Mortgage Daily News Rate Watch

• Mortgage Rates Recover Some of The Lost Ground
  Posted on Friday December 20, 2024
  The week's big story is still the big jump in rates that took place after Wednesday's Fed announcement.  And while rates remain noticeably elevated on the week due to that jump, they're set to end the week at slightly less elevated levels. Credit this morning's inflation data for that development! Part of Wednesday's Fed Day drama involved a renewed focus on inflation reports.  That added to anxiety because Friday's PCE inflation index is one of the two big inflation reports that come out each month. The bond market that underlies day-to-day interest rate movement is most focused on what's known as "core" inflation, which discounts the more volatile food and energy components.  If month over month core inflation is running just under 0.2%, annual inflation would eventually hit its 2.0% target.  Today's monthly core PCE came in at 0.1%, which was lower than the market expected. In year over year terms, there's more work to do, as PCE remained at 2.8%.  The market actually expected a 0.1% increase on the annual number. In general, when reports like PCE (or its counterpoint, CPI) come in lower than expected, it puts downward pressure on rates.  Today was no ... Continue Reading »
• If You're Struggling to Understand This Week's Mortgage Rate Spike, This is For You
  Posted on Thursday December 19, 2024
  We received some anonymous feedback regarding recent rate commentary that serves as a good reminder that not everyone may be picking up what we're putting down, or worse yet, picking up things that we never put down in the first place.   We spend a lot of time talking about how the bond market prices in the impact of Fed rate cuts on the occasions where those rate cuts are expected with a high probability--as was the case with yesterday's cut.  Specifically, Tuesday's rate commentary said: " The market is already well aware that the Fed is cutting rates tomorrow and those expectations are already 100% reflected in the mortgage rates that are available today." The hiking/cutting of the Fed Funds rate is the only variable under consideration in that comment.  The following paragraph said:  "If rates rise or fall tomorrow, it would be due to other components of the Fed announcement, such as the Fed's quarterly rate outlook survey (officially, the dot plot in the Summary of Economic Projections, released concurrently with the rate announcement at every other Fed meeting) or the press conference with Fed Chair Powell that begins 30 minutes ... Continue Reading »
• Mortgage Rates Jump Abruptly Higher After The Fed's Rate Cut
  Posted on Wednesday December 18, 2024
  If anyone needed any further convincing that a Fed rate cut is no guarantee of lower mortgage rates, today is a great piece of evidence.  Perhaps "great" is the wrong word.  There was nothing great about the mortgage rate movement following today's Fed rate cut. The average lender is at least 0.20% higher than earlier this morning.  Lenders are still in the process of adjusting their rate sheets, so the total damage could vary slightly by the time we're able to run the full numbers.  Either way, the top tier conventional 30yr fixed rate will easily be back over 7% for the average lender. What gives? First off, the mortgage rate spike has nothing to do with the Fed's rate cut.  That cut was only a small part of the information released by the Fed today.  It was also the most predictable part.  When something is predictable in financial markets, it can be traded, and that trading means that longer term rates (like mortgages) can move into position well in advance of Fed cuts/hikes. Moreover, mortgage rates care more about the Fed's rate cut/hike outlook than they do about one individual cut/hike.  That's where things started ... Continue Reading »
• Mortgage Rates Effectively Unchanged Ahead of Fed Announcement
  Posted on Tuesday December 17, 2024
  Mortgage rates have been having a much calmer week compared to last week.  Monday brought a modest decline versus last Friday and today's rates are effectively unchanged.  While the average lender is still noticeably higher compared to the first few days of the month, this resilience helps make a case that rates aren't eager to revisit the higher levels seen during most of November. Volatility could increase tomorrow afternoon following the Fed's rate announcement.  As a reminder, the Fed DOES NOT set mortgage rates and a Fed rate cut DOES NOT mean mortgage rates will go down by a similar amount--if at all.   The market is already well aware that the Fed is cutting rates tomorrow and those expectations are already 100% reflected in the mortgage rates that are available today.  If rates rise or fall tomorrow, it would be due to other components of the Fed announcement, such as the Fed's quarterly rate outlook survey (officially, the dot plot in the Summary of Economic Projections, released concurrently with the rate announcement at every other Fed meeting) or the press conference with Fed Chair Powell that begins 30 minutes after the rate announcement.  Continue Reading »
• Mortgage Rates Start New Week With Some Hope
  Posted on Monday December 16, 2024
  Last week wasn't great for mortgage rates.  They moved higher on each of the 5 days.  Moreover, there was a distinct lack of logical motivation from the economic data.  In fact, on a few occasions, the data argued for lower rates only for things to move in the other direction by the end of the day. The new week is off to a different start.  Today's only relevant economic data argued in favor of higher rates, but the average lender ended the day in slightly lower territory compared to Friday afternoon.  Granted, it wasn't a big victory, by any means (many lenders are effectively unchanged), but after last week, we'll take any victory we can get. Volatility risks increase substantially on Wednesday when the Fed releases its next policy announcement.  Out of the 8 Fed meetings per year, 4 of them include an update on each Fed member's rate projections. These meetings tend to produce bigger reactions in rates and this meeting is one of those 4. As always, volatility can play out for better or worse.  Traders are already assuming the Fed will pencil in a slower pace of rate cuts than they did in the ... Continue Reading »
