Active listings fell in July on an annual basis, while median home prices also showed signs of a downward trend, according to new data from Realtor.com.

Their links to the Treasury have been considered a source of strength and still are, but less so, according to one rating agency. Others disagree.

But a Zillow economist argues that there’s plenty of evidence suggesting strong GDP and job growth had more to do with the increase than what Fitch did.

But its mortgage business remains a money loser, and it wasn’t a great period for the acquisition target either.

Snowball Sell-Off Ahead of Jobs Report

The bond market isn’t necessarily expecting the jobs report to come in higher or lower than expected (after all, how can you expect something other than expectations?), but if it were to come in higher, that would be just the sort of terrible luck that seems to have befallen bonds this week.  In the midst of curve-driven repricing (markets shifting to focus on 10yr yield volatility instead of 2yr), bonds have been hit by higher Treasury borrowing needs, lower buyback plans, a ratings downgrade, and the largest foreign holder embarking on big selling campaigns to control its own yield curve (Bank of Japan). It was the latter that hit the hardest overnight and resulted in moderate follow-through during the domestic hours.  2yr notes escaped nearly unchanged whereas 10s spiked 10bps by 4pm. 

Econ Data / Events

Jobless Claims

227k vs 227k f’cast, 221k prev

Labor Costs 

1.6 vs 2.6 f’cast, 3.3 prev

ISM Services PMI

52.7 vs 53.0 f’cast, 53.9 prev

Market Movement Recap

11:31 AM Sharply weaker overnight with yields up to more new long-term highs.  More weakness early, but maybe stabilizing now?  10yr up 8bps at 4.171.  MBS down 3/8ths.

03:55 PM Fairly flat all day after early weakness.  MBS still down 3/8ths.  10yr near highs, up 9.7bps at 4.187.

Interest rates of all types have been under immense pressure since the beginning of 2022.  This resulted in the the highest mortgage rates in more than 2 decades in November of the same year.  A decent recovery followed, leading the average 30yr rate from the mid 7’s back to 6% by January, but rates have been grinding higher in a volatility pattern ever since then.  As of today, many lenders are back in line with the high rates briefly seen at the beginning of last month.  Those rates are only a hair lower than those seen at the November 2022 peak.   We’re fond of framing a mortgage rate index in the proper context.  It is a number that is best used to measure day over day changes relative to to points of reference in the past.  In other words, it’s less important that our index is at 7.2% today and more important that it’s only 0.1 lower than the 7.3% seen in Nov 2022.  Similarly, Freddie Mac’s weekly mark of 6.9 is getting close to its 7.08 level from 2022.   Nonetheless, many mortgage lenders are definitely forced to be quoting rates in the mid 7’s right now.  Our 7.2% index represents a “top tier” scenario.  It means most lenders are at 7.25% since few originate loans at rates that don’t fall on .125% increments.  If the credit score is a bit lower, or if it’s a condo, or an investment property, or….  you could quickly be seeing something closer to 8%. Many loan quotes still exist in the mid to upper 6’s because many companies are quoting rates with upfront discount points.  A discount point (1% of the loan balance) is still good for at least a 0.375% reduction in rate at most lenders.  Just be aware that 7.25% with no points is the exact same deal as 6.875% with one point.  Personal preference will dictate whether a borrower would rather pay now or pay more over time. 

There’s something rotten in the state of the bond market.  After the early July CPI-driven rally seemed to put a ceiling on the range, there have been several somewhat enigmatic episodes of selling without the sort of obvious motivations that normally line up with big moves.  In other words, it wasn’t like a big piece of econ data came out this week to crush the bond market.
Nonetheless, bonds are getting crushed.  Analysts are forced to speculate about broad considerations that are hard to measure in the short term.  These include things like the supply/demand considerations surrounding the Treasury refunding announcement, ratings downgrades, and a delayed reaction to Japan’s yield curve control tweaks. 
The other broad consideration is that the market had the opportunity to embark on another hopium binge after CPI but instead chose to believe that the Fed really won’t be cutting rates for a long long time.  At the very least, traders waited for Powell to indicate whether CPI made a difference, but the answer was unsurprisingly:
POWELL: JUNE CPI WELCOME BUT ONLY ONE REPORT, ONE MONTH’S DATA POWELL: WILL BE LOOKING TO SEE IF SIGNAL FROM JUNE CPI IS REPLICATED
Markets didn’t have a chance to do too much with the press conference before being forced to digest the stronger jobless claims and GDP data the following morning.  Then it was month-end. 
Bonds have undergone several “repricings” over the past few years as traders have come to terms with a shift in the prevailing beliefs about how things can play out.  The last two weeks are arguably one such instance.  Tomorrow’s jobs report could decide whether the repricing event if full blown or just a close call. 

Mark Weber sends, “Can I take my 2.5 percent loan to another property? Remember the portable loan idea? When will we see real estate agents advertising, ‘This home for sale has an assumable FHA/VA loan!’?” Ask any LO (loan originator, or officer, depending on what you want the “O” to stand for) and they can tell you stories about lenders either fumbling the servicing handoff or a myriad of borrower woes. There is a good reason that it has become a lightning rod for CFPB examinations. J.D. Power released its U.S. Mortgage Servicer Satisfaction Study, which measures customer satisfaction with the mortgage servicing experience in six factors (in order of importance): level of trust, makes it easy to do business with, keeps me informed and educated, people, resolving problems or questions, and digital channels. “The latest results show an ugly situation for the industry. Overall satisfaction is down… there’s been an increased rate of mortgage transfers and a rise in account problems. In particular, the data indicate servicers cannot ignore consumer financial health, and they need to be proactive about providing advice.” (Today’s podcast can be found here and is sponsored by Candor. Candor’s patented automated underwriting decision engine, CogniTech, is a state-of-the-art, 100 percent machine platform that can handle infinite loan scenarios. Listen to an interview with Fairway Independent’s Guy Schwartz on the ins and outs of loan production and closing deals.) Lender and Broker Software, Products, and Services

Total net income at the company grew to $357 million in the second quarter, more than four times higher from three months earlier.

The Department of Housing and Urban Development is reviewing HSBC’s lending practices in certain majority Black and Hispanic neighborhoods, the bank disclosed. The regions under scrutiny include New York, Seattle and several parts of California, according to the nonprofit organization whose complaint prompted the investigation.