Why Would Rates Care About a One-Party Sweep?

Our morning commentary resulted in widespread questions regarding the “red sweep” being associated with higher rates.  Half of those were born of genuine curiosity.  Half were incredulous.  As ever, our goal is to convey what’s moving markets and why, and it would be nearly impossible for anyone to be less interested in bringing politics into that endeavor, but alas, sometimes it’s a thing.  Today’s recap video has a thorough analysis of the topic and should help clear up any questions created by the AM commentary.  

Econ Data / Events

MBA Refi App Index

672.6 vs 734.6 prev

Existing Home Sales

3.84m vs 3.90m f’cast, 3.88m prev

Market Movement Recap

08:50 AM Moderately weaker overnight.  10yr up 3.3bps at 4.243 and MBS down an eighth.

12:18 PM Additional losses into 10am and bouncing back a bit now.  MBS down an eighth and 10yr up 1.6bps at 4.226

01:56 PM Back near weakest levels with MBS down nearly a quarter point and 10yr up 4bps at 4.25

The Mortgage Bankers Association (MBA) keeps track of applications for purchase and refi mortgages every week.  Purchase apps are slower moving, less responsive to rates, and generally bouncing along the lowest levels in more than 20 years since the end of 2023.  As such, we’ll forget about them and move on to refi applications which have been far more interesting. This week’s index fell to 672.6 from 734.6 last week.  That’s a big drop and it follows several other big drops, largely undoing the surge seen after the recent rate rally.   But everything is relative.  The chart above leaves us with the impression of a big crash following a big surge.  If either move looks big, it’s only because the baseline of the past 2 years has been the lowest, flattest pace seen in refi apps since 1999-2000.  In the bigger picture, it was a barely noticeable uptick that has fallen back to the muted trend. The small uptick was unsurprising given that a vast majority of loans still had rates substantially lower than the lowest lows of the past few months.  The correction back to lower levels is unsurprising given that rates have quickly surged back to the late July highs.  As such, don’t be surprised to see another reasonably big downtick next week. [thirtyyearmortgagerates]

Housing was chugging right along in early 2020, then covid happened.  Housing experienced lots of unexpected volatility with the most important development being a huge increase in demand and prices… at first. Once rates began skyrocketing (relatively) and the frenzy began to subside, home sales numbers tanked to the weakest levels since the Great Financial Crisis by the end of 2022. They’ve been drifting and bouncing around near those same levels ever since. Bigger picture for context: In other words, this data series isn’t worth too much discussion until it exits this holding pattern. For those determined to pick out potentially interesting anecdotes, feel free to sort through the following:
Prices rose 3.0% year over year.  It’s the 15th straight month of increases
Inventory has been growing faster than sales have been falling
First time buyers accounted for 26% of total, matching the all-time low, but not a crazy drop from 2023’s average of 32%
All cash sales accounted for 30%, up from 26% last month.

“The coast is clear,” and today I head to the Palm Beach Mortgage Professionals Expo hosted by FAMP’s Broward-Gold Coast Chapter. Legal issues will be one topic of focus, and today’s Lender’s One call features Ari Karen of Mitchell Sandler. Florida has been battered, and it is a good time to hear what Verisk’s Kingsley Greenland has to say about climate risk, disaster modeling, and homeowners insurance on the Big Picture call tomorrow. On top of that, every lender out there has realized that there’s $36 trillion of home equity and $1.1 trillion of credit card debt. There’s gotta be an opportunity for loan originators somewhere, right? The current STRATMOR blog is titled, “Help Borrowers Tap Into $36 trillion Available in Home Equity.” Lenders know that refinancing is not purely a numbers game, something that seems lost on the mainstream press. Life events occur, changes happen, families evolve, and loans pay off. And credit card debt is much more expensive than mortgage debt. (Today’s podcast can be found here, and this week’s is sponsored by nCino, makers of the nCino Mortgage Suite for the modern mortgage lender. nCino Mortgage Suite’s three core products, nCino Mortgage, nCino Incentive Compensation, and nCino Mortgage Analytics, unite the people, systems, and stages of the mortgage process. Hear an interview with Jake Perkins on his build of the new Chrisman Commentary website and how both it and the new media offerings are adding value to mortgage industry participants..)

A ban on screen scraping and new disclosures to consumers about data usage are among the new elements of the data protection rule.

The correspondent giant says it has over 4,400 approved brokers, and technology rivaling channel leaders Rocket Pro TPO and United Wholesale Mortgage.

The economy and the environment are impacting loan entries into forbearance, as well as their performance on exit, the Mortgage Bankers Association said.

At the Most Powerful Women in Banking conference this week, New York’s top banking regulator said banks need to take full responsibility for the artificial intelligence models they use, even if they bought them from a third party.

A pair of mortgage technology providers are bringing out tools to increase customer retention rates among servicers and originators.

Much Calmer, But Risks Remain

Bonds had a significantly calmer day in terms of day-over-day change.  In fact, by the 3pm close, both MBS and Treasuries were close enough to unchanged.  There was a bit of intraday volatility that saw bonds attempt to stage a little rally only to give it all up by the noon hour–the latest reminder that we’re dealing with some asymmetric risks over the next few weeks.  

Econ Data / Events

Housing Starts

1.354m vs 1.350m f’cast, 1.356m prev

Building Permits

1.428m vs 1.46m f’cast, 1.47m prev

Market Movement Recap

09:14 AM Initially weaker overnight, but back into positive territory by the open.  10yr down 2.2bps at 4.18 and 5.5 UMBS up 3 ticks (.09).

11:22 AM Back to weakest levels.  MBS unchanged and 10yr nearly unchanged at 4.199.

01:07 PM Worst levels just after noon, but bouncing back a bit now.  MBS up 1 tick (.03).  10yr unchanged at 4.202.

03:44 PM Drifting sideways since last update.  MBS up 1 tick (.03) and 10yr down 0.4bps at 4.198