Day to day movement has been subdued in mortgage rates recently, and now the week over week movement is just as uneventful.  Friday’s average top tier 30yr fixed rate almost perfectly matched last Friday’s and it was identical to where we began the week.   Given the absence of any major market moving motivations, this isn’t a surprising turn of events.  That said, it’s worth considering that the past 3 days have seen gradual upward pressure implied by the bond market.  This didn’t immediately translate to upward pressure in mortgage rates due to the timing of the market movement relative to when mortgage lenders set rates for the day.   Whether or not this ends up looking like a vague warning sign depends on the economic data in the coming week.  Unlike the present example, there are important data points each day with the most important report of them all–the jobs report–on Friday.  If there’s a strong bias toward strength or weakness in the data, it will go a long way toward resolving the debate over the size of the Fed’s rate cut in 3 weeks.  The rate cut itself has no bearing on mortgage rates, but shifts in rate cut expectations tend to produce comparable shifts in mortgage rates in the run up to the Fed’s official announcement. 

Month-End Volatility, But No Bearing on Bigger Picture

It was a deceptively interesting Friday for the bond market with month-end trading creating volatility that seemed relevant at first glance.  Those trades easily overshadowed the calmer market movement seen in the morning hours following the PCE data, but that was a very low bar.  In the grand scheme of month-end trading days (especially those that fall on the Friday before a 3 day weekend), today’s volatility was average. Next week holds far more promise to shape the debate over a 25 vs 50bp Fed rate cut and, consequently, the next big move for the bond market.

Econ Data / Events

M/M Core PCE

0.2 vs 0.2 f’cast, 0.2 prev

Y/Y Core PCE

2.6 vs 2.7 f’cast

Chicago PMI

46.1 vs 45.5 f’cast, 45.3 prev

Consumer Sentiment

67.9 vs 68.0 f’cast, 66.4 prev

1yr inflation expectations

down 0.1%

Market Movement Recap

08:51 AM Flat overnight and modestly/paradoxically weaker after PCE data.  MBS down 3 ticks (.09) and 10yr up 1.7bps at 3.878

12:20 PM small but quick selling pressure just now with 10yr up 3.2bps at 3.893.  MBS down 5 ticks (.16) on the day. 

04:17 PM Sharply weaker in the PM hours and now recovering a bit after month-end trades run their course.  MBS down 3 ticks (.09) and 10yr yields up 4.1bps at 3.903

This morning’s PCE inflation data was in line with expectations calling for a core monthly reading of 0.2%.  In fact, the unrounded number was 0.16+ which annualizes at a perfect 2.0%.  Despite the apparent win, bonds moved a hair weaker in the 30 minutes following the report.  While that weakness has already been erased, it created confusion initially.
There are multiple ways to justify a bit of paradoxical movement.  At the time, the best explanation was simply that the level of movement was not even remotely consequential in the bigger picture.  Apart from that, we can consider that an “as expected” reading stops short of condoning a 50bp Fed rate cut next month.  Some traders are adjusting accordingly. 
Other traders are closing up positions for the month, creating discrete movement not related to the data.  All of this is occurring on a Friday before Labor Day weekend, which means low volume and light liquidity (easier for fewer trades to have a larger impact on movement). 

A gauge of pending U.S. sales of existing homes sunk in July to the lowest level on record, as high prices and borrowing costs continue to scare buyers away.

The bureau claimed Newday USA deceived homeowners by failing to disclose the costs associated with a cash-out refinance when compared alongside their existing mortgages.

Recent rate movements have failed to result in significant purchase growth, but refinances are providing lenders some lift.

The average payment fell to $2,140 from $2,167 in June, according to the Mortgage Bankers Association.

A Congressional Budget Office study looks under the hood at homeowners insurance and considers strategies like expanding the federal coverage beyond floods.

Home sale numbers continue to retreat and in July the National Association of Realtors’® (NAR) Pending Home Sales Index (PHSI) fell to its lowest level…. Ever! Based on signed sales contracts for existing single-family houses, townhomes, condos, and cooperative apartments, the PHSI was down 5.5 percent from June to 70.2. This is 8.5 percent lower than the index for July 2023. [pendinghomesdata] The PBHSI is considered a leading indicator of home sales over the next one to two months. NAR cautions, however, that the amount of time between pending contracts and completed sales is not identical for all home sales. Variations in the length of the process from pending contract to closed sale can be caused by issues such as buyer difficulties with obtaining mortgage financing, home inspection problems, or appraisal issues. The index was benchmarked at 100 in 2001, a year in which contract activity was considered average.     “A sales recovery did not occur in midsummer,” said NAR Chief Economist Lawrence Yun. “The positive impact of job growth and higher inventory could not overcome affordability challenges and some degree of wait-and-see related to the upcoming U.S. presidential election.” The index fell month-over-month in all four major regions. The Northeast slid 1.4 percent to 64.6 but did pull off a 2.4 percent gain from the previous July. In terms of home sales and prices, the New England region has performed relatively better than other regions in recent months ,” added Yun. “Current lower, falling mortgage rates will no doubt bring buyers into market.”

It continues to be the case that mortgage rates are moving in a very narrow range with minimal changes from day to day. For instance, in the past week, the average mortgage payment would not have changed by more than $2 a month on a $300k loan. That said, the past two days have seen the biggest movements during that time with today’s increase mostly erasing yesterday’s improvement.  The notion of rates moving “higher” is at odds with many of today’s rate headlines due to the release of Freddie Mac’s weekly rate index, which reported the lowest rate since April 2023 today.  Freddie’s survey is an average of Thursday through Wednesday’s rates, reported the following day.  This means that some of the days being counted will have seen even lower rates. Fortunately, our daily rate tracking leaves no doubt as to the recent movement.  As we already noted, yesterday’s rates were the 2nd lowest in more than a year, but still not quite as low as those seen on Monday August 5th. [thirtyyearmortgagerates] Will the average borrower see much of a difference?  No, but facts are facts, and at the average lender, a $300k loan would have cost you about a thousand dollars less on August 5th in terms of the upfront cost required to secure the exact same rate today.