Affordability decreased during the month across all racial groups and loan types tracked by the Mortgage Bankers Association.

The incentives are part of a broader set of Federal Housing Administration servicing changes for Home Equity Conversion Mortgages that also offers some new options for procedures.

Just yesterday, we were nodding in agreement and acceptance of the fact that rates were better served by cooling off a bit (read: “rising”) after improving at a pace that seemed too quick for the motivations earlier in the week.  In other words, it was a bit of a pickle to explain why Tuesday and Wednesday’s news and data were worth a surge to 3-month lows. Now today, we’re right back in the same pickle, but everyone who’s cool knows that pickles are delicious.  Today’s is no exception with the average lender easily moving down to new 3-month lows. As for motivations, today actually wasn’t quite as pickled as Wednesday.  We had the week’s most anticipated economic report and the most anticipated Fed speech. ISM Manufacturing only came in a bit weaker than expected (good for rates), but perhaps more importantly, it didn’t come in higher than expected.  Thus, the bond/rate market wasn’t forced to quickly change its strategy of adjusting for a new, lower rate outlook for 2024.   Same story with Fed Chair Powell’s mid-day speech.  Knowing what we know about Powell, it wasn’t too likely that he’d take a strong stand in one direction or the other (which is exactly right given the “data dependent” nature of the Fed’s rate considerations), but some saw a risk that he would intentionally try to nudge rates higher due to the speed with which they’ve recently fallen. Powell definitely didn’t convey any such agenda today and bonds/rates were invigorated as a result.  Traders moved to defend against the possibility that next week’s data continues arguing for lower rates.  We say “defend” because if the data is accordingly weak, the current level of rates is far too high.  

With it being the first trading day of a new month and a Friday, it’s hard to determine the extent to which traders planned to buy bonds today providing an absence of the proverbial whammies.  At the very least we can say not only were there no whammies in either of today’s two key events, but both were arguably slightly supportive.  

The volume response relative to the directional trading suggests the takeaway on Powell was more mixed (higher volume, but less of an initial rally). The gradual gains that follow speak to the “no whammies” trade as markets waited to see if Powell would say something bad for bonds in the Q&A portion. 

Another Surprisingly Eager Bond Rally Suggests Caution and Opportunity

Two days ago, the focus of the analysis was on the potentially puzzling level of strength in the bond market (i.e. gains seemed a bit overdone relative to motivations). In fact, we welcomed yesterday’s bump in yields as something that made more sense in the current context.  The only caveat was that yesterday was “month-end” and we often see directional month-end volatility give way to a reversal on the first day of the new month.  That was the case today, but at best, we could only say the new-month trading environment greased the skids.  Directional inspiration was gleaned from ISM Manufacturing data as well as a “no whammies” speech from Fed Chair Powell.  Any additional grease on the skids would be a byproduct of traders not wanting to be caught not owning bonds today in the event next week’s economic data comes in weaker than expected.  If it does, it will officially be the best data-driven confirmation of the big picture rate reversal that we’ve been seeking for more than a year.  On the other hand, caution is in order due to the obvious lead-off being taken.  In other words, the market is obviously positioning for the scenario where data continues missing the mark, and is thus relatively poorly positioned for an upbeat data surprise.  Such a surprise could cause quite a volatile little spike in rates.

Econ Data / Events

ISM Manufacturing

46.7 vs 47.6 f’cast, 46.7 prev

ISM Prices

49.9 vs 45.1 prev
(anything under 50 is disinflationary)

S&P Global Manufacturing PMI

49.4 vs 49.4 f’cast, 50 prev

Market Movement Recap

09:47 AM Almost perfectly flat overnight and into the domestic session.  10yr up 1.2bps at 4.34.  MBS down 3 ticks (.09).

10:18 AM modest losses flip to gains after ISM data.  10yr down 2.3bps at 4.305.  MBS up 2 ticks (.06).

12:00 PM Additional gains after Powell speech.  10yr down 7.7bps at 4.25 and MBS up a quarter point.

01:06 PM More time, more gains.  10yr down 10bps at 4.23.  MBS up 3/8ths.

05:01 PM Best levels of the day at the close with MBS up more than half a point and 10yr yields down 13.1bps at 4.197.

Yesterday, a clown held the door open for me. It was such a nice jester. On the flip side, it’s not nice being taken advantage of and lenders are feeling Thunderstruck about, as this Commentary has mentioned several times, credit costs being jacked (more below). On the inflation theme and a little more mainstream, for me and plenty of people who read this Commentary every day, is the egg price fixing that has been occurring. (Remember when prices were way up around Easter?) Although inflation has been slowing, we don’t need this stuff. And the price of the twelve gifts described in the classic song “The 12 Days of Christmas” is at a record high of $46,730, according to PNC’s 2023 Christmas Price Index. At the other end of the cost spectrum, how’d you like to live like Martha Stewart (for a night) for $11.23? Rent her place! (Today’s podcast can be found here, and this week’s is sponsored by MCT. MCT’s technology and know-how continues to revolutionize how mortgage assets are priced, locked, protected, valued, and exchanged — offering clients the tools to perform under any market condition.) Lender and Broker Products and Services Exciting news in the real estate appraisal world! Class Valuation has just strengthened its market presence through the strategic acquisition of Valuation Connect. In a game-changing move, Class Valuation is set to elevate its position as a market leader by joining forces with the dynamic Valuation Connect. This union of industry powerhouses signifies a commitment to innovation and excellence in real estate appraisal solutions. Class Valuation CEO John Fraas expresses enthusiasm, stating, “Combining forces is going to be a win-win for all stakeholders.” The collaboration promises operational efficiency, enhanced service offerings, and cutting-edge appraisal technology. Integrating seamlessly with Class Valuation’s culture, Valuation Connect brings a centralized retail presence and technology that aligns perfectly with the vision of both companies. This strategic acquisition reinforces Class Valuation’s commitment to providing efficient, intentional products and services to mortgage lenders with the combined entity offering expanded resources, enhanced technology, and a broader range of modernization products. Read the full announcement here.

The National Association of Realtors’ index of contract signings to purchase previously owned homes declined 1.5% to 71.4, the lowest in data back to 2001, the group reported Thursday.

During a second day of comparatively mild questioning from lawmakers in semiannual oversight hearings, Consumer Financial Protection Bureau Director Rohit Chopra said artificial intelligence could exacerbate existing weaknesses in the financial system without tighter protections.

Soft-pull credit reports will cost as much as hard-pull credit reports, industry stakeholders say.

The 30-year average declined for the fifth consecutive week, as purchase demand picking up at the same time, according to Freddie Mac.