The Drift Continues
Bonds only had a small reaction to the stronger Jobless Claims data, despite the reference period being the same as the next NFP number. Traders were more interested in the lower price pressures reported in the S&P PMI data. This suggests a certain level of receptiveness to some of the other 2nd tier data that may offer a counterpoint to the most recent CPI. But that assumes the data is friendly in the first place. Even if it proves to be friendly, we're waiting at least a week for the first candidate (PCE next Thursday), and then another week beyond that before getting any top tier data. In the meantime, bonds are in drift mode, and not the fun kind.
Econ Data / Events
201k vs 218k f'cast, 213k prev
1862k vs 1885k f'cast
S&P Services PMI
51.3 vs 52.0 f'cast
"input prices rose at the weakest pace since October 2020"
Market Movement Recap
08:45 AM Slightly weaker overnight. Brief selling after Claims data, but bouncing back a bit now. 10yr now up only 1bp at 4.329. MBS down an eighth.
09:57 AM Back in positive territory after PMI data. MBS up 2 ticks (.06). 10yr down 1.2bps at 4.307.
12:29 PM Back into weaker territory. 10yr up 1.2bps at 4.331. MBS down 1 tick (.03).
02:39 PM Fairly flat. MBS down 1 tick (.03). 10yr up less than 1bp at 4.327.
Mortgage rates continue making nearly microscopic movements in day-over-day terms, but they continue adding up. Today's increase over yesterday was negligible, but yesterday matched the highest levels in more than 2 months. That leaves today with the dubious distinction of being the new multi-month high, even though many borrowers may not see meaningful changes in today's rate quotes. There is little to observe or discuss until something significant happens. We're most likely to see something significant in response to scheduled economic data. While we get that almost every day, there are only a small handful of reports that would be considered "top tier." At the moment, we're waiting at least two weeks for the next true top tier report (the big jobs report on Friday, March 8th). There are a few other honorable mentions in the meantime, but not until the 2nd half of next week. That means unless something unexpected happens, we could see small day-to-day rate movement continue. It's not glamorous or exciting, but it is what it is.
Prospects for the spring market look a bit brighter as January numbers show an increase in both the pace of existing home sales and the size of the unsold inventory. The National Association of Realtors® (NAR) said sales of pre-owned single-family houses, townhomes, condominiums, and cooperative apartments were at a seasonally adjusted annual rate of 4.00 million. This was an increase of 3.1 percent from the December rate of 3.88 million and was 1.7 percent below the pace in January 2023. December sales figures were also revised slightly higher, cutting the previously reported year-over-year decline nearly in half to -3.7 percent. Single-family home sales rose from 3.48 million in December to 3.6 million, a gain of 3.4 percent, and remained lower year-over-year by 1.4 percent. Condo sales were flat at an annual rate of 400,000 and were 4.8 percent lower than one year earlier. Existing home sales beat analysts’ expectations, but not by much. The consensus forecast from Econoday was 3.97 million. “While home sales remain sizably lower than a couple of years ago, January’s monthly gain is the start of more supply and demand,” said NAR Chief Economist Lawrence Yun. “Listings were modestly higher, and home buyers are taking advantage of lower mortgage rates compared to late last year.” Those listings did expand in January, up 2.0 percent to 1.01 million units. This is estimated to be a 3.0-month supply at the current rate of sales, but that estimate is virtually unchanged from that in both December and January 2023. Properties typically remained on the market for 36 days in January, up from 29 days in December and 33 days in January 2023.
Rates are "data dependent" and the two biggest pieces of economic data are CPI and the big jobs report. Neither are on today's calendar, but there was an anecdotal indicator for the jobs report in the form of weekly jobless claims. This usually forgettable, but if there was one week of the month to pay attention, it would be when the report covering the 12th of the month comes out. Why the 12th? The survey for the big jobs report (BLS Employment Situation / nonfarm payrolls) is conducted on the week that includes the 12th. With that in mind, the bond market did a good job of overlooking a stronger result this morning and actually took solace in S&P PMI data just over an hour later. Despite the recovery, yields are edging back into slightly higher territory heading into the PM hours (for reasons unknown).
