is that this is more so related to seasonality, this time of the year has always been slow for us. Additionally, between it being an election year and higher rates, customers are not as eager to pull the trigger.

The Federal Reserve announced on Wednesday that it would maintain its current benchmark overnight borrowing rate in the range of 5.25% to 5.5%, consistent with its stance since July 2023. However, Jpow and the team reiterated its commitment to stimulate economic growth through monetary policy adjustments, with three rate cuts poised for implementation in the upcoming months and slow down in the balance sheet rundown.

The market continues to rip to new highs across the board in the S&P500, Bitcoin, Gold among other asset classes. The goldilocks patterns continue.