Mortgage rates did well last week, making it almost halfway back to the lower levels seen on April 9th.  Why focus on April 9th?  That was the last day before the most recent Consumer Price Index (CPI). Why focus on CPI?  That’s the monthly economic data that matters most to rate movement these days.  It’s not the only game in town, but it caused the biggest recent jump, by far. Last week’s combination of economic data and reassurance from the Fed was enough to get rates headed back in a friendly direction.  There was some follow-through today, but not for any news reasons.  In fact, “reasons” for rate movement are in far more limited supply this week.  In other words, last week was good and we caught a small break today with the modest improvement in rates, but things could be more choppy and sideways for the rest of the week.

Think your job has its ups and downs… How’d you like to be a lipstick tester? (You should see the rest of him!) For me it is off to Birmingham tomorrow, where no lipstick testing is on the agenda, but I am sure that one of the topics at the MBA of Alabama Conference will be how best to lend in an era of constrained supply of houses to buy. But that may be changing: Florida is seeing its inventory of homes for sale skyrocket and price growth stagnate, largely due to homebuilders rushing to accommodate a flood of newcomers. Because we’ve done such a great job keeping building costs on land down, while at the same time not polluting our oceans, let’s build a floating city for 20,000. (Sarcasm font required.) Whether it is real estate, beer cans, or the value of companies, values are determined by supply and demand, so here’s something interesting: Berkshire Hathaway’s cash pile has hit a record as Warren Buffett cut its stake in Apple, a company that he described as one of Berkshire’s “four giants” (its insurance business, its stake in Apple, its BNSF railroad, and its energy operations). Follow the money?! (Found here, this week’s podcasts are sponsored by Matic, the digital insurance marketplace built for the mortgage industry. Matic integrates home insurance shopping into the lending and servicing experience, allowing customers to shop carriers and find a policy in minutes. Create a new revenue stream that boosts customer happiness today! Hear an interview with JVM Lending’s Jay Vorhees on running a retail operation in today’s lending environment and how he empowers his employees.)

Last week was definitely important for the bond market.  The key takeaway was the Fed’s acknowledgement of elevated inflation in Q1 coupled with the assessment that they still see inflation subsiding in the coming months and that the next move i…

Gary Farro’s testimony focused on both the banking activity of Michael Cohen, a former Trump attorney who paid $130,000 to an adult film actress in 2016, and First Republic Bank’s due diligence work.

New notices pointed out how large learning models could lead real estate businesses to unintentionally violate the Fair Housing Act in a marketing campaign.

The industry hasn’t been sure how much of a lift they’d get this spring but a broader slowdown in hiring may help to lower financing costs.

Test your knowledge of the biggest mortgage headlines of the week. No. 2 pencil not required!

Bonds Hold On to NFP-Driven Gains Despite Some Push-Back

Whether you view it as a perfectly logical reaction to NFP coming in at 175k vs 243k or a bit too much of a rally relative to the motivation, no one could argue that bond yields were destined to drop after seeing this morning’s jobs report.  But employment data is only worth so much these days.  The main event continues to be inflation and we were reminded of that with the 10am ISM Services data.  The ISM headline was actually rate friendly, but the inflation component was the bigger mover, and it was not friendly.  Bonds lost almost all of their post-NFP gains in response, but managed to level off in the PM hours.  Combined with the 2 previous days of green, the net effect is the best closing levels since April 9th.

Econ Data / Events

Nonfarm Payrolls

175k vs 243k f’cast, 315k prev

Unemployment Rate

3.9 vs 3.8 f’cast/prev

Wages

0.2 vs 0.3 f’cast, 0.3 prev

ISM Non Manufacturing

49.4 vs 52.0 f’cast, 51.4 prev

ISM Prices

59.2 vs 55.0 f’cast, 53.4 prev

Market Movement Recap

08:43 AM Modestly stronger overnight with additional gains after NFP data.  10yr down 8bps at 4.50, and MBS up 3/8ths

10:15 AM losing some ground after ISM.  MBS still up 11 ticks (.34) and 10yr down 5.3bps at 4.526

02:16 PM gradually bouncing back and now sideways in the middle of the post-NFP range.  MBS up 3/8ths.  10yr down 7.3bps at 4.507

04:49 PM Very flat since noon with MBS up 11 ticks (.34) and 10yr yields down 8bps at 4.499.

It was an action-packed week for the housing and mortgage market. Wednesday’s Fed announcement was the highlight, but we also got several economic reports that caused rate volatility. Thankfully, it was mostly the good kind. The week got off to a slightly stronger start with Monday’s only major rate news being updated borrowing estimates from the Treasury Department.  Why would such a thing matter?  Treasuries largely dictate day to day interest rate momentum in the U.S. because they are abundant, simple, and as close to risk-free as it gets.  As such, Treasuries are the universal yardstick for all other debt in the U.S., including MBS, the mortgage-backed securities that have the most direct impact on mortgage rates.  This is why Treasury yields and mortgage rates correlate so well over time. Treasuries can take cues from several sources.  One of the biggest is the change in the outright level of supply.  In other words, how much more debt is the U.S. government issuing in the upcoming quarter?  If that number is higher than expected, it puts upward pressure on rates. Monday’s news from Treasury was fairly palatable and roughly in line with market expectations, which allowed rates to stay steady. Things changed on Tuesday when the Employment Cost Index (ECI) data came out.  This is one of several reports that the Fed has mentioned as being important to the rate outlook recently.  Higher numbers mean higher rates, all other things being equal.  This week’s installment showed Q1 costs at 1.2, up from 0.9 in Q4 and well above the market consensus of 1.0.  Rates hit the highest levels of the week as a result, both in terms of Treasury yields and mortgage rates.

On most months in modern economic memory, a gain of 175k payrolls would be welcome news for the labor market.  Depending on the context, it still is.  But in today’s case, it’s much lower than the market expected and not a high enough number to justify the 4.6+ 10yr yields seen yesterday.  Bonds rallied instantly when the news printed, but one rate-friendly jobs report is only a fine tuning adjustment to a rate environment dominated by inflation concerns.
Evidence of inflation concerns was available in real time today following the ISM Services data.  The headline was weaker, which would normally be good for bonds.  But the price component was quite a bit higher, which was enough for the bond market to react negatively.  

Despite the push-back, bonds remain in much stronger territory and have now mad solid gains 3 days in a row.  Yields are back in line with the afternoon of the last CPI day on April 10th.