Nearly all of the business came from home purchases, but reflecting the decline in mortgage volume and a revived Federal Housing Administration offering, fewer people overall used the product.

Data and Headlines Drive Modest Volatility Ahead of The Fed

There were two different bouts of modest volatility in the bond market today.  The first followed the 10am JOLTS data as the stronger headline/revisions caused some initial selling.  Buyers bounced back with help from softer internal components–both in JOLTS and via the labor differential in the Consumer Confidence data.  Afternoon volatility followed headlines regarding a rocket attack in Beirut which left bonds sideways near their best levels of the day.  The Fed announcement is the next major calendar event, but Wednesday AM data is still capable of causing some movement. 

Econ Data / Events

Job Openings

8.184m vs 8.0m f’cast, 8.23m prev

Job Quits (lower is better)

3.282 vs 3.459m prev

Consumer Confidence

100.3 vs 99.7 f’cast, 100.4 prev

Market Movement Recap

10:22 AM Unchanged overnight, stronger early, now back to unchanged after data.  MBS down 1 tick (0.03).  10yr down 0.5bps at 4.17

01:04 PM Quick surge in bonds on geopolitical headlines.  10yr down 3.4bps at 4.142.  MBS up an eighth.

03:29 PM Fairly flat after early afternoon gains.  10yr down 3.6bps at 4.141.  MBS up an eighth.

Is it a surprise to anyone that millions of renters could afford to buy a home with their mortgage payment not exceeding 30 percent of their income? Despite 39 percent of U.S. families renting in 2022, nearly 8 million qualified as “income mortgage-ready,” per Zillow, meaning they could likely handle a mortgage payment for a typical home in their area. Some portion of those want to rent, but other many potential homeowners may simply be unaware of their financial ability to purchase a home. It’s certainly up to lenders to tell them. Are they all waiting for lower rates, the term “lower” being subjective? The U.S. Federal Reserve is widely anticipated to hold the federal funds rate steady tomorrow, but everyone is expecting some kind of strong indication that it will begin easing policy in September. “Rob, are you hearing much about adjustable-rate loan production picking up?” Nope. Most think that rates are going to drop eventually, and it seems that borrowers are hesitant to have the same rate for 3 or 5 or 7 years. And capital markets staff aren’t in a rush to go through the trouble of setting up a new investor to do 3 loans a year with. (Today’s podcast is found here and this week’s is sponsored by Optimal Blue. Optimal Blue bridges the primary and secondary mortgage markets to deliver the industry’s only end-to-end capital markets platform, helping lenders maximize profitability and operate efficiently so they can help American borrowers achieve the dream of homeownership. Hear an interview with TD Bank’s Scott Lindner on optimism amongst home buyers despite market challenges.)

Mortgage rates began the day with the average lender quoting just slightly higher rates compared to yesterday’s latest levels.  By the end of the day, however, that average had fallen to its lowest level in more than 6 months, even if only by the thinnest of margins. Rates are driven by movement in the bond market and bonds responded to several inputs today.  The morning hours were basically a wash with some aspects of the Job Openings and Labor Turnover Survey (JOLTS) pushing rates higher while other components of the same report helped limit the damage. The early afternoon brought headlines regarding an Israeli rocket attack in Beirut.  Bonds tend to improve in response to events that increase the risk of more widespread war–at least at first.  This is known most commonly as a “flight to safety” as investors move money to safer haven assets like US Treasuries.  Today’s example was fairly small, but it helped move rates from slightly higher to slightly lower on the day. Tomorrow brings the latest announcement from the Fed.  Here’s all you need to know:
There is effectively a 0% chance the Fed cuts rates tomorrow
There is some chance the Fed says something that affects the market’s outlook for a rate cut in September (currently seen as a near 100% certainty)
Whenever the Fed ultimately cuts, that rate cut itself has zero immediate bearing on mortgage rates.  If the market sees a 100% chance of a September cut, then a September cut will not cause any change in prevailing rates (apart from the Fed Funds Rate itself which is only a mortgage rate inasmuch as certain HELOCS use it as an index)

The Job Openings and Labor Turnover Survey (JOLTS) became an occasionally major market mover over the past few years as traders looked for any available clues about the rapidly changing labor market landscape.  There are even a few examples of JOLTS having the biggest impact of the week–a notable achievement considering it typically comes out the same week as the big, more timely jobs report.  This week, however, isn’t likely to provide another example. While the headline count of job openings pushed yields higher, the “quits” component suggested workers were less comfortable leaving their jobs.  Bonds experienced some volatility, but it leaves us closer to unchanged than anything. 

To be clear, both of the lines in the chart above are good for bonds when they’re moving lower, generally speaking, but if job openings are still above pre-pandemic levels, it suggests a labor market that is still solid.  In other words, the message is one of “normalizing” as opposed to slipping.  This could change, and there are already other messages in other reports.  For example, the Consumer Confidence report which was released at the same time showed the weakest labor differential in years.  That’s a measure of survey respondents who say jobs are plentiful vs “hard to find.” 

The credit scoring agency will provide an education curriculum to a leading minority trade group, aimed at helping mortgage professionals learn more about financial wellness and help their potential clients attain homeownership.

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