I received this note from Dallas. “I like ‘dillos, but I don’t support giving them guns because… I would never armadillo.” Speaking of which, Texas is slowing down: The Dallas Fed tells us, “Texas’ overall pace of economic growth, much of it due to jobs in innovation, is trending lower, with payroll employment declining in June, a marked turn from robust job gains earlier in 2025.” Texas lenders, or at least banks and credit unions, do their share of adjustable-rate mortgages, so may be okay with lower short-term rates via the Fed and stable long-term rates. Last week’s MBA application data reflects increasing ARMs: “Given the relative attractiveness of ARM rates compared to fixed rate loans, ARM applications increased 25 percent to their highest level since 2022, and the ARM share of all applications was almost 10 percent. (The refinance share of mortgage activity increased to 46.5 percent of total applications from 41.5 percent the previous week. The ARM share of activity increased to 9.6 percent of total applications.) (Today’s podcast can be found here and this week’s is sponsored by ICE. By seamlessly integrating best-in-class solutions, ICE optimizes every stage of the loan life cycle, setting the standard for innovation, artificial intelligence, efficiency, and scalability, and defining the future of homeownership. Today’s has interview with HomeLight’s Sumant Sridharan on the latest surveyed trends among real estate agents a year after the NAR settlement and how technology is shaping their interactions with both lenders and borrowers.)

October 3rd, 2024 continues to be the day to beat when it comes to mortgage rates hanging out at 10 month lows. Today’s top tier 30yr fixed rate matched October 4th levels for the first time since then, just barely edging out last week’s lowest levels. Hitting the next milestone will be a much bigger challenge.  The gap between October 3rd and 4th was about as big as they come with a single day move of more than 0.25%.  To put that in perspective, the 5 months leading up to August didn’t see a range much larger than 0.25%. [thirtyyearmortgagerates] But this comparison to a past milestone is much ado about nothing. Rates are as low as they’ve been in a long time and refi demand was already surging before the latest drop.  If economic data weakens and if inflation stays manageable, we could see further improvement, and every little bit helps. As for today’s specific improvement, it wasn’t the product of any major new development. Markets continued a delayed reaction to yesterday’s Consumer Price Index (inflation data).  Notably, rates moved lower in concert with Fed rate cut expectations.  For all the time we spend pushing back on the belief that the Fed dictates mortgage rates, this is the one time that there’s a sort of exception.   Specifically, mortgage rates do indeed tend to move the same direction as Fed rate EXPECTATIONS .  This is mostly because the two share many common motivations and NOT because mortgage rates are waiting for a change in the actual Fed Funds Rate.  A prime example was seen in late 2024 when mortgage rates hit long term lows only to begin moving higher when the Fed finally cut rates.

Bonds rallied overnight, largely in concert with lower EU yields. Stable inflation in Germany and lower oil prices helped. But there was also a tailwind from Fed Funds Futures which saw a further increase in the odds of a rate cut at the September meeting. While this is undoubtedly a better way to start the day compared to a sea of red on trading screens, and while a 4+ bp improvement in 10s is more than just an incidental, inconsequential rally in day over day terms, the bigger picture is actually quite boring.  It’s not an oversimplification to say that yields were orbiting 4.40% before the last jobs report and then rallied down to a 4.2-4.3 range afterward.  CPI did no harm, so we remain in that range as we wait to see whether the next jobs report will justify only the 25bp cut currently expected by the market or whether it’s weak enough to entertain a 50bp cut (unlikely for now, but a preponderance of weak data in the interim could change things).

Core CPI, which excludes food and energy, rose to 3.1%, up from 2.9% in June.

Whittemore and his team are working to help the company handle both growth and diverse loan types, including non-QM, RPLs and NPLs.

New insurance written at the six private mortgage insurers increased by only 2% year-over-year, a sign of the sluggish home sales market at the low end.

July’s growth in products correspond with a noticeable rise in new applications for adjustable-rate mortgages as borrowers respond to recent rate movements.

The New Jersey-based Anniemac, which has expanded down the East Coast in recent years, touted the incoming team’s construction lending experience.

Bonds Eventually Pass on Decisive Reaction to Tuesday’s Data

Right at the 8:30am release time, bonds rallied on core CPI almost perfectly hitting unrounded forecasts (.32 vs .31). Additionally, the 2.7% vs 2.8% annual headline number was another step in the right direction. As markets digested the internals, the “yeah but” trading emerged.  “Yeah buts” included supercore CPI (core services excluding housing) rising to 0.481 vs 0.212 month-over-month and evidence of the tariff impact via the highest annual core goods inflation since June 2023.  So on one hand, declines in housing related inflation are finally helping keep the number down while other categories are pushing back in the other direction, keeping the broader numbers a bit stubborn.  The mixed data and mixed market reaction place even more emphasis on the next jobs report when it comes to informing the next big move for rates.

Econ Data / Events

m/m CORE CPI (Jul)

0.3% vs 0.3% f’cast, prev 0.2%

m/m Headline CPI (Jul)

0.2% vs 0.2% f’cast, prev 0.3%

y/y CORE CPI (Jul)

3.1% vs 3% f’cast, prev 2.9%

y/y Headline CPI (Jul)

2.7% vs 2.8% f’cast, prev 2.7%

Market Movement Recap

09:30 AM Initial rally followed by a sell-off after CPI.  10yr up 1.7bps at 4.302.  MBS still 3 ticks (.09) higher on the day, but post-CPI gains are erased.

10:50 AM Off the weakest levels.  10yr up 1.3bps at 4.296 and MBS up an eighth of a point.

01:49 PM Turning out to be fairly uneventful.  MBS up 5 ticks (.16) and 10yr up 0.7bps at 4.292

04:30 PM Strongest levels since the post-CPI selling. MBS up 6 ticks (.19) and 10yr nearly unchanged at 4.287

There’s something for everyone in this morning’s CPI data. The monthly headline was on target at 0.2 vs 0.2. Same story for the core at 0.3 vs 0.3. Bonds are just a hair stronger, but it’s hard to make a case that they should be based on other internals:

The unrounded monthly core was 0.322 versus the median big bank forecast at 0.31
Supercore (core CPI excluding housing) was 0.481 vs 0.212 previously
Core goods (tariff sensitive) is now 1.2% year over year – highest since June 2023

All these bullet points argue for bonds to be selling off today and likely justify the backpedaling in the initial rally.  Bonds are still modestly green on the day, but right in line with yesterday’s range. It wouldn’t be a surprise to see gains continue to erode as markets digest the implications.