Today’s mortgage rates remain at levels that are much higher than most of the past few decades, but refreshingly lower than most of the past 3 weeks.  The average lender was just a hair higher, officially, but the average borrower will not see any difference in today’s vs yesterday’s rate quotes. As for culprits behind the bigger picture surge and the smaller picture recovery, most of the measurable blame falls on data.  Sure, we can talk about Fed stimulus and fiscal issues as root causes, but ultimately it’s the measurable increase in inflation and the measurable resilience in the economy that is keeping rates high. It’s also been the measurable cooling in the same data that has allowed rates to ease off those highs in recent weeks.  This began most noticeably with last week’s PMI data (“purchasing managers indices,” which are like mini GDP readings that come out every month), but it has continued this week due to several important economic reports. The most important report is yet to come.  Tomorrow morning brings the big jobs report at 8:30am ET.  That’s before the time that mortgage lenders set rates for the day, and the data has the power to drastically change trading levels in the bond market.  Bottom line, rates could be significantly higher or lower tomorrow, depending on the outcome of the data, and this particular data has a long history of surprising outcomes in both directions.

Pssst. Some People Think NFP Could be Even Weaker Than Forecast

This morning’s economic data came out slightly stronger than expected, on balance, and bonds rallied anyway.  Granted, Core PCE inflation was 0.2 vs 0.2, but excluding housing, core PCE was higher for the 2nd straight month and the annual tally remains way too high and very flat.  Add the lower jobless claims number (and the beat in Chicago PMI if you want) and the most logical reaction would have been to sell.  In the market’s defense, shorter term rates DID sell, but not too much.  One is forced to conclude that month-end trading distorted the day OR that there’s a fair amount of belief in the whisper number on NFP being lower than forecast due to labor strikes.  We’d emphasize that such whisper numbers do not matter in a world where NFP routinely surprises by 100k+ and where the whispers are only thinking of a 30-40k delta.

Econ Data / Events

Jobless Claims

228k vs 235k f’cast, 232k prev

Core PCE Inflation m/m

0.2 vs 0.2 f’cast, 0.2 prev

Challenger Job Cuts

75.15k vs 23.69k prev

Market Movement Recap

08:50 AM Flat overnight and flat after data.  10yr down 0.6 bps at 4.106.  MBS up 1 tick.

11:32 AM Modest strength continues for long end.  10yr down 1.8bps at 4.094.  MBS up an eighth. 

03:02 PM Off the best levels in the PM hours.  Not much volatility surrounding month-end 3pm closing bell.  10yr down 2bps at 4.09, but up from lows of 4.077.  MBS still up 2 ticks (.06), but down 3 ticks (0.09) from highs. 

04:20 PM Some illiquidity-driven weakness making for a 1 tick (0.03) loss in MBS.  Some organic weakness bringing 10yr up to 4.104 (but still down .8bps on the day).

Another morning, another set of economic reports with the power to move markets.  Today’s examples included jobless claims coming in at 228 vs 235k, core PCE inflation hitting its target at 0.2% month over month, and Chicago PMI at 48.7 versus a forecast of 44.1.  Notably, despite PCE being on target, some internal components remain troubling.  Core services inflation has been moving UP over the past few months.

Same chart in year-over-year terms.  Both lines remain well above target levels and there’s been little–if any–progress in core services.

How about Claims data?  Simply put, 228k NOT consistent with labor market slack. 

In other words, the “decency” of this data is debatable, but bonds are rallying modestly nonetheless.  The only obvious way to reconcile the mismatched reaction would be to point out the extra weakness in shorter-term yields.  Perhaps there’s some fear about being on the wrong side of the trade for tomorrow’s NFP, or perhaps month-end trading constraints are keeping things a bit better bid.  

The great thing about inflation is if you spend the same on groceries, the bags are lighter and easier to carry home. Restaurants and food companies react to higher prices either by reducing their portion sizes or passing the cost on to the consumer. In real estate, does the modern definition of an “affordable” house mean 350 square feet for $130,000? Lennar thinks so. Owning a home has long been considered the quintessential American dream, but even with 84 percent of Americans saying they’d like to own a home one day, 51 percent who don’t own today worry they’ll never get there. 94 percent of consumers say owning a home is part of the American dream, but 49 percent say they can’t afford a down payment and 40 percent say home prices are too high in their area. Student loan debt weighs heaviest on millennials, with 19 percent citing it as a roadblock to homeownership. (Today’s podcast can be found here and this week’s is sponsored by Black Knight. Black Knight is an award-winning software, data and analytics company that drives innovation in the mortgage and real-estate industries, and the capital and secondary markets. Listen to an interview with Black Knight’s Andy Walden and John Holbrook on the tappable equity market.) Lender and Broker Software and Services Get a discount on sponsoring THE event at ICE Experience 2024! Lender Toolkit’s Supercar Experience last year was fantastic and promises to be just as great in 2024! It will be held right before the opening of the ICE show next March. Lender Toolkit is offering early bird pricing on sponsorships, but only until September 29. As a sponsor at the March 18, 2024, event, you’ll be at the center of the most talked-about event of the conference. Just check out these photos from the 2023 Supercar Experience to see how much fun was had! Take advantage of the low rates now! For more info, contact Lender Toolkit or simply download the sponsorship form to apply. And Lender Toolkit and Lodestar are hosting the ultimate MBA Annual kick-off event in Philly. The Independence Block party, complete with ping pong, food, and drinks, takes place from 7:30-9:30 pm on Oct. 15. RSVP here.

The storm is slamming housing markets already beset by some of the nation’s highest property insurance premiums.

The National Association of Realtors’ index of contract signings to purchase previously owned homes edged up 0.9% to 77.6, the highest in three months, the group reported Wednesday.

The recently slimmed-down company named Chief Operating Officer Danya Sawyer as the interim successor to the former Wall Street executive.

Both purchases and refinance volumes climbed higher, as interest rates flattened following earlier volatility, according to the Mortgage Bankers Association.

The company claims its founder is acting out after he was removed from his positions due to a bribery scandal, in which substantial penalties nearly forced the business to close.

Bond Rally a Victim of Its Own Success

This morning’s economic data was bond-friendly, but not as unequivocally as yesterday’s JOLTS data.  The heavy lifting came courtesy of the 1st GDP revision for Q2 with the total dropping to 2.1 from 2.4 and some softening in PCE inflation for good measure.  Bonds turned solidly stronger on the data and then spent the rest of the day loosing a very small amount of ground very slowly.  The net effect is still a victory in the bigger picture, but there were several negative reprices among lenders who’d aggressively passed along recent market improvements.  That aggression proved to be too fragile even for what could only be considered to be a modest pull-back in bonds. 

Econ Data / Events

ADP

177k vs 195k f’cast, 324k Prev

GDP, Prelim (1st Revision)

2.1 vs 2.4 f’cast, 2.0 prev

GDP, Core PCE

3.7 vs 3.8 f’cast/prev

Market Movement Recap

08:39 AM GDP got bonds back to unchanged (or better). 10yr down .4bps at 4.116.  MBS are a tick or two from unchanged, but should also turn slightly green momentarily as liquidity improves.

01:24 PM Modest additional gains in AM hours and flat since then.  10yr down 1.8bps at 4.102.  MBS up an eighth. 

03:50 PM Weakest levels since AM data with MBD down 2-3 ticks (.06-0.09) and 10yr yields still down 0.4bps at 4.116, but up 3bps from the lows.