Residential construction slowed in July. Both the rate of permitting and of housing starts were down from the prior month and starts were the worst in more than four years. The U.S. Census Bureau and the Department of Housing and Urban Development said overall starts declined 6.8 percent from June levels and, at a seasonally adjusted annual rate of 1.238 million, were 16.0 percent lower than in July 2023. Single-family starts dropped by 14.1 percent to a rate of 851,000, a 14.8 percent annual decrease. Multifamily starts, at the rate of 363,000, represented an 11.7 percent increase from the prior month but a 21.8 percent year-over-year decline. On a non-adjusted basis, construction started on 113,000 residential units in July, 79,800 of which were single-family dwellings. In June, the corresponding numbers were 124,000 and 94,400. [housingchartall] Permitting was only slightly better. They were issued at an annual rate of 1.396 million during the month, down from 1.454 million in June. That was a -4.0 percent change for the month and -7.0 percent on an annual basis. Single-family permits were virtually unchanged from the previous month at 7938,000 and 1.6 percent lower than the same period last year while permits for construction in buildings of five or more units dropped to 408,000 from 466,000. This is 12.4 and 18.2 percent lower than in the two earlier periods. On an unadjusted basis, permits were issued for 125,600 units, including 85,600 single-family houses. Both numbers were nearly identical to those in June. [housingpermitschart]

At first glance, the first half of the trading day has been volatile for the bond market, but at second glance, trading levels are just returning in line with the same narrow, sideways ranges seen for most of the day yesterday.  

In the only-slightly-bigger picture, today’s volatility is fairly mild compared to moves seen over the past 3 weeks.  Either way, the net effect is a classic consolidation pattern near the strongest levels of the year.

While the total dollar volume of apartment originations fell last year, the number of companies making loans increased from 2022, the Mortgage Bankers Association said.

In addition to promoting Tom Hutchens to president, non-qualified TPO Angel Oak Mortgage Solutions also named a trio of new executive vice presidents.

Benutech’s former CEO will head Voxtur, which is selling a majority stake in Blue Water Finance Technologies and repositioning itself in real estate lending.

Confidence among U.S. home builders slipped for the fourth straight month to its lowest point of the year in August as high loan rates and home prices weigh on companies and buyers alike.

While other indicators all reported the 30-year fixed rate mortgage was lower on a week-to-week basis, Freddie Mac’s survey increased for the first time in three weeks

The record will show that today’s Housing Market Index (aka “builder confidence”) from the National Association of Homebuilders (NAHB)/Wells Fargo fell to 39 from 41 last month.  That’s the 4th straight month of declines and the lowest level of the year.  On the other hand, it’s also part of a broad, sideways pattern that’s been intact since late 2022. While we are well aware that the lockdowns caused the big drop in early-to-mid-2020, what’s up with the equally big drop in 2022?  This is almost exclusively a factor of interest rates. If we invert the red line (such that higher interest rates are at the bottom of the chart), we can see just how strong the correlation is. This isn’t the construction industry’s only problem, but it’s definitely the biggest.  Understanding this helps us understand why timing is partly to blame for this month’s lower-than-expected reading.  A vast majority of the survey responses arrived in the first week of the month, which means the recent drop in rates hadn’t yet had time to stir up new buyer traffic. To be clear, even if the survey were taken today, it wouldn’t make a huge difference in the big picture.  First off, the data tends to lag mortgage rate movement by roughly 2 months.  Even if it didn’t, the present level of rate movement won’t be enough to get confidence numbers out of the sideways bigger picture trend. For that, rates would need to drop into the 5% range and material/labor costs would have to remain in check.  

Looking at the attendees of various mortgage events around the nation over the last several months, I remember back to when a “new hip joint” meant some place that I wanted to go on a Friday night. Here at the MMLA Conference in Boyne Falls (if you ever have a chance to visit in the summer or autumn, do so!), where there is definitely some youth appearing, one of the dinner discussions was “remember back when everyone was hiring” and whether hiring is on the upswing. For some companies, the answer is definitely “yes” and this month’s STRATMOR blog is titled, “Hiring: Do You Remember How to Do That?” Another discussion topic is the feeling that most lenders have definitely “turned a corner” in terms of profitability and had a good second quarter for various reasons. Let’s hope your numbers validate that! (Today’s podcast is found here and this week’s is sponsored by Truv. Truv lets applicants verify income, employment, assets, insurance, and switch direct deposits. Unlock the power of open finance, with Truv. Hear an interview with Marvin Chang on how mortgage originators can tailor products and services for the next generation.) Lender and Broker Software, Services, and Products ICYMI: Last month, Optimal Blue unveiled three new AI capabilities in the CompassEdge hedging and trading platform as part of its ongoing strategy to address real-world challenges for mortgage lenders. The first, Profitability Assistant, designed for CFOs, uses generative AI to write a succinct summary of the top drivers that caused a gain or loss of profitability in a pipeline. The second, Projections Assistant, assists capital markets leaders in predicting the real-time impact of various factors on the risk profile of a hedged mortgage pipeline. Finally, Trade Assistant suggests a combination of sells, buys, rolls, and swaps to maximize effectiveness in alignment with a lender’s hedge policy, while minimizing transaction cost. These AI assistants aim to reduce manual processes, aligning with Optimal Blue’s mission to maximize lenders’ profitability on every loan. These new AI capabilities come at no additional cost to CompassEdge users. Read more in the press release.

Mortgage rates had moved a bit lower since their most recent high last Thursday.  By yesterday afternoon, the average lender had moved down to 6.49 from just under 6.63 for a top tier conventional 30yr fixed purchase. After this morning’s economic data, almost all of that improvement was erased. There were 5 separate reports in the 8:30am ET time slot, but 2 of them did all the damage.  Retail Sales came in at 1.0% for the month of July, compared to a median forecast of 0.3%.  Stronger sales implies a stronger economy and higher rates, all other things being equal. The other report was less of an obvious problem for rates at face value, but arguably at least as important to traders responsible for bond market movement.  Weekly jobless claims numbers were modestly lower than expected (227k vs 235k forecast).  While this doesn’t seem like a big deal, this timely labor market data is being closely watched in order to validate or reject the idea that the jobs market is cooling as much as the last big jobs report suggested. One reason to pay extra attention to every little piece of labor market data is the fact that the Fed has explicitly said the labor market is occupying more of its focus as it considers when to cut rates and by how much.