The most important thing to know about mortgage rates so far this week is that they lived through last week.  Living through last week means rates reacted to surprisingly strong economic data by jumping well into the 7% range for conventional 30yr fixed loans. We’ve been here before–just a few months ago, but not for very long.  Also, we haven’t been much higher than this during in more than 20 years.  That said, many experts thought we might not be back here quite so soon–if at all during the same cycle.   The x factor is the steady supply of data that shows stubborn inflation and persistent economic growth.  Rates will remain high until these things change.  We’ll get a major update on the state of inflation this Wednesday morning with the release of June’s Consumer Price Index (CPI), but even then, it will take several months of cohesive messaging in the data to definitively turn the tide for rates.

The week begins with bonds in modestly stronger territory after a bit of initial volatility.  None of the trading after last Friday’s NFP has mattered much to the bigger picture.  The most recent damage was done before that and the market now waits for Wednesday’s CPI as the next big shoe to drop.
Between now and then, unless an unexpected development manages to break yields above recent highs (4.09% in the 10yr) or back below the 3.84% technical level, nothing too interesting is happening.

The Black Knight Mortgage Monitor for May doesn’t even hint at a housing crisis on the horizon. Affordability is again (or maybe still) a concern, but buyers are out there, and home prices reflect that fact. Homeowners are performing well on their mortgages (and aren’t about to give up their low rates), and while the current report doesn’t touch on the subject, continue to build on their equity. In addition, builders are getting back in the game, shoring up hope of a lessening in the perennial shortage of available homes. Home prices, which eased late last year have now risen for five straight months, completely reversing the earlier declines. Black Knight says its Home Price Index hit an all-time high, rising 0.7 percent from April to May. While the year-over-year growth rate is currently hovering at 0.1 percent, the May increase is equivalent to annualized growth of 8.9 percent. If the recent pattern continues, that annual growth rate may turn and begin trending higher as early as next month. Twenty-seven of the 50 largest U.S. markets have returned to their previous price peaks or set new ones this spring. Even the West Coast, where some of the largest downward corrections happened last year, saw many of its markets reheat in May. San Jose was up 1.4 percent, Los Angeles rose 1.0 percent, and Seattle gained 0.9 percent. Austin, Texas is a major exception to the price hikes. The deficit from its peak continues to grow, reaching -13.8 percent in May.

“The world is going to come to an end tonight at midnight. Tune in tomorrow to see if it did!” Sensationalist headlines or bad predictions are tiresome at best, misinformation at worst. There is actual news, however. For example, thank you to the Knowledge Coop’s Ken Perry who sent along the latest in the Matter of ICE and Black Knight. LOs and underwriters know that the Supreme Court overturned the Biden administration’s student-debt forgiveness plan which would have wiped off $430B in loans from the government’s books, and people who worked hard to pay off their debt cheered. Although there are already some alternatives that are in the making, this carries huge implications for inflation, consumer discretionary spending, and the distribution of wealth in the U.S. In other news, the latest update on inflation in the U.S. is this week with June’s Consumer Price Index report. Economists forecast headline inflation to fall to 3.0 percent from 4.0 percent in May and core inflation to be reported at 5.0 percent from 5.3 percent in May. A CPI surprise could reset expectations on the direction of the Federal Reserve. The market is pricing in a 90 percent probability that the Federal Reserve will raise rates by 25 basis points at the July 25-26 meeting. (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 an interview with Stavvy’s Kosta Ligris on the benefits of Remote Online Authorization (RON) and advances from Ginnie Mae’s recently published All Participants Memorandum.)

The proposal would bring companies cited for civil enforcement actions under its scope to bar them from doing business with the government-sponsored enterprises.

The Black Knight-owned product and pricing engine was one of the reasons the Federal Trade Commission said it is contesting the transaction, which is now in court.

The FDIC’s New York regional office faced staffing shortages throughout its supervision of now-failed Signature Bank. Experts say more competitive wages, culture shifts and whistleblower protections could help regulators attract and retain talent and improve oversight.

Plaintiffs claim executives made a series of misleading statements in spring 2021, as the industry giant began to face headwinds in originations.

The May uptick in nonbank housing-finance payrolls came almost entirely from lender hiring as loan broker numbers plateaued and construction demand persisted.

Until a few weeks ago, it looked like we might have seen the last of 7% mortgage rates, but the last 2 weeks have been brutal. The culprit has been a collection of several scheduled economic reports that were stronger than economists expected. Generally speaking, strong economic data puts upward pressure on rates.  This is a particularly sensitive relationship at the moment because the Fed has clearly stated it will hike rates a few more times unless the economy downshifts more abruptly than it has been.  With that in mind, some of the recent data hasn’t shown any downshift at all! One solid example from this week was the business activity index in the services sector (via ISM), which rebounded massively: On the same morning, the ADP employment data proved to be a much bigger deal, coming in at 497k versus a median forecast of 228k.  Although the track record is far from perfect, ADP’s stated goal is to predict the all-important nonfarm payroll (NFP) count in the Labor Department’s big monthly jobs report.  In this week’s case, NFP was set to come out the following morning. Although NFP didn’t nearly live up to ADP’s hype, it was nonetheless solid with 209k jobs created versus forecasts calling for 225k.  Wages grew a bit faster than expected, and unemployment remained near record lows at 3.6%.   While this is good news for the economy and the labor market, bonds (which drive mortgage rates) like bad news and the news wasn’t bad enough for bonds to undo the damage done on Thursday.