Those who spend any time digging into home construction and home sales figures in the U.S. know that, of the 4 census divisions, the South accounts for about twice as much activity as the other 3 regions combined.  For example, in data released today for the month of November, the South accounted for an annual pace of 417k new home sales out of a nationwide total of 664k ( 62% of the total) Two months earlier, the South accounted for 472k out of 736k (64% of the total). But in October, it was only 366k versus a 627k (58% of the total). In other words, the South wasn’t pulling its typical weight in bolstering new home sales. There’s no need to overanalyze a simple phenomenon.  Major weather events and/or natural disasters routinely show up in housing market data.   The following table shows the regional breakdown with the obvious drop-off in October in the south.   While it was only a 13.9% improvement from October, the outright numbers are so large in the South that they more than made up for the 41% decline in the Northeast and the 7.5% decline in the West, ultimately helping the national numbers bump back up by 5.9%. In outright terms, the 664k annual pace matches the 2nd lowest level of the year seen in January.  October was the only month that was lower.  But even then, October and every other month of the past 1.5 years have fallen inside a narrow sideways range. This lukewarm bowl of porridge is emblematic of much of the data pertaining to new home construction and sales recently.  Activity is down from the post-pandemic peak, not making any moves for better or worse, but still in respectable territory relative to pre-pandemic levels.

The most interesting analysis we can offer today is a simple reminder that the word “idiosyncrasy” has an “S” at the end instead of the “C” that we’re all thinking it should have.  Speaking of idiosyncrasies, holiday weeks–particularly those for Thanksgiving and X-mas–tend to have some! At the simplest level, this just means that we shouldn’t read too much into any seemingly counterintuitive volatility. Bonds can go either direction for what seems like no real reason.  Lighter volume and liquidity make it easier for any given trade to move the market.  So far today, of the 3 people trading bonds, 2 are sellers, so yields are higher even though econ data came out weaker.

Why do ducks have feathers? To cover up their butt quacks. Why did Congress pass a three-month, stopgap funding bill? To cover their… never mind. But the government continues to function, and the good news for borrowers and lenders is that the NFIP (National Flood Insurance Program) is extended until March. (If you’d like to know the difference between private and public flood insurance, here you go.) Yes, Congress acted. Congress could act by doing away with Dodd Frank, and therefore the CFPB, but that is highly doubtful. No one knows what may happen at the CFPB. Hopefully, plenty of FAQs and publishing guidelines, more implementation guidance and not regulatory guidance; advisory opinions, arguably, can change the rules. FAQs to clarify the rules: Notice and comment is a very important process. Perhaps a pause in enforcement cases, although no one wants a regulator that does nothing. Action against individual broker shops is unlikely because there are so many of them. The loans are going to organizations that are monitored by the CFPB. Brokers don’t have the resources to put up a fight. The CFPB won’t randomly sample brokers, since it doesn’t have the resources. (Today’s podcast can be found here and is sponsored by Gallus Insights, the go-to reporting and analytics platform for mortgage lenders and servicers. Gallus makes it easy to access real-time data, create custom reports, and uncover actionable insights, all with a user-friendly design. Simplify your reporting, streamline your decisions, and drive profitability with Gallus Insights. Hear an interview with Gallus Insights’ Augie Del Rio on data trends in the industry and specific case studies that highlight the importance of data.)

The legislation went to Biden early Saturday morning after the Senate voted 85 to 11 to approve the measure, which sailed through the House hours earlier.

The fiscal condition at the government agency is much healthier today than when the Department of Housing and Urban Development put the policy into effect back in 2013.

Activity from smaller mom-and-pop investors dominates the segment, but their impact on overall housing prices might be overstated, Corelogic’s research found.

Flood insurance could hold up some home sales and lending, while major bank regulatory agencies will remain funded even if the government is unable to pass the necessary legislation before funding runs out.

The so-called core personal consumption expenditures price index, which excludes food and energy items, increased 0.1% from October and 2.8% from a year earlier, according to Bureau of Economic Analysis data out Friday.

The residential market is expected to face challenges from stubbornly high mortgage rates and limited supply in 2025, particularly after Fed Chair Jerome Powell’s comments on Wednesday indicating fewer rate cuts are coming.

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.

Econ Data / Events

M/M Core PCE

0.1 vs 0.2 f’cast, 0.3 prev

Y/Y Core PCE

2.8 vs 2.9 f’cast, 2.8 prev

Market Movement Recap

09:25 AM Slightly stronger overnight with additional gains after PCE data.  MBS up 11 ticks (.34) and 10yr down 6.8bps at 4.503

01:14 PM Generally stronger, but off the highs.  MBS up 10 ticks (.31) and 10yr down 6.4bps to 4.507

01:52 PM Down just over an eighth from highs in MBS.  10yr down 6bps at 4.511