The National Association of Homebuilders (NAHB) and Wells Fargo released the monthly Housing Market Index (HMI) this week, showing builder confidence falling to the lowest levels since 2023.  This is about as low as the index has been since the housing crisis more than a decade ago. While persistently high interest rates remain a top concern for the housing market, a growing number of builders cited difficulty pricing new homes in light of the rapidly changing outlook for material costs due to tariffs.  With that in mind, it’s important to note that 90% of this month’s responses came in  before the US/China trade announcement.  Not only did that announcement drastically reduce tariffs for 90 days, it also offered a proof of concept that will likely see the outlook improve in the next survey due to lower material costs and a more upbeat consumer. Additional details are available at https://www.nahb.org/news-and-economics/housing-economics/indices/housing-market-index.

The Census Bureau is out with monthly construction numbers for April showing an uptick in construction activity offset by slightly lower permitting.  While there are several other metrics in this report, building permits and housing starts (which measures when construction actually begins) are the two that are most widely followed. As seen in the chart below, housing starts tend to be more volatile, month to month.  In the present case, however, they were only slightly higher than the previous month at an annual pace of 1.361 million vs 1.339 million. Starts would have fallen had it not been for the multifamily sector.  Single unit starts dropped from 947k to 927k while multifamily starts surged from 378k to 420k, the highest since late 2023. Over the past few years, there are several housing and mortgage market metrics that paint a fairly gloomy picture.  Applications and builder confidence come to mind.  While the construction data is not as strong as it was a few years ago, it remains one of the better examples of strength in the sector as it remains higher than most of the pre-pandemic time frame.

The average top tier 30yr fixed rate is set to end the week just a few hundredths of a percent higher than last Friday at 6.92%.  That’s a victory–albeit a small one–after hitting 6.99% on Wednesday. As always, these rates refer to an index representing broad industry averages for best-case scenarios. Individual lenders and scenarios can be quite a bit different for a variety of reasons. Today’s rate change is a bit misleading because it left us in slightly better shape versus yesterday. The bond market (which is directly responsible for mortgage rate changes) disagrees. Whether we’re talking about mortgage-specific bonds or their more popular older sibling US Treasuries, bonds were just a hair weaker across the board. Weaker bonds = higher rates, all other things being equal. The discrepancy comes down to timing and the rate setting practices of mortgage lenders. Specifically, bonds improved late enough in the day yesterday that many lenders didn’t fully adjust their mortgage rates to reflect the gains.  Then this morning, bonds signaled even lower rates before ultimately moving back to more neutral levels.  Some lenders bumped rates slightly higher as a result, but the average lender is still slightly below yesterday’s rates and bond market levels are still slightly better than they were when most lenders released their last rate update yesterday. If this is all a bit confusing, remember that mortgage rates only change once or twice a day, apart from extremely volatile trading days. Meanwhile, the bond market is changing every second. Lenders have to decide where to set rates based on that moving target.  Here’s how the past two days looked to the average lender:

One of the tools introduced is a voicebot, dubbed Mia, which helps with consumer retention by making calls to check on clients for UWM broker partners.

A growing supply of unsold inventory applied downward pressure on prices, offering home buyers some relief, the Mortgage Bankers Association said.

The title insurance industry, highly dependent on mortgage origination volume, recovered after watching volume fall 31% in 2023 and 16% in 2022.

The move was necessary for Dark Matter in order for it to align the size of its workforce with current mortgage market realities, CEO Sean Dugan said.

The government-sponsored enterprise is retiring a technology platform used for loan workout reporting and giving mortgage companies a deadline for leaving it.

Today’s Gains Help Us Understand Yesterday’s Losses

Wednesday’s weakness was severely lacking in the scapegoat department. In other words, there were not big, obvious justifications for the spike in bond yields. Today’s rally had a suggestion: perhaps the market was nervous about a potential update to the inflation framework in today’s Powell speech.  After all, it was the previous inflation framework update in 2020 (which basically concluded that rates could stay “lower for longer,” even if inflation was elevated) that was responsible for a lot of drama over the past 3 years. Although the 8:30am economic data helped a bit, most of today’s gains followed the 8:40am Powell speech.  The absence of stock losses makes the Powell explanation all the more plausible (i.e. if bonds were rallying on weak data, we’d expect to see stocks lose some ground, and they didn’t).

Econ Data / Events

Retail Sales

0.1 vs 0.0 f’cast

Retail Sales Control Group

-0.2 vs 0.3 f’cast, 0.5 prev

Core PPI Monthly

-0.4 vs 0.3 f’cast, 0.4 prev

Core PPI Annual

3.1 vs 3.1 f’cast, 4.0 prev
big revision from 3.3 last month

Jobless Claims

229k vs 229k

Philly Fed 

-4 vs -11 f’cast, -26.4 prev

Market Movement Recap

09:28 AM Modestly stronger overnight and catching a “no whammies” bid early.  MBS up 9 ticks (.28) and 10yr yield down 6 bps at 4.475

12:10 PM Best levels of the day with MBS up nearly half a point and 10yr down 8.5bps at 4.45

02:59 PM Still near best levels.  MBS up 3/8ths and 10yr down 8bps at 4.456

Houses in 85% of the nation’s metropolitan areas are considered overvalued, with more than half of those by 10% or above, Fitch Ratings found.