When I was a teen, I worked a variety of jobs but never at a fast-food joint. No one made much money working at Mickey D’s or Dairy Queen. Now, in California, there’s AB 1228, which replaced the FAST Recovery Act and requires a $20-per-hour minimum wage for fast food workers, among other provisions, to be administered by the Fast Food Council. Is this for real? Moving up the age chain, millennials are finally leaving their parents’ basements and in 2023 received nearly 54 percent of mortgage offers made in most of the country’s largest metros, according to a LendingTree report. Millennials made up the largest share of potential homebuyers in San Jose & San Francisco, CA, and Boston. In San Jose, 65 percent of mortgages in 2023 were offered to millennials. Millennials in Las Vegas, Phoenix, and Tampa made up the smallest share of potential buyers, though still substantial. In Las Vegas, 41 percent of mortgage offers in 2023 went to millennials. Offered loan amounts were largest in San Jose, San Francisco, and Los Angeles: $785,391, $731,062, and $627,322, respectively. Conversely, at $242,220, $268,484, and $268,900, average loan amounts offered in Buffalo, Cleveland, and Louisville were the smallest. (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 attorney Jay Beitel on Cantero v. Bank of America, the case that challenges New York’s mortgage escrow interest law.)

February wasn’t a fun month for rates, largely thanks to a surprise uptick in core inflation.  On that point, both CPI and PCE agreed, but many analysts pointed out the issue of seasonal distortions that occasionally affects January’s price indices.  As the month’s remaining data sang a somewhat softer tone, this became easier to imagine–or at least to hope for.  While the new week begins without any scheduled econ data, Tuesday brings our first real opportunity to see whether the last CPI was a seasonally distorted outlier, or a warning about unexpectedly persistent inflation.  
The stakes are high–especially with last week’s jobs report having a small net impact.  Yields have arguably leveled off after rallying for more than a week.  Extreme results would allow for extreme movement (anything within 15bps, give or take), but needle-threading is always possible as well.

Regulatory reform – rather than Biden’s proposed solutions – is needed to fix the inventory crisis, some say, but others applauded the president’s buyer cost-cutting initiatives.

Here’s how the former regulator thinks Fannie Mae and Freddie Mac could exit conservatorship and where he sees the residential market headed this year and next.

Home sellers accuse the corporate giant, which owns HomeServices of America, of making billions of dollars in ill-gotten gains in 2023 alone.

The momentum created in the fourth quarter is continuing during the first months of this year and is likely to continue throughout 2024, according to Dv01’s Vadim Verkhoglyad.

All in All a Pretty Logical Week

It seems weird to consider, but Friday’s trading–and indeed, the week’s trading as a whole–was fairly logical.  By the end of the previous week, econ data provided evidence that rates didn’t need to go any higher.  This week’s data didn’t exactly confirm that in an overly forceful way, but it absolutely didn’t offer any arguments.  Friday’s jobs report was the latest and most interesting example with revisions, unemployment, and wages doing more than enough to offset the higher headline compared to expectations.  After today, the past two months of NFP readings make a lot more sense.  It also makes sense that bonds rallied modestly.  200k+ is still strong.  Sub 4% unemployment is still low, but it’s next week’s CPI that can truly determine just how quickly we can forget February’s unfriendly data.

Econ Data / Events

Nonfarm Payrolls

275k vs 200k f’cast
last month revised down to 229k from 353k

Unemployment Rate

3.9 vs 3.7 f’cast, 3.7 prev

Wages 

0.1 vs 0.3 f’cast, 0.5 prev

Market Movement Recap

09:13 AM 2-way trading after mixed jobs report.  Bonds were mostly stronger until just now, with 10yr yields back to ‘unchanged’ at 4.088.  MBS are still up an eighth, but were up by more than a quarter point at their best levels.

11:00 AM Giving back some of the initial, choppy improvement.  MBS still up 2 ticks (.06) and 10yr still just barely positive at 4.085

01:46 PM Stable and flat.  MBS up 2 ticks (.06) and 10yr down 0.3bps at 4.085.

Today’s jobs report has proven to be one of the most extreme examples of competing narratives in the past year or so.  The headline number wasn’t too extreme compared to the forecast, but at 275k vs 200k, certainly the sort of thing that would hurt rates.  Revisions told a completely different story with last month falling to 229k from 353k.  The unemployment rate (3.9 vs 3.7) and wages (0.1 vs 0.3) added to the confusion. Bonds agreed with the morning’s trading having been very “2-way” so far.

If anything, this places even more emphasis on next week’s CPI to cast a deciding vote on whether rates should continue rallying into the following week’s Fed announcement, or if the last week and a half of improvement is a sufficient correction to the early-2024 rate spike.  Either way, be sure to note that the pace of the rally over the past week and a half is decelerating noticeably.  

It was a hotly anticipated week for interest rates due to the arrival of the first batch of big ticket economic data since the Inflation report that came out on February 13th. This week’s data was much more friendly, but next week’s data is even more important. The first major report of the week was the Non-Manufacturing index from ISM (or ISM Services).  While this may not be a household name report, it frequently moves markets.  In general, lower index values are better for rates, and that’s what we got.  Even though the drop wasn’t very big, it fits inside the cooling trend of the past two years. The ISM Services data includes other components as well.  One closely watched component is the “prices paid” index which speaks to inflation trends.  As always, lower inflation is good for rates and vice versa.  With that in mind, this week’s report was a relief because it undid a potentially alarming spike seen in the last installment.  The following morning, another big ticket report corroborated the notion of economic cooling.  The Job Openings survey measures the labor market from a slightly different angle than the big jobs report that headlined the week, but it has increasingly caused volatility in rates over the past few years.  This week’s release didn’t have a huge impact, but it didn’t have a bad impact either! Another component of the job openings data known as the “quits” rate measures the amount of workers voluntarily ending their own employment.  It’s regarded as a good indicator of a shift in economic momentum because people are less likely to quit their jobs if the economy is contracting.

“Horses have lower divorce rates. It’s because they are in stable relationships.” Here on the Central Coast of California, there are plenty of horses but few disasters, wars, or big insurance claims. But in Ukraine there have been 566,000 property damage reports, and the government has launched eRecovery, an app based on the government’s digital platform Diia that may provide a template for future recovery efforts worldwide. It has already processed 83,000 compensation claims for damaged or destroyed property and has paid out over 45,000 claims, with 566,000 property damage reports filed through December. Volume isn’t a disaster for lenders, but it isn’t stellar either, and today’s TMC Rundown features Femi Ayi, VP Branching Operations at Revolution Mortgage, discusses using technology to make some tough choices. Curinos tells us that February 2024 funded mortgage volume increased 5 percent YoY and increased 14 percent MoM. The average 30-year conforming retail funded rate in February 2024 was 6.79, a shade lower than January but 62 basis points higher than the same month last year. (Found here, this week’s podcast is sponsored by Richey May, a recognized leader in providing specialized advisory, audit, tax, technology and other services to the mortgage industry for almost four decades. Hear an interview with the STRATMOR Group’s Jim Cameron on Maslow’s hierarchy of needs as it pertains to mortgage companies.) Lender Broker Services, Products, and Software