This weakness is occurring at unfortunate levels as some might see it as a failure to find support at the 4.32% ceiling. It's still too soon and too close to call in the bigger picture, however.
Did someone say, “National Margarita Day”? (Splendid timing, especially as vendors and lenders contemplate a rate and volume environment that may not change much for months, and compensation & personnel adjustments continue.) In 2023, the United States was the leading recipient of Mexico’s tequila exports, importing 84.8 million gallons of tequila from South of the Border. This has nothing to do with residential lending, other than plenty of folks in our biz enjoy a tasty margarita. While we’re on taste, the other day I mentioned a joke about vultures saying clowns taste funny which blog poster and attorney Brian Levy took as an invitation to “poke a little fun at this bear” in his most recent post. Levy’s most recent Mortgage Musings edition is titled, LO Comp, Bozo Buckets and “P&L Branches” and offers a spirited and insightful discussion of a couple LO Comp related issues that have been in the news (including this daily commentary). (Found here, this week’s podcast is sponsored by Truv. Truv lets applicants verify income, employment, assets, insurance, and switch direct deposits. Unlock the power of open finance, with Truv. Today’s has an interview with PRMG’s Kevin Peranio and Truv’s Richard Grieser on verification across income, employment, assets, and insurance.) Lender and Broker Services, Products, and Software “As rates decreased in January, IMBs saw an increase in dwell-time and warehouse expenses. In January, dwell-time was up 3 days from the 15-day average. While rates are down for borrowers, overnight SOFR rates averaged 5.32 percent. With the additional 3 days of dwell, for the average IMB costs increased by nearly $70 per funded loan, a 170 percent increase from December. With full automation from funding of loans through Purchase Advice reconciliation and paydown activities, OptiFunder now offers the most comprehensive Warehouse Management System available, allowing originators to get loans from the primary to the secondary markets quickly and efficiently. Top IMB's are using funding automation to save time and capital. Meet with us at Lenders One Summit or at the ICE Experience to see how you can streamline funding through loan sale to lower dwell and warehouse expense. Sign up for our monthly newsletter for more warehouse trends.”
Rates Testing Ceilings After Bond Auction and European Weakness
Bonds managed to start the day in modestly stronger territory, but it's just as fair to say "sideways." Things didn't start moving until after 10am when European bond market weakness spilled over to Treasuries. Yields drifted several bps higher into the 20yr bond auction and popped to the highs of the day after the lackluster auction results came out. The 4.32+ ceiling remained intact despite a bit of volatility surrounding the release of what was a mostly uneventful reading of the Fed Minutes. If the proof is in the pudding, consider that Treasury volumes were much higher after the auction than the Fed minutes, and the latter only caused about 1bp of movement. Translation: the Fed Minutes contained no surprises.
Market Movement Recap
09:57 AM Modestly stronger overnight despite weakness in EU bond market. 10yr down half a bp at 4.27. MBS up 2 ticks (.06).
12:06 PM 2 mini waves of selling into the PM hours. MBS down 5 ticks (.16) and 10yr up 2.8bps at 4.303.
01:07 PM Sloppy 20yr auction. 10yr up 4.8bps at 4.323. MBS down a quarter point.
02:49 PM Sideways after Fed minutes, but losing some more ground into 3pm close. 10yr up 5.4bps ta 4.329. MBS down 9 ticks (.28).
In the short term, mortgage rates haven't experienced any extreme movement since earlier in the month, but a slow trickle of weakness is starting to add up. As of last Friday, the average 30yr fixed rate was as high as it's been since late November. There was a modest recovery yesterday, and it has now been erased by today's market movement. In other words, the average lender is now back in line with last Friday's rates--the highest since November 30th, 2023. That's the bad news. The good news is that those rates are still almost a full percent lower than the long-term highs seen in October. Good, bad, or indifferent... where we're going is more interesting than where we've been. That itinerary is constantly evolving based on incoming economic data and other events. The biggest influences are still several weeks away. We're just watching fine-tuning adjustments in the meantime.
