It’s official!  At this point, you’d need to go all the way back to the end of December 2023 to see a lower average rate for a top tier, conventional 30yr fixed mortgage.  Today’s rates are already fairly close to those late-December levels.  Any further improvement would result in the lowest levels since May 2023.   We were already at 6 month lows yesterday, so today didn’t really change the game.  That said, this most recent rally represents an extension of a broader rally that began in May, and that one is definitely a game changer.  These past 3 months mark an abrupt shift in what had been a decisive uptrend in rates in Jan-April. Rates don’t necessarily “decide” to spend an entire month doing one specific thing, nor are they guaranteed to remain in the sorts of linear trends seen so far this year.  There are good cases to be made for those trends aligning with the most relevant economic data and events. With that in mind, the events of the past 2 days clearly have the market thinking about additional rate-friendly economic data.  Today’s installment consisted of the highest Jobless Claims reading in a year and big miss in an important manufacturing sector index.  This data caused rapid improvement in the bond market which, in turn, allowed mortgage lenders to set lower rates today. Tomorrow’s economic data is an order of magnitude more important than today’s.  The Employment Situation (aka “the jobs report”) will be released at 8:30am ET.  It is one of the two most important reports on any given month and easily has the power to cause a big move for rates in either direction.

Thank you to Ira S. who points out that today marks the Spirit Halloween Stores opening. The origins of Halloween go back thousands of years via dozens of cultures, unlike personal computers (PCs) that only date from the 1970s, but also springing forth from dozens of companies. (I consider myself fortunate to be on very good terms with Apple’s Steve Wozniak, and in fact many of my jokes come from him.) Old timers remember the snippet, “PCs didn’t replace people, but people who used PCs did replace ones that didn’t.” Perhaps something similar could be said for AI: AI won’t replace human workers but people that use it will replace people that don’t. “It’s not if, but when.” How ‘bout the latest hack: AT&T and all its customer’s personal information! Are you controlling your company’s technology, or is it controlling you? There’s so much going on and you, the user, don’t know it. Computer viruses can spread by using ChatGPT to write sneaky emails. Social media influencer Lisa Li crafted her version of an AI boyfriend using ChatGPT. (No comments, please, about how she probably can’t get a real boyfriend.) OpenAI’s ChatGPT Mac app was storing conversations in plain text. Meanwhile, some auto dealerships are returning to keeping paper and pen records of their transactions due to cyber-attacks. (Today’s podcast is found here and this week’s is sponsored by Optimal Blue. Optimal Blue bridges the primary and secondary mortgage markets to deliver the industry’s only end-to-end capital markets platform, helping lenders maximize profitability and operate efficiently so they can help American borrowers achieve the dream of homeownership. Hear an interview with new Optimal Blue CEO Joe Tyrrell on leadership, the race for AI in mortgage, and Optimal Blue’s strategy as a capital markets leader.)

Bonds were exceptionally sideways in the overnight session with 10yr yields holding between 4.05 and 4.06 for almost the entirety. It wasn’t until the 8:30am jobless claims data came out that signs of life emerged.  Claims were the highest in a year, resulting in a logical but modest rally.  At 10am, ISM Manufacturing took the rally to the next level by coming in much weaker than expected.  With that, 10yr yields are entering the mid-morning hours well under 4.0% for the first time since February 2nd.

The index of contract signings from the National Association of Realtors increased 4.8% to 74.3 in June, reflecting increases in all four major regions, the group said Wednesday.

Titles can vary among competitors, but the leaders of loan officers all value experience in both sales scenarios and technology acumen.

The Federal Reserve chair said Fed researchers continue to explore central bank digital currencies to stay current on international payments developments, but emphatically denied that the central bank is considering creating one of its own.

While the REIT still seeks to grow servicing, it’s been willing to sell for the right price as it responds to new rate-related risks and opportunities.

The parent company of Newrez saw mortgage segment profits of over $200 million and the successful close of its merger with Specialized Loan Servicing in the second quarter.

Surprisingly Strong Reaction to Equivocal Powell

Opinions certainly vary as to whether today’s communications from the Fed and Fed Chair Powell were dovish or hawkish, so let’s focus on facts.  The changes in the statement itself were bond-friendly but not enough for bonds to rally.  In fact, there was modest selling until Powell began answering questions.  Powell himself said a September rate cut was one possible scenario assuming the data remains consistent with recent progress toward goals.  He was very clear, however, to say that no decisions have been made.  A strong case can be made that today’s rally isn’t exclusively on Powell.  Geopolitical headlines and month-end trading definitely had an impact.  Still, history will remember that Powell did everything he could do to leave the door open for a September cut, short of promising that it would happen.

Econ Data / Events

ADP Employment

122k vs 150k f’cast, 155k prev

Employment Cost Index

0.9 vs 1.0 f’cast, 1.2 prev

Chicago PMI

45.3 vs 45.0 f’cast, 47.4 prev

Pending Home Sales

+4.8 vs +1.5 f’cast

Market Movement Recap

08:17 AM Flat overnight and a hair stronger after ADP.  MBS up 1 tick (.03) and 10yr down 1bp at 4.126.

12:27 PM Best levels of the day for MBS, up 5 ticks (.16).  10yr down 3.4bps at 4.101.

02:10 PM Slightly weaker after Fed announcement.  MBS still up 2 ticks (.06) and 10yr still down 1bp at 4.125

03:26 PM Stronger after press conference.  MBS up a quarter point.  10yr down 5.7bps at 4.079

05:00 PM Strongest levels of the day at the close.  MBS up 3/8ths and 10yr down 10.5bps at 4.031.

The Fed didn’t cut rates today and rates then moved quickly lower.  Naturally, there’s more to the story than that, but the paradox is a good reminder that the market reacts in real time to things that won’t happen for months.   Specifically, the Fed’s next meeting isn’t until September, but a good amount of today’s rate drop can be tied to expectations for future rate cuts.  In fact, it’s really the meetings beyond September that mattered more today (Sept itself was already seen as a near certainty). What drove the shift in sentiment?  It’s not necessarily the case that sentiment shifted in a major way.  Investors may simply have been cautious about the Fed pushing back on the exuberant certainty surrounding the rate cut outlook for the rest of the year. Fed Chair Powell absolutely knew the market was pricing in a 100% chance of a rate cut in September and while he certainly stopped well short of saying it was flat-out “likely,” he did nothing to push back on those expectations. There were other market movers in play in the afternoon as well.  These included geopolitical headlines and the typical elevated trading activity associated with the final day of any given month.  That month-end trading environment has often resulted in volatility with no other justification beyond the calendar.  Either way, it was one of the stronger days of the year for bonds, thus allowing mortgage lenders to drop rates by a larger than normal amount. Not every lender will be reflecting the improvement until and unless the market maintains the gains through tomorrow morning.