While multifamily late payments were flat, hotel properties continued to improve but office performance deteriorated significantly from the first quarter, the Mortgage Bankers Association said.

Three years later, the percentage who kept paying was the same as those who didn’t and exited without immediate loss mitigation in place, the Mortgage Bankers Association discovered.

Despite the improvement in sentiment, the homebuilder index remains below end-of-2021 levels, when mortgage rates were lower

Mixed Reaction to Data. Range Remains Intact

European bonds set the tone in the overnight session after a normally hawkish ECB member made dovish comments on the near term rate hike/pause outlook.  German Bunds rallied a full 10bps peak to trough while US 10s barely managed 5bps over the same time frame.  The AM econ data in the US created some 2-way volatility as the Retail Sales headline was at odds with internals, but bonds were already having second thoughts as evidenced by a clear run-in with resistance at 3.75% overnight. Yields were sideways and choppy until Europe closed for the day.  After that, there was a modest drift toward–but not into–weaker territory.  All in all an uneventful day that is perfectly in line with the broader sideways baseline expected between last week’s rally and next week’s Fed announcement. 

Econ Data / Events

Retail Sales

0.2 vs 0.5 f’cast, 0.3 prev

NAHB Builder Confidence

56 vs 56 f’cast, 55 prev

Industrial Production

-0.5 vs 0.0 f’cast, -0.5 prev

Market Movement Recap

08:30 AM Nice gains overnight with Europe.  10yr down 6.7bps at 3.742 and holding after data.  MBS up 6 ticks (.19)

10:38 AM Quick selling as traders reconsidered data, but recovering now.  MBS at highs, up over a quarter point.  10yr down 5bps at 3.758.

12:41 PM Weakest levels of the day at EU closes.  10yr still down 3.2bps at 3.777.  MBDS up only 2 ticks (0.06).

04:31 PM Leveling off a bit now after hitting weaker levels just after 3pm.  10yr yields down 2.8bps at 3.781.  MBS currently unchanged after being down 2-3 ticks (0.06-0.06)

Today’s session was off to a stronger start thanks to a sharper rally in European bonds overnight, but domestic economic data pushed back early.  This wasn’t immediately obvious due to the headline “miss” in Retail Sales, but the “control group” (excludes autos/gas/building materials) beat expectations 0.6 to 0.3.  As we enter the PM hours, the absence of support from European trading is becoming more obvious.  Bonds remain green, but at the day’s weakest levels.
Going forward, we may add 3.75 to the watch-list as a technical level as it acted as resistance overnight despite EU bonds making a case for a stronger rally.

Increases in single-family rents soared in the post-pandemic environment but have now moderated to the annual levels in the pre-pandemic years of 2010 to 2019. CoreLogic’s Single-Family Rent Index (SFRI) recorded an annual increase of 3.4 percent in May. Since the start of the pandemic, single-family median rents have increased by $470, or 30 percent. The company, however, does not see rents declining in the near term. “After increasing at an accelerated pace for more than two years, annual single-family rent growth returned to its pre-pandemic rate in May,” said Molly Boesel, principal economist for CoreLogic. “High inflation may be affecting renters’ abilities to absorb continually higher monthly payments, which could be keeping year-over-year rent increases relatively low. However, even in the current economic environment, monthly single-family rent increases returned to a typical seasonal pattern in February of this year, suggesting that single-family rents are poised to continue increasing throughout 2023 .” The Chicago area had the highest annual increase among the 20 largest markets, 6.6 percent. The median monthly rent in that metro is currently $2,327. Charlotte, North Carolina had the second largest annual gain at 5.9 percent, followed by Boston and New York, each at 5.7 percent. Of the 20 metros shown in Table 1, Chicago posted the highest year-over-year increase in single-family rents in May 2023, at 6.6%. Charlotte, North Carolina was second with an annual gain of 5.9 percent, followed by Boston and New York (both at 5.7 percent.)

There’s a definite shift going on in banks as continued layoff rumors in jumbo and portfolio divisions are rampant. At the other end of the job chain, people’s circumstances about how they entered our business are often fortuitous, or interesting. A good conversation topic at mortgage gatherings is how someone got into the business. Santa Rosa’s Brian Goulding, for example, has a solid accounting background which morphed into being a loan officer. I was a food science major. Another good conversation topic is how LOs use rent, and rent increases, to prompt buyers. Since 2009 rent prices have grown by 60 percent or more in seven U.S. cities: San Jose (85 percent), Denver, Seattle, Portland, San Francisco, Nashville, and Austin (60 percent). Rent prices are also rising faster than incomes, which forces tenants to shell out a greater share of their wages on rent. At 28.5 percent, Miami has the highest rent-to-income ratio of the 50 largest U.S. cities, while Cincinnati has the lowest at 15.5 percent. The rent-to-income ratio declined in only four cities: Cleveland, Pittsburgh, Buffalo, and Providence. (Today’s podcast can be found here and this week’s is sponsored by Richey May, a recognized leader in providing specialized advisory, audit, tax, technology and other services to the mortgage industry for almost four decades. To experience how Richey May can help you transform your mortgage business, visit richeymay.com. Hear an interview with MBA’s Justin Wiseman on recent issues MBA has commented on and top regulatory/enforcement items that the industry should be aware of.)

Builder confidence in the market for newly constructed homes rose another point in July according to the National Association of Home Builders (NAHB). The NAHB/Wells Fargo Housing Market Index (HMI) hit 56 in its seventh straight month of improvement. This is a 25-point gain since its December 2022 low and its highest level since June of last year. NAHB Chief Economist Robert Dietz said the low inventory of pre-owned homes is shoring up demand for new homes and is pushing builder confidence up, “even as the industry continues to grapple with rising mortgage rates, elevated construction costs and limited lot availability.” “The lack of resale inventory means prospective home buyers who have not been priced out of the market continue to seek out new construction in greater numbers. At the same time, builders are troubled over rising mortgage rates approaching 7 percent and continue to grapple with supply-side challenges, including ongoing scarcity of electrical transformer equipment and growing concerns about lot availability.” Dietz continued, “Although builders continue to remain cautiously optimistic about market conditions, the quarter-point rise in mortgage rates over the past month is a stark reminder of the stop and start process the market will experience as the Federal Reserve nears the end of the ongoing tightening cycle. “Given that shelter inflation accounts for roughly 40 percent of the Consumer Price Index, the best way to ease this largest source of inflationary pressure is to build additional for-rent and for-sale housing. There has been some commentary linking gains for housing construction with increased concerns for additional inflation, but this has the economics backwards. More housing supply is good news for future shelter inflation readings in the market . Furthermore, higher interest rates increase the cost of financing for building homes and developing lots.

The nearly 8% growth on a seasonally adjusted annualized basis is well above the historical average, according to the government-sponsored enterprise.

While the divestment alleviates one of the concerns the Federal Trade Commission had regarding the combination with Intercontinental Exchange, question marks abound.