Wednesday’s Consumer Price Index caused a brutally fast spike in mortgage rates.  It wasn’t notable for taking us to exceptionally high levels (October 2023 was much higher), but it was one of the biggest single-day jumps.  Either way, it easily took the average lender back to highest levels since November 2023.  Today was very tame by comparison although rates moved just a bit higher.  The average lender is at the weakest levels since November 20th, 2023.  This reality is at odds with many of today’s mortgage rate headlines which mention 6.88% as this week’s rate.  So what’s the true story? 6.88% is a product of Freddie Mac’s weekly survey.  What Freddie really means is that 6.88% was the 5 day average from last Thursday through yesterday. Moreover, Freddie’s survey doesn’t adjust for upfront discount points and several other loan features that can push rates down.  Combined with the averaging methodology and lag, Freddie’s rate is frequently misleading for consumers who are trying to get a sense of where rates may be on any given day. Please be very well assured and very certain that 6.88% is not today’s rate.  While a mortgage lender could technically still quote such rates, they would not be able to do so without higher upfront costs (aka “points”).  Based on our apples to apples approach, today’s rate would need to be 0.25-0.375% higher to be quoted with the same upfront costs as a rate from Tuesday (before the big spike). 

About as Uneventful as it Could Have Been

Any time we have a huge day of movement, regardless of the reason, the odds of bigger movement increase for the following days.  Today was especially tense because there was another inflation report that stood the chance to add insult to yesterday’s CPI injury.  But today’s PPI came in right in line with forecasts and bonds subsequently enjoyed a mostly sideways trading day–at least relative to yesterday.  Looked at in a 1-day vacuum, there were swings of more than a quarter point in MBS in both directions.  Lenders were clearly geared up for such things considering the lower-than-average reprice activity.

Econ Data / Events

Core PPI

0.2 vs 0.2 f’cast, 0.3 prev

Headline PPI

0.2 vs 0.3 f’cast, 0.3 prev

Jobless Claims

211k vs 215k f’cast, 222k prev

Market Movement Recap

08:48 AM MBS are up an eighth of a point in UMBS 6.0 coupons and 2 ticks (.06) in 5.5 coupons.10yr down 1bp on the day at 4.534.

10:57 AM More than a quarter point off the best levels in MBS and now down roughly an eighth on the day.  10yr up 2.7bps at 4.574

01:04 PM 30yr bond auction was “OK,” but not great.  little change so far.  10yr up 2.3bps at 4.57.  MBS down 3 ticks in 6.0 coupons

04:36 PM Nice recovery into 2pm, but losing ground again into the close.  MBS down 2-4 ticks (.06-.125) and 10yr up 3.7bps at 4.584

The next time you complain about your job, just be thankful you’re not working at Cinnabon. (Excuse the language.) Did you know that tomorrow is “Take your underwriter to work day”? Okay, I just made that up. If life could be so simple and everything would go smoothly. Instead, we were once again provided with fodder (in the form of March consumer price levels) that inflation is still a problem and that rates will probably be at these levels into the summer. And the Fed will stand pat. (STRATMOR’s current blog is titled, “Relying on the Fed: How Did This Happen?”) But rates are only part of the problem facing lenders and their vendor partners. Even if mortgage rates were to fall, the Dallas Fed tells us that affordability may not improve! The research and chart (that goes back 50 years) show that when rates go up, the price of a home relative to income falls. Conversely when rates fall, home prices rise. Is it Happy Hour? (Found here after 8:30AM ET, this week’s podcasts are sponsored by PHH Mortgage. From subservicing to correspondent lending, MSR/co-issue transactions, portfolio retention, reverse mortgages, and commercial servicing, PHH has solutions for the entire mortgage lifecycle. Hear an interview with PHH Mortgage’s Chris Sabbe on “Subservicing 2.0,” beyond the status quo.) Lender and Broker Products, Software, and Services Origination data through March month-end is here! Grab your copy of the Originations Market Monitor today! Each month, Optimal Blue publishes this free report providing a comprehensive and timely look into origination data for the U.S. and the top 20 metropolitan statistical areas by share of total volume. The latest report, which looks at data through March month-end, highlights an increase in average loan amounts, an uptick in home purchase prices, and the highest average borrower credit score since tracking began in 2018. March data also shows a notable increase in rate lock volume. All this information and much more is included in this month’s report. Access the latest Originations Market Monitor and subscribe to receive the report each month.

After a day like Wednesday (one of the top 20 weakest bond market days of the past few decades), one of the top concerns is that the following day will see follow-through selling.  Indeed, there are many examples of such days catalyzing a new trend for several weeks.  Heavy selling in response to CPI data has been a 2 way street with the last two examples being met with resilience.  Today’s trading is arguably resilient so far with yields only up 2.5bps and MBS only down a few ticks.
The initial reaction to the as-expected core PPI data was a modest sigh of relief.  The 9:30am NYSE open saw a push back in the other direction, but again, not in an extreme way.

The afternoon brings the last of the week’s Treasury auctions at 1pm, and that can occasionally mark a shift in tone in the bond market.  If it does, we wouldn’t expect it to be extreme, but it could make for several bps of movement in the afternoon.

The digital lender disclosed a prolonged low stock price could have forced it to redeem a $528 million convertible note from sponsor SoftBank.

Mortgage companies can submit requests on behalf of more than 40,000 borrowers who need the new VA Servicing Purchase program starting at the end of next month.

Unintended consequences of shifting the burden for title insurance to the lender could end up harming consumers, several observers said.

The Federal Reserve Board governor and frequent regulatory critic says it would be appropriate for the U.S. to deviate from the agreed-upon international standards to reflect “unique characteristics” of the American banking system.

While refinances surged, a subdued purchase market resulted in flat borrowing activity for a third straight week, according to the Mortgage Bankers Association.

Mortgage rates surged at a pace seen only one other time since October 2022.  The average lender moved up by 0.28%, which is functionally equivalent to the 0.29% seen after the February 2nd jobs report.  In fact, today was arguably worse because the Feb 2nd example happened a day after rates hit long-term lows.  The implication is that the jump would not have been as big in early Feb if rates weren’t undergoing a correction from those lows. Hair splitting aside, there just aren’t many past examples of rates rising more than a quarter point in a day. Before covid, it had happened one other time in the past decade. Translation: it was a rough day for rates.  But why? We’ve been rather incessantly focused on the risks associated with today’s Consumer Price Index (CPI) in the days and weeks leading up to its release.  It ended up exceeding the hype by showing that inflation refuses to head to the lower levels required for a lower interest rate environment.  Today is really that simple. Rates are highly dependent on inflation data at the moment.  We’ll get another inflation report tomorrow, but it never operates on the same scale of relevance to rates as CPI.  That’s not to say a friendly result wouldn’t help, but the data stands an equal chance to be unfriendly, thus compounding today’s problems as opposed to taking the edge off. We’ll talk more about longer-term, bigger-picture implications on Friday.