Specialty Capital News & Views: March 1, 2024

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This week we had major economic economic data prints that can help us better understand the underlying economic parameters that may affect our customers. We would like to discuss two in this week’s write up.

Durable goods dropped a staggering 6.1% in January but most of it was due to a brief pause in airplane orders, adjusting for airplanes and cars, Durable Goods came down 0.3%. We like to look at orders ex transportation as that gives us a better view of how well businesses are performing. Overall, it seems that there is strength in the consumer as business investments (equipment and core manufactured goods) show signs of recovery.

Pending Home Sales falls the most in five months as mortgage rates tick back up. Pending homes sales sank 4.9% in January and transactions are down 8.8% relative to last year. This makes sense as mortgage rates ran back up to 7%, there isn’t much inventory available and affordability is at multi decade highs The supply of new homes remains low so we remain aggressive in our offerings in certain jurisdictions where we see large home builders developing. Overall the consumer is a lot more rate sensitive. We believe there will be a tremendous amount of pent up demand when rates go lower later this year and housing will remain strong in 2024.

February was a difficult month as is the case usually. We’ve seen submission count increase 15% from January daily average but overall quality of paper has come down with more declines. Most of the declines were due to decreasing revenue and poor cash flow trends. There has been an increase in double fundings as merchants have more brokers in their ear than ever. The competitive landscape remains challenging and new entrants are pushing terms to levels we have not seen in years. Even C/D paper players are going further out on term. There has also been an uptick in defaults across the credit curve so incumbent players will/have been tightening up credit standards.

 

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