The Census Bureau’s latest Residential Construction report showed a mixed picture for August, highlighted by a sharp drop in building permits. Total housing starts (the groundbreaking phase of construction) fell 2.3% to a 1.398 million annual rate, led by a 3.4% decline in single-family starts to 906k. Multifamily activity eased 1.5% to 464k but continues to trend higher over the past several months, signaling sustained demand for apartments and other multi-unit projects. The standout shift came on the permitting side. Total permits dropped 6.8% to a 1.264 million annual pace—one of the steepest monthly declines in years. Single-family permits slid 5.1% to 827k and multifamily permits fell 9.3% to 437k. Importantly, though, permits had been running well above starts for much of the year. This latest pullback brings the two measures into closer alignment, suggesting a more balanced pipeline. Note the broadly flat pace of housing starts.  This suggests a fairly steady pace of construction for now.

Builder confidence levels continued kicking a sad little can down the same long and lonesome road. The September National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) held flat at 32, extending the streak to 17 consecutive months below the key 50 mark that separates expansion from contraction. While the overall index isn’t pretty, there was some positive movement in the component index that focuses on sales expectations over the next 6 months, which rose to its highest levels in 6 months. These expectations are responsible for keeping overall confidence from sinking to new long-term lows–largely weighed down by historically low buyer traffic. With affordability being a key concern, the recent drop in mortgage rates could help break that traffic jam, assuming it sticks. The rate outlook got a bit fuzzier in the 2nd half of the week as the average 30yr fixed rate ticked up somewhat sharply from the lowest levels in a year to the highest levels in 2 weeks.  [thirtyyearmortgagerates] Pricing pressure remains widespread. NAHB reported that 36% of builders cut home prices in September, with an average reduction of 5%. Meanwhile, 64% of builders offered sales incentives—still an elevated share by historical standards. Regionally, confidence was weakest in the West, where affordability challenges are most severe. The South tracked near the national average, while the Midwest and Northeast held relatively steadier, reflecting the persistent gap between high-cost and lower-cost housing markets.

Uneventfully Sideways At Modestly Weaker Levels

Friday ended up being the least interesting day of the week although it did manage to offer some hope that the post-Fed selling spree has found a limit.  Bonds were just a bit weaker in the overnight session but opening levels were roughly in line with Thursday’s weakest levels (so no real additional selling in daily terms). In addition, the opening levels served as support that offered several bounces throughout the day in Treasuries (4.14% in 10yr yields, e.g.). Some would consider such things to be early evidence of the market finding its footing after 2 days of selling. Ultimately though, bigger moves remain dependent on econ data. Next week is fairly light in that regard, but the plethora of Fed speeches could help balance the hawkish takeaway from this week’s Powell press conference.

Market Movement Recap

10:13 AM Modestly weaker overnight but erasing some losses since 9am.  MBS down 2 ticks (.06) and 10yr up 1.5bps at 4.119.

12:25 PM 10yr yields are near today’s highs at 4.139, up 3.5bps on the day.  MBS down just over an eighth of a point.

03:09 PM MBS down an eighth and 10yr up 2.8bps at 4.132

What a difference a week makes for mortgage application demand. As we noted last week, mortgage rates were already trending lower than those captured in the weekly survey numbers from MBA and Freddie Mac.  The expectation was that refinance activity would be surging in this week’s data.  That turns out to have been an understatement. For the first time in several years, we have to take our chart of MBA’s refinance applications all the way back to 2022 in order to provide context for the levels achieved this week.  Until now, September 2024 set the high water mark. That’s a whopping 58% increase in refi demand versus last week, and it’s 70% higher than the same week one year ago. The Purchase Index rose only 3%, but that leaves it near the best levels since early 2023. Overall applications were up 29.7%, the 2nd biggest jump since the last week of 2022, and in outright terms, application activity rose by the highest amount since July 2021! There are already clouds on the horizon, unfortunately.  On the same day these numbers were released, rates began moving sharply higher in response to this week’s Fed announcement (why?). The rate spike continued on Thursday in response to economic data.  All told, rates are easily back up to the highest levels since before the September 5th jobs report.  Mike Fratantoni, MBA’s SVP and Chief Economist noted “homeowners with larger loans jumped first, as the average loan size on refinances reached its highest level in the 35-year history of our survey.”

Rate rolled out its Rate App entirely in Spanish Thursday as part of its Language Access Program.

Radian undertook a multiyear process that resulted in the $1.7 billion purchase of Inigo, but it’s exiting other businesses outside of mortgage insurance.

Intermediary automation has increased the immediate availability of product, pricing and eligibility information to both sides of the mortgage business.

President Donald Trump asked the Supreme Court to reverse a lower court ruling allowing Federal Reserve Gov. Lisa Cook to remain in office pending the outcome of her lawsuit challenging Trump’s move to fire her late last month.

CrossCountry Capital will partner with an Ares Alternative Credit fund and Hildene Capital Management after receiving $1 billion of equity capital commitments.

It’s day two of mortgage rates surging higher–now back to the highest levels in 2 weeks (the day before the September 5th jobs report). The juxtaposition of yesterday’s Fed rate cut and the sudden mortgage rate spike is incredibly confusing to most of the population, so let’s clear it up. SHORT VERSION:  
The Fed Funds Rate (FFR) doesn’t dictate mortgage rates
The FFR only changes on Fed announcement days, 8 times a year.  It changes in response to various economic reports and events.
Mortgage rates change daily and the bonds that drive mortgage rates change in real-time throughout the day.  That means mortgage rates can drop for all the same reasons that drove yesterday’s rate cut.
Because those reasons were already in play well before yesterday, mortgage rates had already responded to them well before yesterday.
Bottom line: the Fed Funds Rate and mortgage rates dropped for the same reasons, but mortgage rates got to do it sooner because they move more nimbly. 
LONG VERSION:
We’ve written and re-written the long version too many times to count.  Here is one of the most evergreen examples: https://www.mortgagenewsdaily.com/markets/mortgage-rates-09212022
SPECIAL NOTE REGARDING OTHER NEWS STORIES SAYING RATES ARE LOWER: There are an unfortunate number of news articles out there today that claim mortgage rates are LOWER.  This is due to Freddie Mac’s weekly rate survey dropping to 6.26 from 6.35 last week. Freddie’s rate is an average of the 5 days ending yesterday, so 80% of the input is comprised of the lowest rates in a long time.  News organizations then quote the survey and give the impression that this week’s rates are lower than last week’s.