Thanksgiving week is always an interesting (and frequently frustrating) time for the bond market that underlies day to day interest rate changes.  Markets are traded by humans, even in cases where humans are programing machines to do the trading, and human participation dwindles on certain holiday weeks. As participation decreases, trading levels can jump around in a more random way as fewer people and fewer dollars constitute a larger percentage of the overall trading environment.  That can lead to volatility in mortgage rates as was the case on Friday for lenders that actually updated rates from Wednesday. In other words, the bond market pointed to a moderate jump in rates on Friday. There was a good chance the jump was an artificial byproduct of Thanksgiving week, but there was no way to be sure until today.  Now we’re sure. Bonds quickly moved back in line with Wednesday’s levels and the average mortgage lender did the same.  That’s good news considering last Wednesday’s mortgage rates were right in line with the lowest levels of the past 2 months.

The Census Bureau released the monthly New Home Sales report today, showing a decrease from 719k in September (revised down from 759k initially reported) to 679k in October.  While this number is below the long term trend that emerged after the Great Financial Crisis, it’s still in league with the pre-covid highs. The post-covid story for the housing market has been one of ever-dwindling inventory and its various effects.  One of the most obvious effects of lower EXISTING home inventory is that NEW homes have captured a larger share of the market. Existing homes have moved lower, almost exclusively from the peak.  The divergence from New Home Sales has been especially notable since mid-2022 when rates really began skyrocketing. The following chart shows the percent change in both new and existing sales from the peak. Perhaps most notable is the price trend during the time when sales were down more than 40%.   An inventory crunch is the only thing that could explain the juxtaposition of a sharp decline in sales and a sharp increase in values, but it’s important to note the 3rd ingredient in play during the highlighted time frame above: incredibly low rates. Prices stopped accelerating almost as soon as rates began to jump. What’s the takeaway for the housing market?  Today’s report doesn’t tell us much.  Anything in the 650-750k range is fairly neutral.  Additionally, the outlook may be rapidly changing to whatever extent the highest interest rates are behind us.  That’s a possibility that will receive more clarity with next week’s economic data, but it will take several months to confirm.

The mortgage industry does not move in unison, unlike some groups. (You’ll need sound.) But consistency is important. For example, Starbucks fans can be pretty much assured that the water that goes into the coffee, regardless of location around the world, will taste the same due to the filtration process, and brew a uniform product. Can you say the same about your originators? As a quick aside, STRATMOR offers a secret shopper program and senior advisor Brett McCracken said a lack of consistency is one of the most common findings from the program. “We recently shopped the same lender ten times with the same two scenarios. Besides the logo in the signature block of the emails we received, not much about the experiences overlapped. From how the originator approached the call to the advice we received to the follow up, it was all over the experience board. We can usually tell why one originator funds eight units a month and their colleague in the same office funds two based on those shops.” (Contact STRATMOR Group for more information about their secret shopper program.) 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 thrive under any market condition. Employment “Freedom Mortgage is seeking the best Account Executives. We understand the best are not just product experts but, also relationship builders. We seek industry leaders. Freedom Mortgage Wholesale believes Account Executives are vital to our success. Freedom Mortgage has been creating success for 30 years. Our people and processes are time-tested giving us trusted stability… no matter market conditions. Our deep roots throughout the mortgage industry provide confidence for the future. Freedom Mortgage is 4EVER Wholesale. Join our strong group of Account Executives who average 15 years in industry and 10+ years at Freedom Mortgage. If you are the best and want to work with a financially stable company, contact Adam Middleman.”

The end of November has been true to form with several examples of directional movement despite an absence of motivation.  Last Friday was perhaps the most notable with serendipitous weakness erasing a week’s worth of modest improvement. The counterpoint is that a majority of that improvement could also be seen as a product of the holiday week trading conditions. Yields popped just a bit higher to start the new week but have been rallying throughout the overnight session and into US trading hours.
Even amid the weaker moments, the late November range was never threatened.  If anything, it was the excess paradoxical strength last Tuesday and Wednesday that stretched the range in a good way.  Viewed in that context, Friday’s weakness brought yields back to what we view as the logical sideways range until bigger-ticket data has its say.

To be fair to the bond bulls, one could also easily make a case for a bullish trend channel in yields.

Bulls might also keep in mind the market’s slightly better than average tendency to cool off after big reversals somewhere around the 6 month (126 day) moving average.

Without anything too interesting on the calendar, today’s focus is on the condensed Treasury auction cycles with both 2s and 5s at 11:30am and 1pm ET respectively.

In Canada and the U.K., borrowers can take mortgages with them from home to home. Some say this feature could unlock the U.S. housing market, but others say it would be more trouble than it’s worth.

The blockchain fintech has purportedly tapped Goldman Sachs Group Inc., JPMorgan Chase & Co. and Jefferies Financial Group Inc. to help with the initiative, per Bloomberg’s reporting.

Even if the 30-year fixed were to slip further to 6.4%, it is not enough to end the seller’s strike, economists said.

Both purchases and refinances saw an uptick in applications, but total numbers are still more than 16% lower from a year ago, the Mortgage Bankers Association said.

While the government-sponsored enterprise cut its origination forecast for this year, the Mortgage Bankers Association’s updated forecast was unchanged from its October prediction.

This business, tied to the mortgage origination outlook, is becoming ly attractive for 2024, according to BTIG.