Mortgage rates are nowhere near their highs from a few short weeks ago, let alone the much higher highs from late 2023, but they are at the highest levels this week after rising for the past 3 days. Monday’s increase was small, forgettable, and random.  Tuesday’s rates were driven higher by the market’s reaction to the inflation data that came out this morning.  Markets were arguably still reacting to the implications of that data today, but less forcefully.  In fact, many lenders are essentially right in line with yesterday’s latest levels. More importantly, the overall increase of the past 3 days is rather small compared to past examples of the market reacting to unexpectedly high inflation readings.  This could be a sign that investors increasingly expect economic data to shift in a rate-friendly manner.  At the risk of stating the obvious, data would actually need to make that shift in order for broad-based rate improvements. Inflation and labor market data is the most important in that regard, but tomorrow’s Retail Sales report has frequently had an impact when it has come in far from the median forecast.  The Producer Price Index has also had an impact a few times recently and it will be released at the same time as Retail Sales (8:30am ET).

To the best of my knowledge my cat Myrtle, despite being at the top of the food chain, has never hunted eagle… But who can resist a good live bald eagle cam from California? Anyone who has looked at a map knows that Lake Tahoe and Reno are west of Los Angeles. (Repurchase concerns stretch coast to coast, and are the focus of today’s L1 interview with attorney James Brody.) That Maine is south of Paris. That the majority of Canadians live south of Seattle. If the world’s population wanted to live with the density of New York City, all 8 billion could fit in Texas. (And Texas is less than half as big as Alaska!) Geography and demographics fascinate many. The National Zoning Atlas wants to compile all of America’s zoning rules into one database. Why does this matter? Some will tell you that zoning rules are a piece of the nation’s housing affordability problem, and getting more transparency might help provide a solution. (Found here, this week’s podcast is sponsored by Lender Toolkit. With Lender Toolkit’s AI-powered AI Underwriter and Prism borrower income automation tools, you’ll be able to get loans approved in under two minutes. Hear an interview with Mike McAuley and Brett Brumley on the current mortgage industry’s woes and solutions.) Lender and Broker Services, Products, and Software “Mortgage brokers work their magic in front of borrowers. At wemlo®, our processors work their magic behind the scenes. It’s simple: brokers quickly onboard with wemlo and then start passing loans off to processors who hustle to get loans cleared-to-close as quickly as possible. Think of wemlo as a vanishing act that delivers real results. In addition to offering award-winning support, wemlo offers processing support in 47 states plus Washington D.C. for dozens of loan products and lenders. Ready to say presto to efficient processing? Book your demo today. NMLS ID 1853218.”

Bonds are off to a weaker start today, but not in a major way and not due to any interesting developments.  In general, there was some optimism heading into yesterday’s CPI and while it briefly seemed to have been justified (in the first few minutes after the data), traders concluded that the Fed would only be more “on hold” when we heard from them next week.  Fed Funds Futures agreed:

This week’s Treasury auction cycle also helped explain some of yesterday morning’s weakness as traders positioned for the 10yr auction.  Today’s only relevant calendar item is the 30yr bond auction at 1pm.  It doesn’t have quite the pedigree of the 10yr auction, but being the last auction of the cycle, it could give way to a shift in tone after 1pm.  In general though, bonds have rejected the move toward 4% 10yr yields and are now waiting for Thursday’s econ data as well as next week’s Fed announcement. 

A surge in refinance applications drove mortgage application volume higher for the second straight time last week. The Mortgage Bankers Association said its Market Composite Index, a measure of that volume, increased 7.1 percent on a seasonally adjusted basis, 8.0 percent before adjustment.   Refinancing was 12.0 percent higher than the previous week and surpassed the Refinancing Index level during the same week in 2024 by 5.0 percent. Refinancing accounted for 31.6 percent of applications, up from 30.2 percent the previous week. [refiappschart] The seasonally adjusted Purchase Index rose 5.0 percent from one week earlier and was 6.0 percent higher unadjusted, remaining 11 percent lower than the same week one year ago.   [purchaseappschart] “Mortgage rates dropped below 7 percent last week for most loan types because of incoming economic data showing a weaker service sector and a less robust job market, with an increase in the unemployment rate and downward revisions to job growth in prior months,” said Mike Fratantoni, MBA’s SVP and Chief Economist. “Purchase application volume increased for the week but remains about 11 percent below last year’s level. By contrast, refinance volume picked up by 12 percent, with a larger, 24 percent increase in the government refinance index. While these percentage increases are large, the level of refinance activity remains quite low, and we expect that most of this activity reflects borrowers who took out a loan at or near the peak of rates in the past two years .”

In an address on Tuesday, economic advisor Lael Brainard also discussed the controversy surrounding the president’s proposed title waiver program.

The agency had intended to block access to tax data by most lenders on June 30 as part of a policy change that sought to protect taxpayer privacy. But drew broad opposition from the financial services industry.

The lender and servicer is still in the red but trimmed its expenses, and overall losses, significantly in 2023.

Company executives are counting on Guild’s recent acquisitions to buoy business once the market normalizes.

Voters approved Proposition C, which offers a tax break for developers to convert up to 5 million square feet of commercial space by 2030.

Volatility After CPI, But Only Moderate Weakness

Heading into the 4pm hour, MBS are only down 6 ticks (.19) and 10yr yields are only up 6bps, trading just under 4.16.  That means the bond market is hanging on to all of the gains seen from the recent highs through last Tuesday–not a bad showing considering Core CPI came in a 0.4% for the 2nd month in a row (or that 10yr yields shot up to 4.3+ when that previous CPI report came out).  In addition to rounding considerations (0.4 was really only 0.358), the details also showed a welcome drop in the problematic OER from 0.6 to 0.4.  These factors helped bonds temporarily break even earlier this morning.  Subsequent weakness was at least partially attributable to the approaching 10yr Treasury auction.  

Econ Data / Events

Core CPI m/m

0.4 vs 0.3 f’cast, 0.4 prev

Core y/y CPI

3.8 vs 3.7 f’cast, 3.9 prev

Market Movement Recap

08:48 AM paradoxical reaction to CPI with 10yr down 0.4bps at 4.094.  MBS up 3 ticks (.09)

09:35 AM Giving up the gains fairly convincingly now with 10yr up 4.9bps at 4.147 and MBS down 5 ticks (.16).

01:06 PM Weakest levels after the auction.   10yr up 7.2bps at 4.17.  MBS down a quarter point.

03:47 PM Off the weakest levels and trading sideways after hours.  MBS down 6 ticks (.19) and 10yr up 6bps at 4.157.