It’s not entirely clear if it’s a can or the proverbial bucket.  All we know is that mortgage applications have been kicking it.  There’s no great way to make the news interesting now that loan volume has done what anyone would have expected it to do, given the the rapid rise in rates over the past 6 weeks. Up until that point, there had been a noticeable uptick in refinance applications.  That uptick has now been fully erased, although this week didn’t decline nearly as much as the past several. In the bigger picture, that uptick wasn’t anything special considering the starting point was as low as it’s been in decades. To whatever extent refi apps have been historically muted, purchase applications have been reliably boring.  Little changes on that front from week to week. The bigger picture is more interesting here, perhaps, as it shows the rapid shift from a longstanding trend of steady improvement to the new reality of exceptionally light purchase activity. Other highlights include:
Refis accounted for 39.9% of the total, same as last week
FHA accounted for 16.0%, up from 15.5%
VA accounted for 13.3%, up from 12.5%
Survey rates were up to 6.86 from 6.81 (30yr fixed)
origination/points decreased to 0.6 from 0.68
FHA rates fell to 6.69 from 6.75
Jumbo rates rose to 7.00% from 6.98%

While there’s been plenty of movement in the average mortgage rate on any given day recently, today was not one of them.  30yr fixed rates remained above 7%, but technically fell 0.01% (an amount so small that it may as well be considered an absence of change).   Despite the flat day-over-day result, there continues to be much more intraday movement than normal.  Mortgage lenders publish an initial rate in the morning and it only changes if the bond market moves enough in one direction or the other.  Over the decades, on any given day, the average lender is more likely to keep the same rate offerings all day.  Recently, however, that’s the exception.  Most lenders have faced multiple situations that have forced a mid-day reprice on any given week.  The past two days haven’t been as volatile in that regard, but many lenders ended up pushing rates a bit higher after starting the day in lower territory.   If there was a reason that rates were able to hold ground today, it was the bond market’s favorable reception to this morning’s Consumer Price Index (CPI), a key inflation report that showed a modest improvement versus last month.  Some market watchers were concerned that inflation would continue to trend higher–something that would push rates higher, all other things being equal.

Bonds managed a moderate rally in response to this morning’s inflation data.  While it has since been mostly erased, it was as strong of a showing as we could have possibly hoped for at the time, and one that speaks to the recent increase in underlying inflation anxiety.
The anxiety stemmed from the past 2 CPIs popping back near 0.3% (core, M/M) after averaging 0.13% in the 3 months before that.  Looked at another way, Core CPI increased every month starting in July, and that trend was finally defeated today. 
Without the shelter component, inflation is at or below the Fed’s 2% target (2.1% core and 1.3% overall). In early trading bonds moved back in line with yesterday morning’s levels–not a huge victory in the bigger picture, but a strong showing given the asymmetric risks.
The CPI reaction nearly garnered the same volume as the jobs report over the first 30 minutes of the reaction.

For those interested in more nuance, here are several charts from the CPI data. The first shows how goods and energy prices are contributing to deflation while housing and services continue accounting for almost all of the inflationary pressure.

The following chart focuses on housing inflation specifically.  It’s still elevated, and month-to-month readings can be volatile, but the broad, slow decline is the key reason that the Fed is confident in the eventual return to 2% (because, again, without housing, we’re already there).

The next chart shows actual rental rates mostly back to pre-pandemic levels and in a flatter trend compared to OER, which remains elevated.  That said, OER is also broadly trending lower.

The average home buyer spends almost $32,000 in home-buying expenses, a report by Clever Real Estate claims.

A steep mortgage servicing rights valuation change hurt earnings which included greater adjusted net income and total origination volume.

While the latest data indicates ongoing demand, changes in the share of locks by category show consumers trying to adapt to market conditions, according to a report from Optimal Blue.

Foreclosures were up month to month in October, while future indicators, such as mortgage delinquencies and trouble making all debt payments, came in higher as well.

The incoming administration has experience from its previous run, Bank of America’s chairman and CEO said. He also said he would not join it.

Last Thursday and Friday offered some hope that the persistent move to higher rates was finally leveling off.  It wasn’t necessarily a rational hope, but if nothing else, it was “nice” to see the average 30yr fixed move back below 7%.  Even then, we cautioned against viewing the recovery as indicative of ongoing success.  Now today, we see why. Bonds (which dictate rates) have moved swiftly back into the weaker territory that precipitated the move over 7% in mortgage rates.  As such, it’s no surprise to see the average lender easily back into the 7s.  For context, rates were as high as 7.5% in April and 8.0% at their long-term peak roughly a year ago. As for motivations, the market continues to work through election-related volatility.  That involves a complex set of considerations.  Some of them have to do with actual expectations for changes in fiscal policy in the coming years. Some of the considerations are as simple as traders going through the process of exiting (and re-setting) trading positions heading into the election. Motivations aside, it continues to be the case that interest rates would need to see significant weakness in economic data and a stronger move toward lower inflation in order for any real progress.  Tomorrow morning brings the first of the week’s big data points in the form of the Consumer Price Index (CPI)–an inflation report with a solid track record of inspiring reactions in rates.  

Back to Regularly Scheduled Programming (Unfortunately)

Bonds sold off on Tuesday both during the domestic session and in the overnight hours leading up to it. Motivations are a matter of conjecture as there is not a conveniently obvious scapegoat.  That hasn’t stopped journalists, analysts, and traders from chiming in.  The resulting laundry list mostly includes political considerations ranging from specific revelations regarding cabinet appointees to generalizations about the market continuing to process fiscal implications. We’d certainly add a high likelihood of positional considerations with last Thu/Fri now looking very much like an opportunity to cover shorts (makes yields move lower)  and get neutral ahead of the 3-day weekend before getting yields back in line with post-election highs today. 

Market Movement Recap

08:41 AM Bonds move sharply weaker overnight and in early trading.  10yr up 8.4bps at 4.389 and MBS down 13 ticks (.41)

11:59 AM MBS are down 14 ticks (.44) on the day and just over an eighth of a point from the AM highs.  10yr yields are up 10.7bps at 4.413.

03:27 PM Weakest levels of the day for MBS, down nearly 5/8ths of a point.  10yr up 13bps at 4.437