There’s an old LO joke, telling their client, “When you’re buying a house, be sure to do it with a significant other, and make sure that one of you has good credit. That’s why it’s called ‘significant’ other: sign-if-i-can’t.” Everyone in our biz knows that owning property is a great way to build wealth, although between elevated inflation, stubborn mortgage rates, and general economic uncertainty (one can argue that the future is always uncertain, right?), it may not feel like the right time to plunge into the housing market. But every LO should know that if past patterns hold true, inflation can actually boost homeownership and people who are living through this time may be more inclined to buy a house in the future! A fine selling point when an originator is speaking with a potential client. (Found here, this week’s podcast is sponsored by Truv. Truv lets applicants verify income, employment, assets, insurance, and switch direct deposits. Unlock the power of open finance, with Truv. Today’s has an interview with Sagent’s Uday Devalla and Perry Hilzendeger on new servicing platforms and technology.) Lender and Broker Services, Products, and Software On Jan. 1, 2024, ICE’s dedicated technology experts rang in the new year by helping 92 mortgage and home equity clients successfully complete all month-end, quarter-end and year-end processing. That’s nearly 52 million active and inactive loans serviced using the industry-leading MSP® loan servicing system processed in under 24 hours. Read more from the mortgage technology experts at ICE to learn what goes into this critical yearly regulatory process and see how ICE helps its clients meet reporting requirements.
Bonds had a generally constructive day to start the holiday-shortened week yesterday, with yields rallying in the morning and ultimately holding modest gains after some afternoon weakness. Today looked to be off to a similarly constructive start, but the selling pressure has shown up a bit earlier. Who's to blame? The easiest scapegoat is simply the bigger selling pressure in Europe where Bund yields are up 7bps from the lows.
If we want to jump to conclusions, we could also consider some trepidation ahead of this afternoon's Fed Minutes, but it would still be a surprise to see any new ideas brought to light in that venue. Blame aside, none of today's movement matters in the bigger picture as long as we remain inside the "triangle" that's been forming between the 4.32 highs and the uptrend of the past two weeks.
Higher interest rates continued to depress mortgage applications last week. The Mortgage Bankers Association (MBA) said its Market Composite Index, a measure of application volume, decreased 10.6 percent on a seasonally adjusted basis during the week ended February 16. The volume declined 8.0 percent before adjustment. The Refinance Index declined by 11.0 percent compared to the previous week but eked out a 0.1 percent gain from the level one year earlier. Refinance applications accounted for 32.6 percent of the total, down from 34.0 percent the previous week. [refiappschart] The seasonally adjusted Purchase Index dropped 10 percent week-over-week and was down 6 percent before adjustment. Purchase applications lagged the same week in 2023 by 13.0 percent. [purchaseappschart] "Mortgage rates moved back above 7 percent last week following news that inflation picked up in January, dimming hopes of a near-term rate cut,” said Mike Fratantoni, MBA’s SVP and Chief Economist. “Mortgage applications dropped as a result with a larger decline in refinance applications. Potential homebuyers are quite sensitive to these rate changes , as affordability is strained with both higher rates and higher home values in this supply-constrained market." Other Highlights from MBA’s Weekly Mortgage Applications Survey
Loan sizes were changed only slightly, to an average of $381,800 for all submissions and $440,700 for purchase mortgages.
The FHA share of applications decreased to 13.2 percent from 13.5 percent and the VA share decreased to 12.1 percent from 13.3 percent. USDA applications accounted for 0.5 percent of the total.
The average contract interest rate for conforming 30-year fixed-rate mortgages (FRM) increased to 7.06 percent from 6.87 percent, with points inching up to 0.66 from 0.65.
Thirty-year FRM with jumbo loan balances had a rate of 7.16 percent with 0.45 point. The prior week the rate was 7.00 percent with 0.39 point.
The average rate for FHA-backed 30-year FRM jumped to 6.91 percent from 6.68 percent and points increased to 1.03 from 0.89.
Fifteen-year FRM saw an increase of 8 basis points to an average rate of 6.61 percent while points dropped to 0.77 from 0.94.
The average contract interest rate for 5/1 adjustable-rate mortgages (ARM) increased to 6.37 percent from 6.30 percent, with points increasing to 0.71 from 0.60.
The ARM share of activity increased from 7.0 to 7.4 percent of total applications.