• Mortgage Rates Rise For 5th Straight Day
  Posted on Friday December 13, 2024
  There's no easy way to say it: it was a bad week for mortgage rates.  Actually, it was a bad week for interest rates in general and mortgage rates typically follow the rest of the rate market.  After hitting the lowest levels in a month and a half last Friday, each of the next 5 days saw a modest to moderate increase in the average lender's mortgage rates. But why? Rates are tied to the bond market. Movement in bonds dictates what mortgage lenders can offer.  Bonds can move for multiple reasons, but if we could only ever consider one input, it would be the broad category of "economic data."  That's what makes this week frustrating.  Economic data arguably didn't suggest the type of damage we ended up seeing.  Unfortunately, once we move past economic data, rate motivations become much less obvious and much harder to discuss without esoteric bond market jargon. Suffice it to say that there are factors beyond the domestic economy that have traders shifting their bond holdings.  Some of those have to do with end-of-year requirements for financial statements.  Some are more focused on getting into position to react to next ... Continue Reading »
• Mortgage Rates Back to Highest Levels in a Week
  Posted on Thursday December 12, 2024
  It's been a bummer of a week for mortgage rates with modest to moderate increases every day so far.  Adding insult to injury is the fact that there hasn't been any compelling reason for the increase as far as this week's new economic data is concerned. Economic data is a constant consideration for rates.  Generally speaking, weaker data = lower rates and vice versa. With that in mind, this week's rate movement is all the more frustrating because none of the key reports have been "strong."  In fact, the bond market reacted favorably (i.e. bonds implied lower rates) to several of them in the morning only for traders to take things in the other direction by the end of the day. Today and yesterday are the two best examples of that.  Each day resulted in a decent first round of rate offerings from mortgage lenders followed by a round of negative reprices as the day progressed.  The net effect is a move up to the highest levels in a week for top tier conventional 30yr fixed scenarios. Continue Reading »
• Mortgage Rates Started Lower, But Ended Higher
  Posted on Wednesday December 11, 2024
  Mortgage rates were having a pretty decent day at first.  The bond market was only slightly weaker overnight (implies some upward pressure on rates), but quickly improved after the Consumer Price Index (CPI) data at 8:30am ET.  Notably, CPI was right in line with forecasts--something that often results in lower conviction and volatility for interest rates.  We only tend to see big reactions to 'as-expected' numbers on the most closely watched reports.  In other words, today's market reaction confirms just how closely CPI is being watched. 8:30am ET is early enough in the day that it allows bonds time to improve before the earliest mortgage lenders release their rate offerings for the day.  As such, the average lender was 0.03% lower than yesterday when morning rates came out.   The good times only lasted about an hour.  Whether it was a reaction to the Bank of Canada's policy announcement (a thing that actually impacted the U.S. bond market today) or strategic repositioning among bond traders ahead of next week's Fed announcement, bonds lost more than enough ground for the average mortgage lender to reissue rates at higher levels in the afternoon.  When the smoke cleared, today's rates ... Continue Reading »
• Mortgage Rates Moving Back Up
  Posted on Tuesday December 10, 2024
  Between November 18th and December 6th, the average top tier 30yr fixed mortgage rate moved down from 7.08 to 6.68.  A 0.40% drop is rather significant, especially over the course of only 3 weeks.  Over the past 2 days, however, we've lost a quarter of that improvement. Today saw rates increase just a bit more than yesterday.  This takes the average lender back near the levels that were intact for most of last week.   Typically, big moves in rates can be linked to important economic data or other market-moving events.  That was the case last week with the biggest improvement following Friday's jobs report. This week's movement, on the other hand, has been more serendipitous. There hasn't been any major economic data so far this week, but that will change tomorrow morning with the release of the Consumer Price Index (CPI) for November.  If CPI is higher than expected, it could add some urgency to the upward pressure seen over the past 2 days.  If it's lower than expected, it could get rates back to last Friday's levels. As is always the case, it's important to understand that big ticket economic reports are all about POTENTIAL.  ... Continue Reading »
• Mortgage Rates Slightly Higher to Start New Week
  Posted on Monday December 09, 2024
  Mortgage rates ended last week with an impressive drop to the lowest levels in more than a month and a half.  Today's rates ended up being the 2nd lowest over that time after the average lender moved to just slightly higher levels to start the new new week.  Top tier conventional 30yr fixed rates spent most of November over 7% but fell back into the high 6% range by the end of the month. Our rate index fell from 6.84 to 6.68 on Friday and moved up to 6.72 today.  Economic data is the key motivating factor for rate movement, in general, but there were no major economic reports today. Instead, we could say that investors are simply choosing to reinforce a range in the bond market (bonds dictate rates) as they wait for the week's most relevant data. In terms of economic reports, Wednesday's Consumer Price Index (CPI) has the most potential to cause volatility, for better or worse. Continue Reading »

Mortgage Daily News Rates Update

• Why Did Rates Completely Ignore This Week's Bad News?
