Even though the National Association of Home Builders (NAHB) reported the third consecutive increase in its measure of home builder confidence, actual residential construction activity fell. The residential construction report for January shows both the rate of permitting and housing starts declined from the previous month, the second straight loss for starts. The U.S. Census Bureau and the Department of Housing and Urban Development said construction began on residential properties at a seasonally adjusted annual rate of 1.331 million units. This was down 14.8 percent from the December rate of 1.562 million. The December rate was, however, a substantial upgrade from the 1.460 million units originally reported. On a year-over-year basis, starts were almost flat, with a decline of 0.7 percent. Single-family starts fell 4.7 percent to an annual rate of 1.004 million units but that was an improvement of 22.0 percent from the prior January. Multifamily starts, at 314,000 units, were down 35.8 percent from December and 37.9 percent on an annual basis. On an unadjusted basis, the report says there were 93,700 units started during the month, 68,700 of them single-family houses. The December numbers were 108,800 and 72,300, respectively. The setback for permitting was more modest. Total authorizations were at an annual rate of 1.470 million, a 1.5 percent dip from 1.493 million in December and an increase of 8.6 percent for the year. The 1.015-million-unit rate for single-family houses marked a 1.6 percent gain for the month and 35.7 percent year-over-year. The permitting rate for multifamily units dropped 9.0 percent and 26.6 percent.

It was a sad day earlier this week for anyone who likes food out of a toaster as the inventor of Pop-Tarts passed away at age 96. (Yes, Pop-Tarts were invented… they don’t grow naturally in the wild.) Something else that isn’t found naturally is airline seat pricing. We’re in mid-February, and conference activity will increase, and families will start thinking about summer vacations. That often means flights. Prices do go up significantly 21, 14, and seven days before a flight, so keep that in mind. (For anyone who is genuinely interested, here’s an easy to read scholarly article on the awkward way in which airlines set seat prices.) And while we’re talking about dollars, recent Commentaries have mentioned the shift in regional manager’s pay to more profit-based rather than strictly volume, as well as how it is illegal to pay LOs on profits under TILA’s LO Comp Rule. Addressing management pay, attorney Steve Lovejoy with Shumaker Williams pointed out that, “If the branch manager is a producing manager, meaning he/she originates, or so much as talks to consumers, their compensation cannot be based on profitability of a loan, the branch or the company.” (Today’s Commentary podcast can be found here and this week’s is sponsored by Lender Toolkit and its AI-powered AI Underwriter and Prism borrower income automation tools. By providing lightning-fast underwriting decisions, your market reputation with borrowers and Realtors will soar, which means more repeat and referral business. Hear an interview with Figure’s Anthony Stratis on trends in home buying and the HELOC space.)

The public retirement fund, one of the biggest in the US, said four years ago it would review all of its fossil-fuel holdings as it sought to reduce investment risks linked to climate change.

The National Association of Home Builders/Wells Fargo gauge of housing market conditions rose by 4 points to 48 this month, according to data released Thursday.

For the first time since mid-December, the Freddie Mac survey reports mortgage rates over 6.7%.

The company was able release credit reserves because of actual and forecasted prices that boosted net income, CEO Patricia Almodovar said.

The accused, affiliated with Home Matters USA, reportedly took money from the victims and never delivered on the promised services.

Reasons For Hope And Caution Heading Into 3-Day Weekend

First off, “hope” and “caution” have different meanings depending on whether they’re applied to rates or the economy (i.e. what’s hopeful for rates is generally cautionary for the economy).  For instance, today’s Retail Sales number was FAR below expectations and it helped bonds further distance themselves from the highs seen earlier in the week after CPI.  We wouldn’t abandon caution just yet though.  Yields clearly avoided any serious confrontation with the pre-CPI ceiling.  By the time we consider that in conjunction with risks from econ data and the uncertainties surrounding 3-day weekend trading dynamics, it seems much safer to view bonds as being in more of a sideways stance (for now) as opposed to the first few steps of a bigger recovery.  

Econ Data / Events

Retail Sales

-0.8 vs -0.1 f’cast, 0.4 prev (revised down from 0.6)

Jobless Claims

212k vs 220k f’cast, 220k prev

Import prices

0.8 vs 0.0 f’cast, -0.7 prev

Export Prices

0.8 vs -0.1 f’cast, -0.7 prev

NY Fed Manufacturing

-2.4 vs -15 f’cast, -43.7 prev

Philly Fed Index

5.2 vs -8.0 f’cast, -10.6 prev

Market Movement Recap

08:49 AM Much stronger after retail sales data.  MBS up 10 ticks (.31).  10yr down 6.7bps at 4.178.

11:32 AM Giving back some gains with 10yr down only 1.1bps now at 4.234.  MBS still up 3 ticks (.09) but off 6 from the highs.

02:09 PM Edging back toward stronger levels.  MBS up a quarter point on the day.  10yr down 3.7bps at 4.208.

04:17 PM little changed from previous update

While weekly mortgage rate indices are pointing out the sharp jump from last Wednesday’s levels, daily rates have fallen twice in a row.  The peak was on Tuesday after the Consumer Price Index sent rates to the highest levels in more than 2 months.  Yesterday’s drop left us feeling cautious.  Today’s was more grounded by relevant underlying events. Specifically, the day’s most important economic data–retail sales–came in weaker than expected. That sounds like a bad thing, and it is if you’re the U.S. economy, but what’s bad for the economy is typically good for rates.   Retail Sales was far enough below forecasts that the bond market (bonds dictate day to day rate movement) improved immediately and noticeably.  This allowed the average mortgage lender to easily offer moderately lower rates compared to yesterday. All told, the improvements over the past 2 days have erased roughly half of the increase versus last week, but the average lender remains just above 7% for a top tier conventional 30yr fixed.

Apart from CPI and NFP there are only a handful of other reports that truly deserve to be considered supporting actors in the current bond market drama.  Retail Sales is one of them.  The report has generally been a thorn in the bond market’s side over the past year as it has shown a surprisingly resilient consumer in the face of higher rates. That’s why there was some concern among some bond watchers over today’s forecast of -0.1.  Was this some sort of set-up?  Surely, a consistently stronger data series can do better than -0.1. But it turns out economists were on to something when they agreed on the negative print.  In fact, they could have been a whole lot more negative and still undershot the actual result: -0.8.