Boring, Flat Friday Leaves Focus Where it Should Be

It’s hard to overstate just how much potential the upcoming week has in terms of its ability to reiterate a supportive ceiling for rates or even to catalyze the next big move.  Either way, the consolidation range that was defined on a single trading day this past Monday ended up remaining almost perfectly intact for the entire week as if to confirm that the focus is indeed on the coming week–exactly where it should be

Econ Data / Events

Core PCE

0.3 vs 0.3 f’cast, 0.1 prev

Core Annual PCE

3.7 vs 3.7 f’cast, 3.8 prev (revised down from 3.9)

Market Movement Recap

09:33 AM Slightly weaker overnight.  Modest push back after data.  10yr up only .3bps at 4.852.  MBS unchanged.

03:50 PM Flat at sideways to slightly stronger levels.  MBS up 2 ticks (0.06).  10yr down 1.7bps at 4.835.

The unofficial Chrisman LLC sarcastic slogan is, “We do this not because it is easy, but because we thought it would be easy.” Hopefully, there are no lenders out there with that slogan, as residential lending, done the right way, is not easy. Sometimes residential lending seems discombobulated. Sometimes things settle down and become more orderly: recombobulated! (Workflow and improved lender efficiency are the topics of today’s Mortgage Collaborative Rundown featuring Donielle Geiser with Thrive Mortgage.) Not only is our biz not easy but it is also unpredictable. 2024 is shaping up to be another tough year for mortgage originations due to the market environment, and every basis point will matter. Capacity still needs to be right sized across the industry, and the market and your competitors will force that to happen. Would you rather have profitability or market share? If you’re losing money what difference does market share make? If you don’t have a HELOC or 2nd program, find one. Even companies like Rithm Capital (parent of New Rez, doing about $4 billion a month and who have done better than expected) are forecasting a dismal Q4 and a challenging 2024. (Today’s podcast can be found here, sponsored by Visio Lending and its top notch broker program. Visio is the nation’s premier lender for buy and hold investors with over 2.5 billion closed loans for single-family rental properties, including vacation rentals. Listen to an interview between Robbie and me on the Commentary’s editorial process and its evolution over the years.)

The company posted third-quarter profits of $194 million but gave no details about a potential split of its mortgage business.

The Hicksville, New York, company beat analysts’ expectations on net interest income, but a pair of souring office loans contributed to a 68% increase in nonperforming loans from the prior quarter.

CEO Scott Sanborn said it’s unclear when demand from banks to buy the fintech’s loans will return.

The company took another net loss but some of its numbers improved as it slashed expenses and prospects improved for distressed loan services.

For the first time in about 15 months, more new listings came on the market in August on a year-over-year basis, Redfin said.

Exciting Times and a Range-Bound Rally

Next week is one of the most exciting and potentially significant weeks we’ve seen in a while.  It has a unique confluence of data, events and background.  This includes all the normal top tier data associated with the first week of the month, a Fed announcement, a quarterly Treasury refunding announcement, the likely resolution of a consolidation pattern at the highest yields in more than a decade, and it’s all occurring at a time when officials (and friends) are talking about the disconnect between recent economic data and the increasing chorus of contrary anecdotes.  Perhaps that helps explain the current week so far which has seen big swings in both directions.  Today’s installment included a paradoxical reaction to stronger GDP data and then a logical reaction to a strong Treasury auction.

Econ Data / Events

Jobless Claims

210k vs 208k f’cast

GDP 

4.9 vs 4.3 f’cast, 2.1 prev

Durable Goods

4.7 vs 1.7 f’cast, -0.1 prev

GDP Deflator

3.5 vs 2.5 f’cast, 1.7 prev

GDP Final Sales

3.5 vs 4.5 f’cast, 2.1 prev

Market Movement Recap

08:51 AM Slightly weaker overnight, but bouncing back with Europe and GDP final sales swing/miss.  10yr down 5.7bps at 4.904.  MBS up 9 ticks (.28).

12:07 PM Gains continue.  MBS up almost 5/8ths.  10yr down 7.4bps at 4.887

01:39 PM Strong 7yr auction. 10s have added several more bps to the day’s gains and are currently down 11.6bps at 4.845. MBS are up 3/4ths of a point.

04:27 PM Flat near best levels since the auction.  10yr down 11.9 bps at 4.842.  MBS up just over 3/4ths of a point. 

Mortgage rates have been bouncing around by leaps and bounds in a wide, sideways range over the past 2 weeks.  The upper boundary of that range happens to be the highest level in 23 years.  The lower boundary doesn’t really matter in light of the upper boundary. All of the above is a logical byproduct of the environment.  Mortgage rates are based on bonds and bonds have some big decisions and revelations ahead.  Like mortgages, Treasury yields have risen to long-term highs, but have shown signs of indecision with plenty of volatility in the process. Bonds take cues from several sources.  Three of the most important are economic data, Fed policy, and Treasury issuance.  Next week brings an abundance of all three with a new Fed announcement, a new announcement of Treasury borrowing needs, and the most action-packed week of economic data of the month (the first week of the month typically is). To a lesser extent, “technicals” can inform some trading decisions.  One of the simplest examples of technical trading cues would be 10yr Treasury yields hitting 5% and treating it as a ceiling simply because 5% is a big round number that is quite high relative to where most investors thought it would be a few weeks ago (and especially a few months ago). In other words, bonds (which is just another word for “rates”) are staring down a collection of their biggest considerations all at a time when certain economic undercurrents suggest two of those considerations (the data and the Fed) could be shifting gears in the near future.  All this is occurring against the backdrop of the technical challenge of 5% in 10yr yields and the big, sideways volatility that has ensued. 

There’s not much by way of “new news” for the housing market when it comes to sales data.  New home sales continue strongly outperforming while Existing and Pending Sales suffer. This week’s reports for the month of September offer no objection to that thesis.  Yesterday’s New Home Sales report showed a 12.3% surge to an annual pace of 759k. This is a notoriously volatile data series in month-to-month terms, but September’s gains were more than enough to offset the downtick seen in August. The result is the highest sales pace since 2021 when the housing market was still decelerating from the post-covid surge. Improvement was broad-based across regions.  As is the norm, the southern region does most of the heavy lifting with the West playing a supporting role.  The Midwest is measurable but barely, and the Northeast continues to be “out of land.” Still, the Northeast managed a 22.5% increase from last month, adding 4k to the total.  Contrast that to a 14.6% uptick in the South for a total addition of 36k. Builders continue working through their construction pipelines.  In non-seasonally adjusted terms, unsold homes under construction remain in the 260k range, down from the low 300s in late 2022.  Completed homes have consistently hovered in the same 60-75k range.   One of the most notable shifts in the data series is the percentage of homes in the 200-299k price range.  21% of homes fell into that category in 2021, followed by only 9% in 2022.  With rates and median prices increasing since then, it’s a surprise to see a bounce back to 16% of the market in the most recent data.  Granted, that’s just for September, but the 2023 average is already up to 13%.  If you’ve seen an ad for a shoebox on a postage stamp recently, you have a sense of how these numbers could actually make sense.