  Posted on Friday November 05, 2021
  This week, the Fed announced a reduction in its bond buying. In separate news, the big jobs report was much stronger than expected. Both of these events should have pushed rates higher. So why didn't they? Let's start with the Fed and its bond buying adventures (also known as QE or "quantitative easing").  The following chart of 10yr Treasury yields (a broad benchmark for "rates") shows the paradoxical reactions to the Fed's previous decisions to stop buying bonds. In other words, we knew a paradoxical reaction was a possibility , even though past precedent is never a guarantee.  Beyond that, we also knew that rates were moving higher in anticipation of the Fed's eventual exit.  In fact, by last week, they'd already covered as much ground as they did in 2013. Continue Reading »
• Mortgage Rates Started Flat, But Moved Lower During The Day
  Posted on Thursday November 04, 2021
  Mortgage rates  fell today as markets decompressed following yesterday's announcement from the Federal Reserve regarding the reduction of its bond buying efforts (aka "tapering").   Despite the proximity to Fed day, markets were more inspired by another central bank today: the Bank of England (BOE).   The BOE had its own policy announcement early this morning.  Unlike the Fed, there was broad disagreement about the BOE's course of action.  They ended up making the more rate-friendly decision and global bond markets reacted immediately.  Unsurprisingly, it was the British bond market that had the best day, but there's always a certain degree of correlation between UK and US lending rates.  As US sovereign debt yields fell, mortgage-backed b Continue Reading »
• Minimal Damage For Mortgage Rates Following Fed
  Posted on Wednesday November 03, 2021
  Mortgage rates  moved higher today after the Federal Reserve announced a reduction in its rate-friendly bond buying program.  Actually, to be fair, rates moved higher before  the Fed made that announcement, and largely for other reasons.  The biggest issue today was, in fact, a widely followed report on the service sector (ISM Non-Manufacturing PMI) which crushed its previous record high.  Bonds experienced additional volatility in the afternoon following the Fed announcement, but they were able to recover back to pre-Fed levels within 2 hours. The average mortgage lender began the day offering similar rates to those seen yesterday.  Several lenders responded to bond market weakness by raising rates slightly in the middle of the day.  The average b Continue Reading »
• Another Good Day For Rates, But Tomorrow is Anyone's Guess
  Posted on Tuesday November 02, 2021
  Mortgage rates began the day moderately lower compared to yesterday's latest levels.  The size of the move depends on the time of day in question due to intraday movement in the bond market.  Simply put, bonds improved steadily from the beginning of the day yesterday and ultimately peaked around 11am today.  In general, bond market improvement correlates with lower rates. The first effect of this 2-day move was for the average lender to offer mid-day improvements yesterday.  Those who did (a vast majority) were still able to offer even lower rates this morning.  Lenders who did NOT offer mid day improvements yesterday made even bigger leaps toward lower rates.  When the dust cleared, the peak to trough move accounted for almost an eighth of a percent Continue Reading »
• Mortgage Rates Catch Up To Last Week's Market Movement (That's a Good Thing)
  Posted on Monday November 01, 2021
  Mortgage rates moved moderately lower today despite an absence of significant movement in the bond market.  In general, when bonds improve, rates fall (and vice versa), but it's not feasible for mortgage lenders to adjust their rates offerings in relative real-time as bonds can send massively mixed signals on any given day.   Last Friday was just such a day.  It began with bonds doing very poorly .  The weakness was in place before the average lender published their first rate sheet of the day, so mortgage rates started out higher.  As the day progressed, bonds improved enough for many lenders to make mid-day improvements to rates, but bonds suggested the improvements should have been bigger. That's where today came in.  Bonds began weaker yet a Continue Reading »
• Don't Fear The Taper
  Posted on Friday October 29, 2021
  For anyone following interest rates very closely in 2013, the taper tantrum is not easily forgotten. It describes the bond market's knee-jerk response to the realization that the Federal Reserve would be winding down its bond purchase program. With the Fed almost certain to make a similar announcement next Wednesday, should we be scared yet again? In a word: no .   Of course, we'll need to qualify that.  First off, whether or not we should be scared has little to do with whether or not the taper announcement will push rates higher.  Perhaps the better question--the one to which we can answer a more unqualified "no"--is as follows: Should we be afraid that next week's tapering announcement from the Fed will push rates higher?! There are a few reasons we can answe Continue Reading »
• Mortgage Rate Mini-Winning Streak Comes to an End
  Posted on Thursday October 28, 2021
  Mortgage rates  finally ended this week's winning streak today.  In light of the general upward trend in rates over the past month, bond yields (which tend to correlate with mortgage rate movement) made it to surprisingly low levels as of yesterday afternoon.  Mortgage lenders responded by dropping rates to the best levels in nearly 2 weeks. Things changed today as bonds lost ground after the European Central Bank noted a still-decent outlook for the economy recovery and an earlier-than-expected outlook for ending its bond purchase program.  In general, a stronger economy hurts bonds and central bank purchases help. Then in the afternoon, a scheduled auction of 7yr US Treasuries was met with less enthusiastic demand compared to recent auctions.  The day Continue Reading »
• Mortgage Rates Hold Steady Near Multi-Month Highs
  Posted on Wednesday October 20, 2021
  Mortgage rates  began moving off longer term lows in early August and that trend has continued ever since.  The September 22nd Fed Announcement (and press conference with Fed Chair Powell) served as a jumping-off point for additional volatility and upward momentum.  In contrast, October has generally seen rates rise at a more gradual pace.  On several occasions, they've merely held almost perfectly in line with the previous day's levels. Today is just such a day! There were no notable motivations for the underlying bond market today (bonds dictate interest rates).  As such, today's sideways momentum makes sense.  That said, it's worth mentioning that there are different versions of "sideways" when it comes to the financial market.  Today's versio Continue Reading »
