Capitalizing on Credit Opportunities

TL;DR

The securitized credit market has performed well in 2018, with strong fundamentals and demand for bonds. The US housing market is projected to grow in 2019, and the commercial real estate market remains positive but may face headwinds due to higher interest rates. GSE reform and Volcker Rule concerns are important considerations.

Transcript

I wanted to just frame the conversation today 2018 turned out to be quite an active year in structured finance markets with over a trillion equivalents issued across the globe representing double digits on a year-over-year basis following a strong q1 securitized credit fundamentals appear to be on strong footing the ABS and our MBS markets have ben... Read More

Key Insights

• 💪 Securitized credit has performed well in 2018, driven by strong fundamentals and increasing demand for bonds in the CMBS sector.
• 💗 The US housing market is expected to continue growing in 2019, with a focus on lower-priced tiers due to limited housing supply.
• ☠️ The US commercial real estate market shows positive conditions overall, but challenges may arise due to stabilized prices and higher interest rates.
• 💱 GSE reform remains a topic of discussion, with potential changes influenced by regulatory initiatives and risk transfer efforts.

Questions & Answers

Q: How has securitized credit performed in 2018?

Securitized credit has had a strong year, with ABS and MBS markets benefitting from a strong economy, tighter labor markets, and consumer deleveraging. The CMBS market has seen increased demand for bonds, resulting in the best Q1 Total Return performance since 2012.

Q: How is the US housing market projected to perform in 2019?

The US housing market is expected to grow between 3-4% in 2019, with home prices projected to mirror the robust US economic growth. The lower-tier housing market has seen significant improvement due to a scarcity of available housing, creating a floor for prices.

Q: What are potential challenges for the US commercial real estate market in 2019?

While commercial real estate conditions remain positive with high occupancy levels and rising rental rates, stabilizing prices and the potential for higher interest rates may pose headwinds for the market in 2019. The retail sector, in particular, has been impacted by the growth of online sales.

Q: What are the key factors that may influence GSE reform?

GSE reform is a complex topic, with discussions ongoing for years. One of the challenges is the already strong performance of the GSEs, making it difficult to determine if reform is necessary. Regulatory changes, risk transfer initiatives, and the current director of FHFA may contribute to potential reforms.

Summary & Key Takeaways

• The securitized credit market has performed strongly in 2018, driven by tight labor markets and consumer deleveraging since the financial crisis.

• Demand for bonds in the CMBS sector has increased, with Q1 2018 being the best quarter in terms of total return performance since 2012.

• The US housing market is expected to grow at a rate of 3-4% in 2019, with a focus on lower-priced tiers where there is a dearth of available housing.

• The US commercial real estate market has experienced growth post-crisis, but prices have stabilized over the past two years. Higher interest rates may pose challenges in 2019.