New American Funding, Lower and FirstSun Capital among purchasers in recent M&A deals within the mortgage space.

Sales of new homes in the U.S. edged higher in January as builders and buyers capitalized on lower mortgage rates at the start of the year.

Despite limited inventory and rising prices, buying interest appears robust heading into peak season, but lenders are likely to find a more discerning consumer.

Mortgage rates moved moderately higher to begin the new week, but they remained just under the highest recent levels seen last Thursday.  Many lenders were closer to ‘unchanged’ at the outset but were then forced to issue mid-day increases in response to weakness in the bond market. Bonds directly dictate the day to day movement in mortgage rates.  When bonds change enough during the day, lenders have to react, although they prefer to set rates only once a day for operational reasons.  Neither the movement over the weekend or during the day was very significant in the bigger picture.  We continue waiting on the more important economic data due out in the coming weeks for the biggest potential impact on rates.  Some of this week’s data could have an impact, but next week’s data represents a much bigger risk (or opportunity).

Auctions Caused Modest Weakness, But Mostly in Advance

As the bond market looks at the 5yr Treasury auction in the rearview, there’s a figurative sigh of relief.  Granted, it’s not enough to get Treasuries or MBS back into positive territory, but it does seems to confirm the “anxiety” trade driving the weakness earlier in the day.  That conclusion is further supported by the Treasury outperformance of MBS in the afternoon after the underperformance earlier in the day.  Despite the intraday volatility, none of of the bigger picture range boundaries were threatened and there were no interesting implications for bond market momentum.  “Generally sideways since CPI and waiting on the next big data” has been a good recap for nearly 2 weeks now.

Market Movement Recap

09:48 AM Initially stronger overnight, but losing ground modestly into domestic hours.  MBS are still up 1 tick (.03).  10yr up 1.4bps at 4.262.

10:49 AM Some selling heading into the 10am hour.  MBS down 2 ticks (.06).  10yr up 3.2bps at 4.28

01:06 PM Modest additional weakness before and after 5yr Treasury auction.  10yr up 5.5bps at 4.303.  MBS down 5 ticks (.16).

03:48 PM Recovering a bit after getting the auctions out of the way.  MBS down 5 ticks after being down nearly a quarter point a short while ago.  10yr up only 3.3bps at 4.281.

With the market for existing homes struggling amid a lack of inventory, New Home Sales continue doing the heavy lifting for the housing market.  Rather, New Home Sales are doing more to show a stronger relative performance to the pre-pandemic years.  The market for existing homes is still far bigger, even at its weakest levels. But existing home sales data is so “last week.”  Today’s release is specific to new homes, so let’s zoom in.  When we do, we can see new home sales remaining in the 2017-2019 range for nearly two years now.   In other words, new residential sales continue chugging along without much fanfare since the initial supply glut and demand surge that followed covid-related lockdowns.  There was quite a bit of variation depending on geography, which is often a result of ebbs and flows of weather events at this time of year.  Here’s how the chips fell in January by region:
The Western region saw a huge 38.7% increase, moving from the lowest levels in 10 months to the highest levels in more than a year
The Northeast saw and even larger 72% increase, but that’s not saying as much given the vastly smaller unit count in that region
The Midwest ticked up 7.7% month over month but remained well under July’s peak
The South decreased by 15.6%  to the lowest levels in more than a year, but only slightly below November

Saturday was George Thorogood’s 74th birthday, and fans know that he wrote the classic tale of rent collection, land ladies, and payment avoidance. Time flies, but that may change. We’re faced with an actual five-day workweek this week, with no Federal holidays until Memorial Day, May 27th, two months away! Yikes. Here in Houston at the TMBA’s Southern Secondary Conference, the attendees are already making use of what time they have, discussing best execution procedures, warehouse tactics, management strategies, economic trends, the market for servicing, and operational efficiencies. I’m a capital markets guy, so arguably learned math good. But I didn’t learn math like this! MBS versus cash sales pick-ups is always a favorite topic, although last year the market was deluged by excess servicing trades. Flow and bulk purchasers of HELOCs and 2nds is search being undertaken by some, as well as climate change and insurance cost increases. (Found here, this week’s podcast is brought to you by nCino, makers of the nCino Mortgage Suite for the modern mortgage lender. nCino Mortgage Suite’s three core products – nCino Mortgage, nCino Incentive Compensation, and nCino Mortgage Analytics – unite the people, systems, and stages of the mortgage process. Today’s has an interview with Yardsworth’s Matt Lucido on creative ways that homeowners can leverage their tappable equity, and how we can see more supply hit the market.) Lender and Broker Services, Products, and Software

While it may not prove to be the most relevant market mover of the week, the upcoming Treasury auction cycle is at least in the running.  This particular example is condensed in the first two days of the week (as opposed to the typical Tue/Wed/Thu schedule) due to the calendar.  Treasury assumes easier investor participation if the auctions can all be part of investors’ February balance sheets.  Early trading suggests the auction cycle is indeed a consideration if for no other reason than the modest underperformance vs MBS–something often seen heading into an auction cycle. 

In some ways, this is also a test for the short end of the curve, which is a bit closer to breaking technical ceilings than the long end (i.e. 2yr yields are 2bps below their 2 month highs while 10yr yields have at least a 6bp cushion).

Some large mortgage companies reportedly have high retention rates, but the industry average is a different story, according to Mortgage Bankers Association data.

Federal Reserve Bank of New York President John Williams said the economy is headed in the right direction, and it will likely be appropriate to cut interest rates later this year