• Highest Rates in Months
  Posted on Monday October 18, 2021
  Mortgage rates had a mixed showing last week.  They started out high before improving through Thursday.  Finally, they took a step back up on Friday.  Now at the start of the new week, the upward momentum is continuing.  The bond market was much weaker in overnight trading, and weaker bonds mean higher rates, all other things being equal.  Bonds hit their weakest levels just before the average mortgage lender released rates for the day.  As such, the average conventional 30yr fixed rate quote was the highest in roughly 4 months .   As the day progressed, bonds found their footing to some extent.  It was enough for most lenders to offer mid-day improvements to rates.  Keep in mind though, these improvements are generally small. Continue Reading »
• No, Mortgage Rates Are Not "Sharply Higher" This Week
  Posted on Thursday October 14, 2021
  Mortgage rates   fell today as a majority of lenders finally got caught up with the past few days of strength in the bond market.  Lenders rely on bonds--specifically mortgage-backed securities (MBS)--to determine where to set mortgage rates.  Bonds are constantly on the move, but lenders prefer to just set mortgage rates once per day, if possible.  As such, when volatility is higher and when rates have been rising more than falling, lenders tend to be more defensive.  In other words, they need to see more sustained improvement than normal before bringing rates back down. Today's improvement was the biggest of the week, and it brings the average conventional 30yr fixed quote well below those seen at the end of last week.  Even so, there are numerous Continue Reading »

Mortgage Daily News NewsLetter

• Mortgage Rates Recover Some of The Lost Ground
  Posted on Friday December 20, 2024
  The week's big story is still the big jump in rates that took place after Wednesday's Fed announcement.  And while rates remain noticeably elevated on the week due to that jump, they're set to end the week at slightly less elevated levels. Credit this morning's inflation data for that development! Part of Wednesday's Fed Day drama involved a renewed focus on inflation reports.  That added to anxiety because Friday's PCE inflation index is one of the two big inflation reports that come out each month. The bond market that underlies day-to-day interest rate movement is most focused on what's known as "core" inflation, which discounts the more volatile food and energy components.  If month over month core inflation is running just under 0.2%, annual inflation would eventually hit its 2 Continue Reading »
• Highest Existing Home Sales Since March
  Posted on Thursday December 19, 2024
  Just in time for the big jump in interest rates seen after yesterday's Fed announcement, the latest Existing Home Sales data from the National Association of Realtors (NAR) shows sales at the highest seasonally adjusted pace since March.  Compared to the same time last year, sales are up 6.1%--the best year over year improvement since June 2021. To be fair to the data, it is definitely looking better than most of the past year and a half. It's also true that adding 1 to 1 is a 100% increase while adding 1 to 100 is only a 1% increase. In other words, it's great that we're up 6.1% year over year--no objections there--but in broader context, we're really just muddling through home sales purgatory. Much like our assessment of things like mortgage applications, this sidew Continue Reading »
• Modest Refi Surge Was Fun While it Lasted
  Posted on Wednesday December 18, 2024
  Heading into the first part of December, mortgage rates were at their lowest levels in a month and a half.  Much of the improvement from the recent highs occurred in a single week (the last week of November).  That made for an obvious and logical uptick in refinance applications the following week, according to the Mortgage Bankers Association's (MBA) application survey.  In the latest numbers reported this morning, the refinance index didn't change much after that, which is "good" at face value because it means refi activity remained at the modestly elevated levels reported last week.  But things start looking less than good when we add context from the September mini-refi-surge. As has been and continues to be the case, none of the recent activity amounts to much when compa Continue Reading »
• Builder Confidence Remains Low, But Sales Expectations Are Increasing
  Posted on Tuesday December 17, 2024
  The National Association of Home Builders (NAHB) and Wells Fargo publish the Housing Market Index (HMI) each month. The industry refers to this as "builder confidence" and December's number came out today. It was right in line with November's, and it suggests builders are increasingly honing in on a relatively gloomy baseline in the bigger picture. There are several ways to approach the languishing of the index, with the easiest being some combination of single family construction (which capture the initial drop in 2022) and multi-family construction (which, along with persistently high rates, helps explain why the index may not have recovered). Both are charted below. Ultimately, actual construction figures are a better indicator of the housing market than sentiment Continue Reading »
• Mortgage Rates Start New Week With Some Hope
  Posted on Monday December 16, 2024
  Bonds Hold Ground Despite Unfriendly Econ Data If there was a prime directive for the bond market last week, it was to sell off regardless of any counterargument from the economic data.  The new week got off to a distinctly different start with stronger economic data only causing a temporary inconvenience for bonds.  Both MBS and Treasuries were pushed back in line with Friday's weakest level, but both found support in the PM hours before going on to make it back to unchanged territory, or close to it.  Volume was low and the volatility was small in the bigger picture, but at the very least, it was nice to see a different reaction than las Continue Reading »
• Mortgage Rates Rise For 5th Straight Day
  Posted on Friday December 13, 2024
