What? You’re a builder who’s short on nails? Well, bring in some folks from Japan… they don’t necessarily need them. Of the nearly 300 types of nails made in the United States today, most are used in residential housing construction. The average wood frame house uses between 20,000 and 30,000 nails of various types and sizes. (I don’t know what percent of nails used in the United States are made in places like China.) On a side note, Walmart says that 70-80 percent of its merchandise is made in China. But interestingly, Walmart’s stock price is at its all-time highs despite tariff talk. Lender and bank stocks, however, are more complicated. Investors and advisers are anticipating increased consolidation among smaller U.S. banks under President-elect Donald Trump, viewing merging as a way to compete with larger firms. Regulatory scrutiny under President Joe Biden slowed mergers, but the potential for a more business-friendly environment under Trump has already led to deals. And STRATMOR, known in the industry as involved in many deals, reports that lender interest is strong. (Today’s podcast can be found here and this week’s podcasts are sponsored by Bundle, the attorney-prepared legal documents company that is dedicated to the real estate, mortgage, and title industry. Save 20 percent all week with the code “Chrisman.” Hear an interview with Bundle’s Courtney Dec and Carissa Orozco on setting online services technology to serve the speed and expectation of clients.)

It’s been a bummer of a week for mortgage rates with modest to moderate increases every day so far.  Adding insult to injury is the fact that there hasn’t been any compelling reason for the increase as far as this week’s new economic data is concerned. Economic data is a constant consideration for rates.  Generally speaking, weaker data = lower rates and vice versa. With that in mind, this week’s rate movement is all the more frustrating because none of the key reports have been “strong.”  In fact, the bond market reacted favorably (i.e. bonds implied lower rates) to several of them in the morning only for traders to take things in the other direction by the end of the day. Today and yesterday are the two best examples of that.  Each day resulted in a decent first round of rate offerings from mortgage lenders followed by a round of negative reprices as the day progressed.  The net effect is a move up to the highest levels in a week for top tier conventional 30yr fixed scenarios.

Eastern Union put the blame on the other company Fannie Mae suspended, Sevenstone Capital, which was by former employees who left over four years prior.

After Nexpoint refused to vote via its proxies at the UDF IV annual meeting, the existing directors supporting the sale to Ready Capital were declared elected.

Now that the legislation has been taken out of a budget bill, the Community Home Lenders of America argues for a regulatory approach to rein in trigger leads.

Mortgage lenders can now submit loan information through VA’s new management system, replacing the need for email submissions.

The Federal Housing Administration is giving servicers more leeway to automate borrower contact but it’s also requiring them to reach further afield.

The Mortgage Bankers Association is out with the latest survey of mortgage applications and refinance activity led the charge this week.  In fact, purchase activity declined a bit and refis saw their best weekly gains since September. The following chart shows the week over week change in the refi index: At first glance, it would be easy to assume that this is due to some sort of distortion in the week after Thanksgiving, but if that was the case, we would have seen a similar outlier in the other direction last week.  It’s more likely that the sharp decline in rates is the x factor. Notably, MBA’s weekly survey data only shows rates declining from 6.69 to 6.67, but MND’s daily rates tell a different story with a drop from 6.88 to 6.68.  That 0.20% decline would certainly be enough to account for the jump in activity, especially in a market where the outright activity is so historically low. Other highlights from this week’s MBA survey:
Refi share of total apps increased to 46.8% from 38.7%
Share of VA applications increased to 16.3% from 13.6%
5/1 ARM rates dropped to 5.81 from 6.24

Mortgage rates were having a pretty decent day at first.  The bond market was only slightly weaker overnight (implies some upward pressure on rates), but quickly improved after the Consumer Price Index (CPI) data at 8:30am ET.  Notably, CPI was right in line with forecasts–something that often results in lower conviction and volatility for interest rates.  We only tend to see big reactions to ‘as-expected’ numbers on the most closely watched reports.  In other words, today’s market reaction confirms just how closely CPI is being watched. 8:30am ET is early enough in the day that it allows bonds time to improve before the earliest mortgage lenders release their rate offerings for the day.  As such, the average lender was 0.03% lower than yesterday when morning rates came out.   The good times only lasted about an hour.  Whether it was a reaction to the Bank of Canada’s policy announcement (a thing that actually impacted the U.S. bond market today) or strategic repositioning among bond traders ahead of next week’s Fed announcement, bonds lost more than enough ground for the average mortgage lender to reissue rates at higher levels in the afternoon.  When the smoke cleared, today’s rates ended up being 0.02% higher than yesterday as opposed to 0.03% lower.  This isn’t a big swing in the bigger picture, but together with the previous two days, rates are now up 0.12% so far this week.

Why Bonds Sold Off After a Decent AM Rally

It was a day for “explanations” in the bond market with the morning rally needing to be explained in the context of CPI data that came in right on the screws and a subsequent sell-off that also seemed to happen for no apparent reason.  In fact, selling continued even after the well-received 10yr Treasury auction. To some extent, the AM selling can be tied to the Bank of Canada announcement, which was universally panned as ultra-hawkish (despite a 0.50% rate cut). The continued selling is more mysterious and can only really be explained with curve trading and repositioning following the AM CPI data. The big clue: Fed Funds Futures for next week rallied and never sold off.  But the farther one moves into the future, the bigger the reversal became. Bottom line, traders sold long term bonds to buy the shortest term debt and the buying hasn’t even necessarily taken place yet.

Econ Data / Events

Core M/M CPI

0.3 vs 0.3 f’cast, 0.3 prev
unrounded, 0.308

Core  Y/Y CPI

3.3 vs 3.3 f’cast, 3.3 prev

Shelter CPI M/M

0.336 vs .382 prev

Market Movement Recap

09:04 AM Weaker overnight and stronger after CPI.  MBS up 7 ticks (.22) and 10yr down 0.5bps at 4.216.

10:30 AM Giving up gains.  MBS up only 3 ticks (.09) and 10yr up 1.8bps at 4.239

01:14 PM Strong 10yr auction, but being traded in more of a “no whammies” kind of way.  10yr still up 2.3bps at 4.243 and MBS unchanged.

02:07 PM New lows with MBS down an eighth and 10yr up 5.4bps at 4.275