Mortgage rates had been moving higher fairly rapidly over the past 2 weeks with the average lender easily into the 7% range for a top tier conventional 30yr fixed scenario.  It was clear that rates were responding to stronger-than-expected economic data and apprehension that we could see more of the same from subsequent reports. Today brought one of the most important among those subsequent reports: June’s Consumer Price Index (CPI).  This is the most influential inflation report on any given month as far as interest rates are concerned and it ended up providing some much needed relief today. Inflation cooled to a monthly pace that is very close to in-line with the Fed’s inflation target.  To whatever extent such a pace can be maintained or improved upon, the Fed wouldn’t need to continue hiking rates and the rest of the bond market wouldn’t need to continue defending against that possibility. In that sense, today marks the first step in a long journey, but one that nonetheless helped rates move more than an eighth of a percentage point lower–once again returning to the high 6% range.

After plenty of anticipation over the past few days, the Consumer Price Index (CPI) arrived this morning with fairly good news for the bond market.  Core monthly CPI (arguably the most important number) came in at 0.2 vs 0.3 f’cast and 0.4 last time.  This is a good result for bonds, though not quite stellar.  As expected, the “miss” in the data is resulting in a logical rally for bonds with yields testing the next line in the sand at 3.89%–just a skip and a jump from the 3.84 techncial level.
Stocks and bonds continue settling back into the familiar “rising tide trade” whereby expectations for relatively looser Fed policy helps both sides of the market (i.e. a rising tide that lifts all boats).

Notably though, there’s been essentially no change to the outlook for July’s rate hike.  Instead, the market is trading today’s data as an input on the likelihood of additional hikes after that.  

Great Reaction to CPI, But What’s Next?

Today’s CPI data serves the important role of pushing back on the narrative of troublingly persistent inflation.  The 0.2% month-over-month level, after all, annualizes to 2.4%.  If that level were to be maintained, the Fed would be in a position to declare victory on inflation and rule out additional rate hikes.  The market’s takeaway seems to be that CPI takes one of the two additional rate hikes off the table, but that is wasn’t enough to alter the course for the upcoming meeting.  From a technical standpoint, bonds rallied enough to undo all of last week’s damage.  

Econ Data / Events

M/M Core CPI

0.2 vs 0.3 f’cast, 0.1 prev

Y/Y Core CPI

4.8 vs 5.0 f’cast, 5.3 prev

Market Movement Recap

09:03 AM Modestly stronger overnight with additional gains after CPI.  MBS up almost half a point.  10yr down 6bps at 3.915.

01:26 PM Rally Continues… MBS up 3/4ths of a point.  10yr down 11.7bps at 3.859.

02:52 PM Leveling off now and dialing back just a hair. MBS up just under 3/4ths.  10yr down 10.7bps at 3.869.

The Mortgage Bankers Association (MBA) reports a slight increase in the volume of mortgage applications during the week ended July 7. MBA’s seasonally adjusted Market Composite Index increased 0.9 percent on a seasonally adjusted basis from one week earlier , although it took an additional adjustment accounting for the Independence Day holiday to push it into positive territory. On an unadjusted basis, the Index dropped 19 percent compared with the previous week. The Refinance Index decreased 1.0 percent from the previous week and was 39 percent lower than the same week one year ago. The refinance share of mortgage activity decreased to 26.8 percent of total applications from 27.4 percent. [refiappschart] The seasonally adjusted Purchase Index increased 2.0 percent from one week earlier but was down 19 percent before adjustment. Purchase applications were 26 percent below their level the same week in 2022.   [purchaseappschart] “Incoming economic data continue to send mixed signals about the economy, said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “The overall impact [left] Treasury yields higher last week as markets expect that the Federal Reserve will need to hold rates higher for longer to slow inflation. All mortgage rates in our survey followed suit, with the 30-year fixed rate increasing to 7.07 percent, the highest level since November 2022. The jumbo rate also increased to 7.04 percent, a record high for the jumbo series, which dates back to 2011.”

Who’s in your wallet? I imagine every compliance person at every bank, large and small, are once again reviewing their policies after the Consumer Financial Protection Bureau (CFPB) ordered Bank of America to pay more than $100 million to customers for systematically double-dipping on fees imposed on customers with insufficient funds in their account, withholding reward bonuses explicitly promised to credit card customers, and misappropriating sensitive personal information to open accounts without customer knowledge or authorization. My Dad would sometimes say, “You can’t tell the players without a scorecard.” (The NY Yankees and Boston Red Sox famously don’t have names on their home jerseys.) A scorecard of sorts is the 2022 HMDA info with 4,460 institutions reporting data including banks, credit unions, and mortgage companies; The number of reporting institutions increased by 2.63 percent from 2021. (Today’s podcast can be found here and this week’s is sponsored by SimpleNexus, the homeownership platform that unites the people, systems, and stages of the mortgage process into one seamless, end-to-end solution that spans engagement, origination, closing, incentive compensation, and business intelligence. Hear a discussion between Robbie and me on historical comparisons for the current environment and what margins we could see for originators moving forward.) Lender and Broker Software, Services, and Products Did you know most burglars enter homes through unlocked doors and windows? Hackers are no different, except instead of looking for easy entry points into your home, hackers search for the weakest link in your systems. As an increasing number of organizations take advantage of API functionality to connect systems, it’s important to be mindful of potential cyberthreats. In fact, every connection and transfer of data using an API can provide a door for hackers trying to steal data or carry out malicious acts. Subba Ayyagari, chief technology officer at Black Knight, has outlined several steps you can take to stand prepared and keep hackers out. Read more in Black Knight’s blog post, “Securing Your APIs From Threats.”

The Mortgage Bankers Association attributes this to muted demand for home purchases and companies trimming their operations.

Democratic senators including Banking Chair Sherrod Brown and Elizabeth Warren want to restrict tax breaks for large corporate investors that buy local homes and often drive up costs.

The case brought by the Westchester, New York District Attorney alleged the perpetrators stole three properties from distressed owners and unlawfully obtained $1.5 million of fix-and-flip financing.

Ten Western states that benefited from a pandemic-driven boom reported value declines in May, CoreLogic said.

A majority of people said they are willing to consider purchase of modern prefabricated housing, but local zoning laws currently hold back growth and development outside of rural areas.