  There's no easy way to say it: it was a bad week for mortgage rates .  Actually, it was a bad week for interest rates in general and mortgage rates typically follow the rest of the rate market.  After hitting the lowest levels in a month and a half last Friday, each of the next 5 days saw a modest to moderate increase in the average lender's mortgage rates. But why? Rates are tied to the bond market. Movement in bonds dictates what mortgage lenders can offer.  Bonds can move for multiple reasons, but if we could only ever consider one input, it would be the broad category of "economic data."  That's what makes this week frustrating.  Economic data arguably didn't suggest the type of damage we ended up seeing.  Unfortunately, once we move past economic data, rate motivations Continue Reading »
• Mortgage Rates Back to Highest Levels in a Week
  Posted on Thursday December 12, 2024
  It's been a bummer of a week for mortgage rates with modest to moderate increases every day so far.  Adding insult to injury is the fact that there hasn't been any compelling reason for the increase as far as this week's new economic data is concerned. Economic data is a constant consideration for rates.  Generally speaking, weaker data = lower rates and vice versa. With that in mind, this week's rate movement is all the more frustrating because none of the key reports have been "strong."  In fact, the bond market reacted favorably (i.e. bonds implied lower rates) to several of them in the morning only for traders to take things in the other direction by the end of the day. Today and yesterday are the two best examples of that.  Each day resulted in a decent first round of rate of Continue Reading »
• Mortgage Applications Surge (Relatively) as Rates Drop (Relatively)
  Posted on Wednesday December 11, 2024
  The Mortgage Bankers Association is out with the latest survey of mortgage applications and refinance activity led the charge this week.  In fact, purchase activity declined a bit and refis saw their best weekly gains since September. The following chart shows the week over week change in the refi index: At first glance, it would be easy to assume that this is due to some sort of distortion in the week after Thanksgiving, but if that was the case, we would have seen a similar outlier in the other direction last week.  It's more likely that the sharp decline in rates is the x factor. Notably, MBA's weekly survey data only shows rates declining from 6.69 to 6.67, but MND's daily rates tell a different story with a drop from 6.88 to 6.68.  That 0.20% decline would certainly be eno Continue Reading »
• Mortgage Rates Moving Back Up
  Posted on Tuesday December 10, 2024
  Ready For Anything After Pre-CPI Consolidation Bonds were arguably consolidating ahead of last Friday's jobs report with the reaction representing a bit of a bullish breakout.  Since then, there's been a quick and obvious re-consolidation back in line with last week's M-Th levels. Today added to that process with most of the selling taking place by the start of the US trading session. Perhaps some of the selling has been an attempt to make room for this week's Treasury auctions, but there's no question that Wednesday morning's CPI data is the last significant piece of the puzzle that the Fed will receive before deciding "to cut or not to cut" next w Continue Reading »
• Mortgage Rates Slightly Higher to Start New Week
  Posted on Monday December 09, 2024
  Mortgage rates ended last week with an impressive drop to the lowest levels in more than a month and a half.  Today's rates ended up being the 2nd lowest over that time after the average lender moved to just slightly higher levels to start the new new week.  Top tier conventional 30yr fixed rates spent most of November over 7% but fell back into the high 6% range by the end of the month. Our rate index fell from 6.84 to 6.68 on Friday and moved up to 6.72 today.  Economic data is the key motivating factor for rate movement, in general, but there were no major economic reports today. Instead, we could say that investors are simply choosing to reinforce a range in the bond market (bonds dictate rates) as they wait for the week's most relevant data. In terms of economic reports, W Continue Reading »

Mortgage Daily News Commentary

• Not as Bad as it Could Have Been
  Posted on Friday December 20, 2024
  Not as Bad as it Could Have Been After Wednesday's Fed-driven sell-off, it was unlikely if not impossible that bonds wouldn't end up saying they had a bad week.  That is certainly still the case, but after Friday, it's not as bad as it could have been.  PCE inflation came in at 0.1% at the core level, month over month.  If inflation repeated that performance for 12 months, annual inflation would be below the 2.0% target. Headline inflation is even lower and has been doing even better in terms of getting back to a target trajectory.  Bond traders are largely able to price in PCE data because a good amount of it can be calculated from CPI/PPI which come out 2 weeks earlier. There was still enough of a surprise for 10yr yields to drop a quick 6bps and ultimately end the day 4bps lower than yesterday. ... Continue Reading »
• Stronger Start After Cooler PCE, But Don't Expect Miracles
  Posted on Friday December 20, 2024
  This week's biggest to-do in terms of economic reports was this morning's PCE inflation data.  The fact that the Fed just said it was shifting its primary focus away from the labor market and back toward inflation made PCE all the more interesting.  Thankfully, it came out lower than expected  at the core level, both in monthly and annual terms (a nice development considering yesterday's Q3 numbers were higher than expected).  The unrounded monthly number of 0.11 was very close to the rounded 0.1%.  Bonds rallied in response, but the gains have been modest in comparison to Wednesday's losses. In addition to the modest response to the PCE data, it's also important to remember that PCE isn't the only market mover in play.  It's the end of the week and effectively the end of the year for many traders.  Year-end trading can have it's own impact on yields, regardless of economic data.  This could create a situation where we see selling pressure later today for no apparent reason.  That said, it could also create buying demand, but that hasn't been the norm for this year's suspected year-end trades. Continue Reading »
• Fairly Uneventful Follow-Up to Fed Day
  Posted on Thursday December 19, 2024
  Fairly Uneventful Follow-Up to Fed Day Considering everything that transpired yesterday, today's follow-up was about as calm as we could have hoped for.  Bonds lost ground, but the losses were focused on the long end of the curve.  That limited the damage for MBS, which have been hanging out with the middle of the curve these days.  AM econ data was a mixed bag despite appearing to be unfriendly at first glance. If it had any ill effect, it was minimal.  In the bigger picture, Thursday simply represented a leveling-off after Wednesday's rout.  Friday brings monthly PCE inflation, which is certainly capable of causing a big reaction, but it almost never lives up to that potential.  Econ Data / Events ... Continue Reading »
