A deal between consumers and a Multiple Listing Service doesn’t solve the issue of buyer brokers “steering” clients to listings with higher commissions, lawyers for the government said.

U.S. new-home construction sank at the start of the year by the most since the onset of the pandemic, indicating the recovery in the housing market will be gradual as many buyers await a further decline in mortgage rates.

At present, the Consumer Price Index (CPI) and the jobs report are the two most important considerations for interest rate momentum as far as economic reports are concerned, But it wasn’t always so.  For more than a decade leading up to 2022, (CPI) was not remotely as important because inflation ceased to be a major concern after 2010. Since 2022, we could view the Producer Price Index (PPI) in a similar light.  Sure, it’s an inflation report, but it focuses on the more volatile wholesale side of the supply chain.  Markets continued taking cues from CPI while PPI bounced sharply higher and lower depending on the month.   All that began to change in late 2023 as PPI surged sharply lower, helping to build a case for inflation calming down.  Since August, we’ve seen more evidence of rates being willing to react to this previously unloved data. But the data can cut both ways.  PPI has spiked a few times in the past few months and today was the latest example.  In many ways, it adds insult to the injury already done by CPI earlier in the week. Thankfully, the market still isn’t willing to move nearly as much for this report, so the damage was not nearly as big in terms of upward rate movement.  That said, the movement was still enough to take the average lender to the highest levels in over 2 months.

Inflation Surprises Delay The Decision

In the short term, it’s nice to see that today’s massively higher PPI reading didn’t do more than it did to crush the bond market’s spirit.  This isn’t the craziest turn of events given that we already had a bit of spirit crushing after Tuesday’s CPI, but that several Fed speakers said they’re not reading too much into one month of data that breaks from the recent disinflationary trend.  In the slightly bigger picture, however, there’s an opportunity cost.  Sure, things may not be unimaginably worse than they were last week, but where would we be if inflation came in slightly below forecast?  Very likely, that would have resulted in a much more constructive narrative heading into March where a decent result in NFP and CPI in 3 weeks would pave the way for the Fed to give the first signal that a rate cut would be on the table in subsequent meetings.  As it stands, even if the data released in March is bond-friendly, it will have to be taken with a grain of salt until April.  More waiting as opposed to less.

Econ Data / Events

M/M Core PPI

0.5 vs 0.1 f’cast -0.1 prev

Y/Y Core PPI

2.0 vs 1.6 f’cast, 1.8 prev

Market Movement Recap

09:08 AM Moderate overnight weakness and additional selling after PPI data.  MBS down half a point.  10yr up 7.5bps at 4.311

10:47 AM Well off the lows now with MBS down only 11 ticks (.34) and 10yr up 6bps at 4.295

12:36 PM Slipping again.  MBS down 14 ticks (.44) and 10yr up 7bps at 4.307.

04:53 PM Near best levels since before this AM’s data after a steady afternoon grind.  MBS down only 10 ticks (.31) and 10yr up 4.3bps at 4.279

If CPI is a 10 out of 10 on a scale of economic data that causes bond market volatility, PPI is never more than a 5.  It’s a good thing too.  All it took was a 0.1% deviation from expectations for CPI to send bond yields 15+ bps higher on Tuesday.  Contrast that to today’s PPI deviation of a whopping 0.4% (specifically, m/m core PPI came in at 0.5 versus a median forecast of 0.1).  If this had been CPI, 10yr yields would likely have jumped 30+ bps, but that’s assuming anyone would believe the number. 

This level of deviation is all but unheard of on CPI.  On the other hand, PPI is historically much more volatile.

Even though the National Association of Home Builders (NAHB) reported the third consecutive increase in its measure of home builder confidence, actual residential construction activity fell. The residential construction report for January shows both the rate of permitting and housing starts declined from the previous month, the second straight loss for starts. The U.S. Census Bureau and the Department of Housing and Urban Development said construction began on residential properties at a seasonally adjusted annual rate of 1.331 million units. This was down 14.8 percent from the December rate of 1.562 million. The December rate was, however, a substantial upgrade from the 1.460 million units originally reported. On a year-over-year basis, starts were almost flat, with a decline of 0.7 percent. Single-family starts fell 4.7 percent to an annual rate of 1.004 million units but that was an improvement of 22.0 percent from the prior January. Multifamily starts, at 314,000 units, were down 35.8 percent from December and 37.9 percent on an annual basis. On an unadjusted basis, the report says there were 93,700 units started during the month, 68,700 of them single-family houses. The December numbers were 108,800 and 72,300, respectively. The setback for permitting was more modest. Total authorizations were at an annual rate of 1.470 million, a 1.5 percent dip from 1.493 million in December and an increase of 8.6 percent for the year. The 1.015-million-unit rate for single-family houses marked a 1.6 percent gain for the month and 35.7 percent year-over-year. The permitting rate for multifamily units dropped 9.0 percent and 26.6 percent.

It was a sad day earlier this week for anyone who likes food out of a toaster as the inventor of Pop-Tarts passed away at age 96. (Yes, Pop-Tarts were invented… they don’t grow naturally in the wild.) Something else that isn’t found naturally is airline seat pricing. We’re in mid-February, and conference activity will increase, and families will start thinking about summer vacations. That often means flights. Prices do go up significantly 21, 14, and seven days before a flight, so keep that in mind. (For anyone who is genuinely interested, here’s an easy to read scholarly article on the awkward way in which airlines set seat prices.) And while we’re talking about dollars, recent Commentaries have mentioned the shift in regional manager’s pay to more profit-based rather than strictly volume, as well as how it is illegal to pay LOs on profits under TILA’s LO Comp Rule. Addressing management pay, attorney Steve Lovejoy with Shumaker Williams pointed out that, “If the branch manager is a producing manager, meaning he/she originates, or so much as talks to consumers, their compensation cannot be based on profitability of a loan, the branch or the company.” (Today’s Commentary podcast can be found here and this week’s is sponsored by Lender Toolkit and its AI-powered AI Underwriter and Prism borrower income automation tools. By providing lightning-fast underwriting decisions, your market reputation with borrowers and Realtors will soar, which means more repeat and referral business. Hear an interview with Figure’s Anthony Stratis on trends in home buying and the HELOC space.)

The public retirement fund, one of the biggest in the US, said four years ago it would review all of its fossil-fuel holdings as it sought to reduce investment risks linked to climate change.

The National Association of Home Builders/Wells Fargo gauge of housing market conditions rose by 4 points to 48 this month, according to data released Thursday.

For the first time since mid-December, the Freddie Mac survey reports mortgage rates over 6.7%.