Sometimes you’ll see coverage of economic data that conforms to certain template with a predictable details and word counts.  Rarely, the word count will reflect the pace of change in the underlying data series.  That’s what you’re dealing with here. Existing home sales have been depressed since late 2022 and bouncing along the bottom ever since. Pending Home Sales is just another way to view the same problem.  Instead of closed transactions, it measures contract signings, thus providing a sort of sneak peak and next month’s Existing Home Sales potential.  With that in mind, it wouldn’t be a surprise to see Existing Sales slip back down after the monthly increase reported last week.  Here’s why: For those who are uncomfortable without a higher word count, here are a few regional bullet points showing the month over month and year over year change (%):
Northeast  + 0.8% (down 5.5% annually)
Midwest     – 7.6%  (down 11.6% annually)
South        – 7.3%  (down 9.0% annually)
West          +0.5%  (down 7.0% annually)

Bonds Leading Off in a Friendly Direction

With ISM Manufacturing, Friday brought the only other reasonably important economic report of the week after Thursday’s PCE data, and it did not disappoint.  Well, actually, it did disappoint anyone hoping to see strength and resilience in the sector which is why it did not disappoint those hoping to see lower rates.  Not only did the headline dip well into contractionary territory, but the employment gauge was the 2nd lowest since breaking out of the covid lockdown period in mid 2020.  Timing matters with the big jobs report looming next Friday.  Prices also decelerated slightly.  With that, bonds surged to the best levels in more than two weeks, effectively taking a lead-off before confirming a friendly range breakout.  Caveat: that confirmation requires next week’s data to avoid crushing expectations.

Econ Data / Events

ISM Manufacturing

47.8 vs 49.5 f’cast, 49.1 prev

ISM Prices

52.5 vs 53 f’cast, 52.9 prev

Consumer Sentiment

76.9 vs 79.6 f’cast, 79 prev

Inflation expectations

1y up 0.1
5y unchanged

Market Movement Recap

10:24 AM slightly weaker in the early AM, but rallying nicely after 10am data.  10yr down 5.5bps at 4.197.  MBS up 5 ticks (.16).

12:38 PM Rally accelerated into 11am and is holding gains.  10yr down 4.7bps at 4.197.  MBS up 5 ticks (.16). 

04:42 PM Going out at the best levels of the day.  MBS up 10 ticks (.31).  10yr down 7.2bps at 4.182.

The average lender was offering slightly higher rates this morning when compared to yesterdays latest levels, but things began to change after 10am ET.  That’s when today’s economic data caused the bond market to erase its day over day losses and ultimately rally to the best levels in more than two weeks. That’s good news for mortgage rates because mortgage rates are primarily driven by trading levels in the bond market.  The catch is that mortgage lenders don’t like to change rates once they’re set for the day unless bonds move enough to force their hands.  We saw just enough movement for most lenders to amend their initial offerings, thus bringing the average slightly below yesterday’s.

We haven’t talked enough about ISM Manufacturing this week because Thursday’s PCE data was the first report in more than 2 weeks that mattered.  Thus, the focus was on what came first as opposed to what has a track record of moving markets.  It didn’t help that ISM Manufacturing was separated from its usual top tier companions (all scheduled for next week).  Nonetheless, we now have a fresh reminder not to sleep on ISM Manufacturing!  The 47.8 vs 49.5 result has been enough for a decent rally to the best levels in more than 2 weeks.

Why the question mark?  This is only one day spent beyond the walls of our recent holding area.  It’s not over either.  The range breakout not only needs technical confirmation, but also fundamental confirmation from weaker econ data next week.  If ISM services were to tell a different story, markets would likely pay much more attention to that. 
On that note, how correlated are ISM services and manufacturing?  The question came up on MBS Live this morning and it led to the following charts.  In the bigger picture, the two are well correlated because both speak to general economic momentum. 

In the shorter term, the two are surprisingly divergent, however, thus suggesting that next week’s ISM Services data is anyone’s guess.
 

As I watch it snow here in the Sierra, hey, if you’re going to watch one video this week, watch this 15-second classic (with sound) on how our banking system works. You’ll watch it at least twice, and let your kids figure it out. Since its all-time high of 30,456 in 1921, the bank population in the United States had declined to only 4,377 at the end of 2020, a decline of about 86 percent. Thousands of residential lenders hope they’re not involved in the same trend. I mention this because, speaking of numerical trends, the United States is producing more oil than any country has ever produced in the history of the world: 13 million barrels per day. It’s been economically punishing for the countries in OPEC+, which has seen its global market share drop to a new low of 48 percent. This is an interesting issue when it comes to inflation, which helps drive mortgage rates, and will be a very interesting issue in the next eight months when it is expected that two octogenarians will be vying for the top job. (Found here, this week’s podcast is brought to you by nCino, makers of the nCino Mortgage Suite for the modern mortgage lender. nCino Mortgage Suite’s three core products – nCino Mortgage, nCino Incentive Compensation, and nCino Mortgage Analytics – unite the people, systems, and stages of the mortgage process. Hear an interview with Nerdwallet’s Kate Wood on housing market supply and advice for potential homebuyers.) Lender and Broker Services, Products, and Software

The so-called core personal consumption expenditures price index, which strips out the volatile food and energy components, increased 0.4% from December, data out Thursday showed. From a year ago, it advanced 2.8%. Economists consider this to be a better gauge of underlying inflation than the overall index.

The Old Dominion State has joined 30 others with pending or existing legal protections against the real estate agreements, which affect the right to sell.

But a part of the proposal getting mixed reviews extends a risk sharing program that provides capital to housing finance agencies for multifamily loans.

A mixed-race couple claims a “whitewashed” valuation in 2023 returned a price 39% higher than the depository-approved result a year earlier.

Technology and compliance expert Anne Marie Pippin will help lead the division of conservatorship, oversight and readiness, while Anju Vajja takes on a similar position on the research team.