• Weaker Momentum Continues, Regardless of Data
  Posted on Thursday December 19, 2024
  The takeaway from yesterday's Fed announcement was twofold.  First, the Fed is much closer to being done cutting rates than it anticipated in September. This accounts for the sharp sell-off in bonds and stocks.  The second takeaway is simply a confirmation of our recent change of heart regarding inflation data.  Powell noticeably downplayed the need to obsess over the labor market, thus placing the main focus on inflation yet again. The shift in the Fed's inflation outlook for 2025 confirmed the concern. In short, the takeaway continues to be that rates can't move meaningfully lower without a meaningful drop in inflation.  To sum things up, we have one takeaway pushing yields higher and another that prevents them from moving lower. Today's chart focuses on yesterday's market movement in light of the ramped-up news coverage of the government funding bill.  If you've been wondering if that played a role in yesterday's weakness, consider that the spending bill news broke before the Fed announcement (the first white line in the chart below).  There was no detectable surge in volume nor any movement in the bond market.  Is it possible that markets were fixated on the Fed and that fiscal considerations ... Continue Reading »
• Dots and Powell Were Much Less Friendly Than Markets Expected
  Posted on Wednesday December 18, 2024
  Dots and Powell Were Much Less Friendly Than Markets Expected We knew the bond market was expecting a hawkish shift in the dot plot (the chart that shows each Fed member's expectation for the Fed Funds Rate in the coming months/years), and while there is now easy way to know exactly how big the expected shift was, it was clearly not as big as the shift we actually saw!  The median dot moved from the low 3% range for the end of 2025 to just under 4%.  On top of that, Powell's press conference offered no reprieve as he confirmed the Fed was entering a new policy-making phase marked by the possibility of pausing rate cuts and the reality that current rates are closer to neutral than previously believed. Bonds tanked immediately upon the release of the dots and then tanked some more as Powell began answering questions 30 minutes later. ... Continue Reading »
• Here's What Changed in The New Fed Announcement
  Posted on Wednesday December 18, 2024
  Recent indicators suggest that economic activity has continued to expand at a solid pace. Since earlier in the year, labor market conditions have generally eased, and the unemployment rate has moved up but remains low. Inflation has made progress toward the Committee’s 2 percent objective but remains somewhat elevated. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. The Committee judges that the risks to achieving its employment and inflation goals are roughly in balance. The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate. In support of its goals, the Committee decided to lower the target range for the federal funds rate by 1/4 percentage point to 4-1/2 4-1/4 to 4-3/4 4-1/2 percent. In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities. The Committee ... Continue Reading »
• Stronger Start After Initial Weakness
  Posted on Wednesday December 18, 2024
  Bonds were moderately weaker overnight but have been pushing back in fits and starts in early trading.  This has been a more uneven process for MBS as 5.5 coupons lost a majority of their early AM gains by 10:45am ET and then bounced back to nearly the best levels just after 11am.  10yr yields have been more even-keeled in their return to modestly stronger levels.  Notably, all of the above is playing out in a narrow range without any major motivations in play.  For that, we're still waiting on the day's big to-do: the Fed announcement and dot plot at 2pm followed by the press conference at 2:30pm.   Continue Reading »
• Calm and Resilient as Bonds Wait For Powell and The Dot Plot
  Posted on Tuesday December 17, 2024
  Calm and Resilient as Bonds Wait For Powell and The Dot Plot Whereas last week saw the bond market continue selling off without overt provocation, the first two days of the present week have seen far more equanimity and even resilience. Today's example involved a modest rally following a mixed bag of Retail Sales data.  Bonds didn't move much after recovering overnight losses, so now it's on to tomorrow's Fed announcement.  Markets know the Fed will cut and that the dot plot (aka rate outlook survey that's updated 4 times per year and closely watched by bonds) will show a higher rate trajectory than September.  We also know Powell should sound a lot like his last few public appearances.  What we don't know is how gloomy of a dot plot or how hawkish of a Powell the market is willing to accept.  At the risk of jinxing it, this Fed meeting doesn't feel nearly as consequential as September, but could nonetheless help ... Continue Reading »
• Once Again, Bonds Fight Back Against Stronger Data
  Posted on Tuesday December 17, 2024
  Yesterday, it was S&P Global PMI data.  Today it's Retail Sales.  Both were stronger than expected.  Both failed to cause any lasting weakness in bonds.  Today's reaction was far friendlier, largely because the internal components of Retail Sales were NOT stronger than expected.  In fact, the "ex autos" component was 0.2 vs 0.4, and can likely be credited for early resilience in bonds.  10yr yields started the day slightly higher, but are well into positive territory at 11am. In the bigger picture, yields are still trending higher, but today represents another attempt to break that trend as seen after last Wednesday's CPI data (both attempts highlighted in the chart below). Continue Reading »
• Bonds Hold Ground Despite Unfriendly Econ Data
  Posted on Monday December 16, 2024
  Bonds Hold Ground Despite Unfriendly Econ Data If there was a prime directive for the bond market last week, it was to sell off regardless of any counterargument from the economic data.  The new week got off to a distinctly different start with stronger economic data only causing a temporary inconvenience for bonds.  Both MBS and Treasuries were pushed back in line with Friday's weakest level, but both found support in the PM hours before going on to make it back to unchanged territory, or close to it.  Volume was low and the volatility was small in the bigger picture, but at the very least, it was nice to see a different reaction than last week's default weakness.  Econ Data / Events ... Continue Reading »

