In a seven-day period that saw several marks — including conforming interest rates — surge or dip past longtime highs and lows, overall mortgage activity cooled for a fifth consecutive week, according to the Mortgage Bankers Association.

Snowball Rally, But Does it Change Anything?

After more than 2 weeks of relentless selling that took yields to their highest levels since 2007, bonds have increasingly been sitting on dry powder–at least from a technical standpoint.  Today’s PMI data provided the spark.  The explosion of bond buying began in Europe where PMIs were much weaker across the board in the services sector.  US numbers weren’t as bad by comparison, but far enough below consensus to greenlight the rally.  Interestingly, and perhaps importantly, the rally didn’t let up ahead of the 20yr Treasury auction, but the auction was decent nonetheless.  This increases the temptation to conclude “the top is in” for rates, but that top is only as good as the forthcoming data is bad.  We also need to see if Powell has anything interesting to say on Friday (or at least if enough of the market was waiting on Jackson Hole before making even bigger moves).

Econ Data / Events

S&P Global PMI

Services: 51.0 vs 52.2 f’cast, 52.3 prev
Manufacturing: 47.0 vs 49.3 f’cast, 49.0 prev

Market Movement Recap

09:33 AM Big gains on EU PMI data.  10yr down 9bps at 4.24 and MBS up nearly half a point.

12:58 PM Sideways at stronger levels, despite some volatility in MBS due to illiquidity.  UMBS up half a point and 10yr yields down 12.4bps at 4.208

03:59 PM 10yr down 15bps at lows of the day, 4.184.  MBS up 18 ticks (.56).

Mortgage rates dropped at the fastest pace in weeks today, but that isn’t saying much in and of itself considering rates have only moved lower 3 times during the entire month of August. One of the other drops was small.  The other one was large, and today’s drop was nearly as big as that one.  Before that, you’d have to go back a few months to see anything bigger.  In more specific terms, today was one of what tend to be only a handful of days on any given year where rates dropped by at least an eighth of a percent (the standard increment separating most lender’s mortgage rate offerings).  Improvements like this are more common after a string of bad luck.  The bigger and ‘badder’ the preceding rate spike, the more primed the market is to blow off some steam when it gets an excuse.   Today’s excuses came in the form of weak economic data both at home and abroad.  Economic data is important to the bond/rate market.  The Fed has been clear that it has no incentive to consider a softer stance on rates until the data shows signs of softening.   Fed or no Fed, a shift from stronger to weaker economic data would be consistent with a shift toward lower rates.  While today’s reports cast votes in favor of that shift, it will take a much broader sample of data making the same suggestions over multiple weeks (or months) to truly confirm. Translation: rates were stretched high like a rubber band and today’s economic data released the tension.  From here, rates will wait for additional data as well as Friday’s Jackson Hole speech from Fed Chair Powell. 

Sales of newly constructed homes appear to be benefitting from the very lack of inventory that is stifling existing home sales.  July’s sales of pre-owned homes lagged sales a year earlier by more than 16 percent while Wednesday’s report on new home sales showed they had jumped ahead of July 2022 activity by 31.5 percent. The U.S. Census Bureau and Department of Housing and Urban Development said new home sales were at an annual rate of 714,000 units in July. This is an increase of 4.4 percent compared to sales in June. On a non-seasonally adjusted basis, there were 59,000 homes sold, 1,000 more than in June. So far in 2023 sales total 416,000, essentially unchanged from the same period in 2022. Robert Dietz, chief economist at the National Association of Home Builders said, “New home sales were solid in July because of an ongoing housing deficit in the U.S. and a lack of resales stemming from many homeowners electing to stay put to preserve their low mortgage rates. However, despite this monthly uptick, new home sales will likely weaken in August as higher interest rates price out prospective buyers.” While inventory of new homes fell 2.7 percent from June to July and by 27.7 percent year-over-year, there were 437,000 new homes available for sale at the end of the reporting period. This is a 7.3-month supply at the current sales pace. A six-month supply is generally considered a balanced market.

As the Western Secondary winds up, and weary capital markets staff & vendors head home from Orange County, perhaps humming “California Gurls,” working conditions and changes in the work environment are still a topic. For example, Goldman Sachs is making a concerted effort for its workforce to return to the office five days a week. I’ve concluded that I need a non-technical, high-paying, remote job that can be done with minimal effort. It turns out that there’s a term for it: “Lazy-girl job.” AEs and vendor sales staff have gradually returned to calling on offices and occasionally bringing those pink boxes filled with treats. While we wrap up with this state, pink boxes started appearing in Southern California courtesy of Cambodian refugee (and successful So-Cal donut shop owner) Ted Ngoy. Many other Cambodian and South Asian immigrants became donut shop owners after coming to the United States in the mid-1970s to escape the Khmer Rouge. Ngoy’s donut boxes were supplied by a paper company called Westco, and he was hoping to save a few bucks by using a cheaper box. According to the Los Angeles Times, 200 pink boxes cost $20… and 200 white boxes, $25. (Today’s podcast can be found here and this week’s is sponsored by PHH Mortgage. For over 30 years, PHH Mortgage has provided industry-leading mortgage services and helped countless homebuyers and homeowners find financing solutions to meet their needs.) Lender and Broker Software and Services

Any time bonds are as oversold as they were yesterday, there’s a better chance of a bigger corrective rally when a reason to rally finally presents itself.  It’s possible that sellers were already feeling tapped out based on yesterday’s fairly flat session, but buyers were out in force overnight and again this morning thanks to the S&P Global Purchasing Managers Indices (PMIs). EU PMIs drove the overnight gains–especially Germany’s services PMI which came in at 47.3 vs 51.5).  As such, there was a bit of anticipation heading into the US version at 9:45am ET. 

While US PMIs didn’t match the same delightfully gloomy message sent by EU variants, they were weak enough for the message to be cohesive around the world.  “Global growth concerns,” anyone?  The only caveat is the sheer level of volatility in global PMIs post-covid.  Granted, it’s not much of a caveat considering the extent to which other data has been less and less volatile (i.e. this decline is likely more than “noise”).

With that, bonds are rallying fairly aggressively this morning, but just keep in mind that it will take more than one day’s worth of data to change the tone, and consistently gloomy data over 1-3 months to confirm a shift in the big picture trend.

The Alabama-based regional bank didn’t effectively track whether some loans complied with flood insurance regulations, according to the Fed. Regions said that it had fixed the issue by 2017.

While a majority of current forborne borrowers sought relief for reasons related to COVID-19, servicers are seeing a growing share of cases involving natural disasters or personal financial issues, the Mortgage Bankers Association said.

Contract closings are at a 4.07 million annualized pace, close to the slowest rate since 2010.

The American Bankers Association and Bank Policy Institute Tuesday urged bank regulators to delay the finalization of its Community Reinvestment Act rule, saying regulators have not calibrated the rule to account for upcoming capital changes or considered whether courts will find the Consumer Financial Protection Bureau’s funding structure constitutional.