A mortgage rate is highly subjective and can vary for a variety of reasons.  A news story that provides an outright level like 7.5% requires context and qualification.  Some online advertisements (especially among builders) could still be showing rates in the high 6’s.  Some borrowers will be seeing rates of 7.625 or higher.  Loans with less than 25% down will have higher and higher costs, either in terms of upfront closing costs or the rate itself.  Investment properties incur significant extra costs as do lower credit scores (you start getting hit for anything under 780 in many cases these days).   These are just a few considerations to illustrate the point that a 30yr fixed rate isn’t necessarily apples to apples. Fortunately, we can control for most of the variables by only ever looking at the same scenario, free from most of the subjective adjustments.  We can also control for the practice of advertising lower rates by quoting them with implied discount points (extra upfront cost that goes toward “buying down” the prevailing rate). That’s one of the reasons the MND index is higher than Freddie Mac’s weekly survey. All that to say, 7.5%+ might not be the exact rate you see today, but after adjusting for everything we can control, that’s the most prevalently quoted top tier conventional 30yr fixed rate again today.  It’s the 3rd time we’ve seen 7.5 in the past 2 weeks. Today’s increase followed the release or the Employment Cost Index–one of the economic reports the Fed watches closely in determining rate policy.  In not so many words, it suggested higher momentum in price pressures than previously expected.  This wasn’t necessarily out of line with any of the other recent inflation-related reports, but the confirmation was worth a bit of extra weakness in rates nonetheless.

Steering clear of unfriendly economic data has been an increasingly challenging task for the bond market in April.  While it might be an overstatement to say we’re going out with a bang, today’s Employment Cost Index (ECI) is at least a loud pop.  ECI–a measure of labor costs and compensation (including benefits)–is not a report that had been on the trader radar as a big ticket market mover until Powell began mentioning it regularly in the past few years. 
Today’s installment painted an unfriendly picture for inflation/rates by suggesting the progress seen through Q4 was reversing in a major way in Q1.

The bond market reaction was clear and immediate at 8:30am, even if it wasn’t as huge as we might see for a CPI or NFP that suggested hotter inflation or spending power.  

Home price increases continued to accelerate in February even as interest rates also moved higher. Both the S&P CoreLogic Case-Shiller Indices and the Housing Market Index (HMI) produced by the Federal Housing Finance Agency (FHFA) showed annual price growth in the 7 percent range. Case-Shiller’s U.S. National Home Price Index, which covers all nine U.S. census divisions, reported a non-seasonally adjusted 6.4 percent annual gain in February, compared to a 6.0 percent rise the previous month. The 10-City and 20-City Composites rose 8.0 percent and 7.3 percent respectively, up from 7.4 percent and 6.6 percent increases in January. San Diego continued to report the highest year-over-year appreciation among the 20 cities at 11.4 percent followed by Chicago and Detroit, each posting 8.9 percent growth.  Portland still holds the lowest position at 2.2 percent. The three non-seasonally adjusted indices posted monthly gains for the first time since November. The National Index rose 0.6 percent, the 20-City was up 0.9 percent, and the 10-City Composite grew 1.0 percent.  After seasonal adjustment, the increases were 0.4 percent for the National Index and 0.6 percent for each of the composites.   “U.S. home prices continued their drive higher,” says Brian D. Luke, Head of Commodities, Real & Digital Assets at S&P Dow Jones Indices. “Our National Composite rose by 6.0 percent in January, the fastest annual rate since 2022.   For the third consecutive month, all cities reported increases in annual prices, with  four currently at all-time highs: San Diego, Los Angeles, Washington, D.C., and New York. On a seasonal adjusted basis, our National, 10- and 20- City Composite indices continue to break through previous all-time highs set last year.”

Don’t believe in climate change, rising sea levels, or cities sinking (“subsiding”)? Venice is sinking. So are Rotterdam, Bangkok, and New York (though a few spots are rising!) But no place compares to Jakarta, the fastest-sinking megacity on the planet. Over the past 25 years, the hardest-hit areas of Indonesia’s capital have subsided more than 16 feet due to illegal wells, diminishing groundwater, and a rising sea level. Many billions will be spent moving an entire city. In the United States, insurance issues have become obvious problems. Do you think you have privacy in your car? Think again, and not only that, insurance companies are using driving data to set premiums. Uh oh. In Florida, several high-rise condo projects (with units for sale) are sitting as insurance companies have dramatically hiked their hurricane coverage costs so some projects are renewing at 50-60 percent coverage only, which makes the units unable to be financed. I’m told we would have to review each one as an exception, and it would probably depend on the loan to value. SFRs are one thing when it comes to un-insurability, but when entire condo projects have units at risk, what are folks to do? This is not up to the individual condo owners as it’s covered in the master condo policy, not an individual HOA policy. (Found here, this week’s podcasts are sponsored by Essex Mortgage. Essex specializes in providing exceptional mortgage subservicing solutions tailored to meet your specific needs. Looking to capitalize on your excess servicing strip? Check out Essex’s servicing offerings today! Hear an interview with Jeremy Potter on if home ownership is still part of the American Dream.)

The Federal Housing Administration removed housing finance firms from the list of permitted interested-party contributors in a new reverse-mortgage rule.

The company’s attorneys had previously managed to successfully decertify the class in the seven-year long case, but the decision was reversed last year.

Banks and other financial market participants have been keyed into the central bank’s communications around monetary policy expectations. But in an unpredictable economy, the guidance doesn’t always hit the mark.

UWM’s leader Mat Ishbia saw his total compensation balloon to over $12 million compared to 2022, while Rocket’s CEO received $3.4 million during the first four months of his tenure.

The Federal Housing Finance Agency rule originally proposed last year aims to make it tougher to roll back measures designed to encourage more equitable lending.

Decent Resilience in Spite of a Few Headwinds

Considering the volatility that may lie ahead, Monday ended up being a calm and decent start to the week.  The ostensible overnight headwind was the rumored currency intervention by the Japanese government.  In the past, this has caused heavy selling in Treasuries, but that wasn’t the case.  As such, this wasn’t really a headwind.  The more legitimate challenge came in the form of higher borrowing estimates from Treasury this afternoon.  Bonds actually did a good job of taking that news in stride, but nonetheless moved to weaker levels.  It was a bigger problem for MBS due to the way they relate to the Treasury yield curve these days.

Market Movement Recap

10:14 AM Moderately stronger overnight, but pulling back a bit.  10yr still down 2.4bps at 4.64.  MBS up an eighth.

11:48 AM Some two way volatility with gains into the 11am hour and a small pull-back now.  MBS up 3 ticks (.09) and 10yr down 3bps at 4.634.

01:24 PM Slightly stronger.  MBS up 5 ticks (.16).  10yr down 4.8bps at 4.617.

03:40 PM Moderately weaker after Treasury refunding estimates.  MBS at lows, but still up 2 ticks (.06) on the day.  10yr yields down 3.7 on the day at 4.628.