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• Highest Existing Home Sales Since March
  Posted on Thursday December 19, 2024
  Just in time for the big jump in interest rates seen after yesterday's Fed announcement, the latest Existing Home Sales data from the National Association of Realtors (NAR) shows sales at the highest seasonally adjusted pace since March.  Compared to the same time last year, sales are up 6.1%--the best year over year improvement since June 2021. To be fair to the data, it is definitely looking better than most of the past year and a half. It's also true that adding 1 to 1 is a 100% increase while adding 1 to 100 is only a 1% increase. In other words, it's great that we're up 6.1% year over year--no objections there--but in broader context, we're really just muddling through home sales purgatory. Much like our assessment of things like mortgage applications, this sideways grind at long-term lows could also be seen as a "can't get any worse" moment.  Therefore, it can only get better. NAR's Yun agrees, saying "Home sales momentum is building. More buyers have entered the market as the economy continues to add jobs, housing inventory grows compared to a year ago, and consumers get used to a ... Continue Reading »
• Modest Refi Surge Was Fun While it Lasted
  Posted on Wednesday December 18, 2024
  Heading into the first part of December, mortgage rates were at their lowest levels in a month and a half.  Much of the improvement from the recent highs occurred in a single week (the last week of November).  That made for an obvious and logical uptick in refinance applications the following week, according to the Mortgage Bankers Association's (MBA) application survey.  In the latest numbers reported this morning, the refinance index didn't change much after that, which is "good" at face value because it means refi activity remained at the modestly elevated levels reported last week.  But things start looking less than good when we add context from the September mini-refi-surge. As has been and continues to be the case, none of the recent activity amounts to much when compared to the true refi booms of the past. Unfortunately, that line will have an even harder time moving up in the coming weeks.  This afternoon's Fed announcement was not well received by the rate market.  Mortgage rates are moving up quickly even though the Fed cut its policy rate. The average lender is already back up to the recent highs seen in early ... Continue Reading »
• Highest Building Permits Since February Despite Slower Housing Starts
  Posted on Wednesday December 18, 2024
  The Census Bureau releases its report on New Residential Construction each month which offers 3 key metrics: building permits, housing starts, and housing completions.  Of those, the first two are most closely watched. There is typically a solid buffer between permits and starts.  After all, housing construction cannot "start" unless it is "permitted."  Oftentimes, there's a divergence between housing starts and building permits on any given month.  This is one of them. This data series has been fairly unremarkable recently.  Construction continues running above pre-pandemic levels, but new homes have been started at a slower and slower pace.  That might sound problematic until one considers that 2024 has seen the highest pace of completions since 2006. Bottom line, housing definitely surged in 2021 and early 2022, and it has definitely cooled off since then, but the cooling has been very orderly compared to some past episodes.   One last nuance to consider in today's data (and in general, for this data series) is the divergence between single and multifamily housing starts.  Single fam has been doing much better recently--still easily holding above pre-pandemic levels.  Multifamily starts, however, are near their lowest levels in ... Continue Reading »
• Builder Confidence Remains Low, But Sales Expectations Are Increasing
  Posted on Tuesday December 17, 2024
  The National Association of Home Builders (NAHB) and Wells Fargo publish the Housing Market Index (HMI) each month. The industry refers to this as "builder confidence" and December's number came out today. It was right in line with November's, and it suggests builders are increasingly honing in on a relatively gloomy baseline in the bigger picture. There are several ways to approach the languishing of the index, with the easiest being some combination of single family construction (which capture the initial drop in 2022) and multi-family construction (which, along with persistently high rates, helps explain why the index may not have recovered). Both are charted below. Ultimately, actual construction figures are a better indicator of the housing market than sentiment surveys, but the latter can offer some insight to trends and future opportunities.  On that note, the component of the builder survey that tracks the outlook for 6 months into the future continues moving to the highest levels since 2022.  As seen the following chart, it's less "sideways" and better described as gently trending higher. Other highlights from today's release: 31% of builders cut prices in December, ... Continue Reading »
• Mortgage Applications Surge (Relatively) as Rates Drop (Relatively)
  Posted on Wednesday December 11, 2024
  The Mortgage Bankers Association is out with the latest survey of mortgage applications and refinance activity led the charge this week.  In fact, purchase activity declined a bit and refis saw their best weekly gains since September. The following chart shows the week over week change in the refi index: At first glance, it would be easy to assume that this is due to some sort of distortion in the week after Thanksgiving, but if that was the case, we would have seen a similar outlier in the other direction last week.  It's more likely that the sharp decline in rates is the x factor. Notably, MBA's weekly survey data only shows rates declining from 6.69 to 6.67, but MND's daily rates tell a different story with a drop from 6.88 to 6.68.  That 0.20% decline would certainly be enough to account for the jump in activity, especially in a market where the outright activity is so historically low. Other highlights from this week's MBA survey: Refi share of total apps increased to 46.8% from 38.7% Share of VA applications increased to 16.3% from 13.6% 5/1 ARM rates dropped ... Continue Reading »
• Mortgage Purchase Demand Continues Surging, Sort Of...
  Posted on Wednesday December 04, 2024
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• Home Mortgage Purchase Applications Highest Since February
  Posted on Friday November 29, 2024
  The Mortgage Bankers Association (MBA) released its weekly application survey results on Wednesday.  The highlight was a 12.43% increase in purchase applications from the previous week.  That brought the purchase index to the highest levels since February. As has been and continues to be the case, there's an obvious counterpoint to any of these periodic surges: the broader context.  In other words, yes, these are the highest levels since February, but even if we go back to February 2023, the range since then is historically low and sideways. With that in mind, we're equipped to digest the refinance index with a grain of salt.  At first glance, we might lament the evaporation of the recent surge in September. But the broader context suggests that we can simply be in a perpetual state of lamenting refi demand for more than 2 years now. Other highlights from this week's application data (current week change % vs previous week): Refinance share of total apps 38.8  vs 41.0 FHA share of total apps 16.0 vs 16.6 VA share of total apps ... Continue Reading »
• New Home Sales Sharply Lower in October, But There's a Catch
  Posted on Tuesday November 26, 2024
  Even on a good day, the Census Bureau's New Residential Sales report has a notoriously wide margin of error.  But today's 12.8% margin of error isn't even the best counterpoint to today's ostensibly alarming 17.3% month over month decline.  After all, that would still be at least a 4.5% decline. Another counterpoint--also not remotely the best one--would be that home sales continue to operate in the same sideways range that's been intact for nearly 2 years now: So what is the best "yeah but?"  It's very simple, and it should become clear when you take a look at the geographical distribution of this month's losses.   For those that gloss over at the sight of big tables of numbers, the critical observation here is whopping 27.7% decline in home sales in the South, as well as the fact that the outright number of sales is far below any other month going back to October 2023. In fact, every other region has at least 3 other months in the past 12 that have come in lower. Connecting the dots, many of us will remember that October brought the uniquely disruptive category 5 Hurricane Milton.  ... Continue Reading »
• Latest Home Price Numbers, Including a New Conforming Loan Limit
  Posted on Tuesday November 26, 2024
  There are two key, big picture home price indices in the U.S.  They come out every month, but with a 2 month lag.  That means we're getting September's prices today.   The two indices are: S&P Case Shiller, which focuses on a smaller data set that tends to detect trends sooner, but also in a more volatile way FHFA, a U.S. government agency that ultimately captures about as many transactions as could possibly be captured, thus producing the broadest and most authoritative update on home prices.  For this reason, it serves as the foundation for updating the annual conforming loan limit. What happened with September's data? The more volatile Case Shiller data declined by 0.3% in September while FHFA's broader data set showed 0.7% growth.  These discrepancies aren't uncommon.  Moreover, both are reflecting a mid-4% rate of appreciation in annual terms. What are the implications for conforming loan limits, and what even is a conforming loan limit (CLL)? The CLL is the highest loan amount that can be guaranteed by housing agencies Fannie Mae and Freddie Mac. Their guarantee allows for several advantages ranging from standardized ... Continue Reading »
• Uncommon Pattern Emerging in Existing Home Inventory
  Posted on Thursday November 21, 2024
  As you may have gleaned from our coverage of new home sales, construction, builder confidence, and mortgage apps recently, there are only so many ways to describe the same phenomenon.  Today's report on October's Existing Home Sales from the National Association of Realtors (NAR) is just another player on that same stage.  Like the others, it's languishing at the lowest levels in a long time and cutting a broadly sideways path. Like the others, we can tie the big drop in 2022 to the big rate spike in 2022.  After the problematic time frame highlighted in the chart below, little has changed for sale or rates in the bigger picture.  This particular data series has one other interesting nuance and it has to do with inventory levels.  Existing home inventory has a very reliable pattern of peaking in the summer and bottoming out around the new year.  2023's inventory peaked much later in the year and now this year, the peak has yet to show up! What should we make of this?  Are more people listing their homes or are fewer people buying the homes that are listed?  Turning to Redfin's ... Continue Reading »

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