Black Knight Sees Home Price Gains Turning Negative Soon

Black Knight’s Mortgage Monitor for December highlights a continuation of recent home price declines, an overview of current loan performances, rate lock activity, and buyer use of buydowns. December saw the sixth straight monthly decline in Black Knight’s Home Price Index (HPI). The seasonally adjusted index fell 0.45 percent from November , roughly on par with the 0.48 percent average decline over those six months. The unadjusted index was down 0.87 percent. December’s decline pushed the annual home price growth rate down to 5.0 percent — only 0.4 percent above its 30-year average – and the slowest home price growth rate since June 2020, near the start of the pandemic. However, if recent monthly changes are annualized, they would represent a 3.8 to 7.7 percent decline which may offer insight into where we could be headed in coming months. If the current pattern persists, the company estimates we will see the annual home price growth rate turn negative within the next three months.  As always, there are substantial differences in markets. Fourteen of the 50 largest have seen declines of 6 percent or more from the 2022 peaks, with San Francisco, San Jose, Seattle, and Phoenix all falling more than 10 percent on an SA basis while one in five markets have fallen 10 percent or more on an NSA basis. Four markets, Kansas City, Indianapolis, Virginia Beach, and Louisville continue to see SA prices rise. Declining home prices, of course, mean a loss of homeowner equity and Black Knight estimates it has fallen by $2.3 trillion or 13 percent over the last two quarters . Tappable equity, the share available to borrow while still maintaining a 20 percent cushion – fell by $1.8 trillion over that span. This is an annual change of -1 percent, marking the first decline in equity available to lend against since 2012. West Coast markets are exacerbating the issue. Los Angeles, San Francisco, San Jose, and Seattle account for nearly one-third of the overall national decline over the past two quarters.
Source: Mortgage News Daily

Warehouse, Credit Measuring Tools; Non-QM Products; Disaster News; Securitization Court Ruling

I travel a fair amount via commercial airplane. (Greetings today from Ft. Lauderdale; this afternoon it’ll be Chicago.) But forget traveling in heavier-than-air-craft: there are people who live in airplanes! Meet Jo Ann, a beautician. Let’s see this baby appraise out for a refi! But the price is right for anyone willing to make the effort, as airplane carcasses are very affordable. One big topic at the Bank of England Mortgage event going on here is how interest rates impact affordability. Last week the Commentary included a link to a “handy-dandy chart for LOs to help borrowers to see how rates impact affordability.” I received several emails pointing something out, succinctly summed up by Fairway’s Mike S. “A quick glance shows that only 20% of the population’s affordability is determined by interest rates. At 3%, 65% of the country is already priced out. At 9%, that number is 85%. That means for 80% of the population, the interest rate is not a factor in determining whether they can afford to buy a home. Of course, it certainly affects which home they can buy.” Today’s podcast can be found here and this week’s is sponsored by SimpleNexus, an nCino company and homeownership platform unites the people, systems, and stages of the mortgage process into one seamless, end-to-end solution that spans engagement, origination, closing, and business intelligence. Today’s has an interview with CalculatedHire’s Blair Bender on common candidate pitfalls and ways to set yourself apart for potential employers.
Source: Mortgage News Daily

Bonds Begin New Week on The Defensive

Friday’s strong jobs report and ISM data caused obvious, immediate problems for rates, but bonds held their ground fairly well all things considered.  As the new week began, Asia took its turn selling Treasuries before strong European data added to the pressure.  Traders are apprehensive about this week’s bond market supply (both Treasury auction and corporate bonds) as well as a Q&A with Fed Chair Powell.  Perhaps he’ll be more hawkish in light of the jobs report?  That’s the fear anyway and it’s easy to see in the 25bp uptick in rate expectations for September’s Fed meeting. 

The chart above suggests traders don’t see the Fed returning to 50bp hikes, but rather adding an additional 25bp hike before leveling off.
In terms of the bigger picture, this morning’s weakness has 10yr yields up against the 3.62% range ceiling and well above the 3.56 ceiling that had been in play for most of the past 3 weeks. 
Source: Mortgage News Daily

Wild Ride For Rates After Stunning Jobs Report

Interest rates take cues from several places. Regularly scheduled economic data is always a consideration because a stronger economy implies more growth and tighter Fed policy, both of which are bad for rates. Certain reports carry significantly more weight than others.  If put to a vote, the perennial top dog would be The Employment Situation (aka “the jobs report”).  Over the years it is responsible for more volume and volatility in rates than any other data.  The most recent installment came out this morning and it was a doozy. The headline number of the jobs report is a tally of new job creation reported by employers: nonfarm payrolls (NFP).  That’s just a fancy name for “jobs.”  Today’s data reported the new jobs added in January, and there were quite a bit more than expected. NFP can be fairly volatile.  It’s not uncommon to see the number deviate from forecasts by more than 100k a few times a year.  Those big deviations usually result in big reactions in rates.  Forecasts called for just shy of 200k jobs.  Today’s actual NFP number came in at a staggering 517k, thus edging out March 2022 to stand as the biggest deviation since August 2021. To some extent, the massive gains may be attributed to a seasonal adjustment process that still struggles to understand new seasonal patterns that emerged after the pandemic.  But even if we forego seasonal adjustments, the economy added more than 400k jobs per month on average over the past 12 months and the employment rate has fallen to the lowest level since the 1960s. 
Source: Mortgage News Daily

Perfect Storm Leaves Rate Range Perfectly Intact

Perfect Storm Leaves Rate Range Perfectly Intact

Coming into the week, yields were near the top of a narrow range (3.4-3.56 give or take).  With both ISM reports, the jobs report, and policy announcements from the Fed/ECB/BOE, it was a distinct possibility that we’d see that range broken.  By Thursday morning, that looked like it was a work in progress, but by the end of the day, yields were back to 3.40.  Then in a cruel twist of fate this morning, NFP beat forecasts by the widest margin in a year and half.  90 minutes later, ISM crushed its forecasts as well.  These events combined to push yields right up to the top of the range, leaving us to hurry up and wait for the next set of potential market movers.

Econ Data / Events

NFP

517k vs 185k f’cast, 260k prev

unemployment

3.4 vs 3.6 f’cast, 3.5 prev

earnings

0.3 vs 0.3 f’cast, 0.4 prev

ISM Non Manufacturing 

55.2 vs 50.4 f’cast, 49.2 prev

Market Movement Recap

09:29 AM Heavy selling after massive NFP number.  Perhaps finding footing now.  10yr yield up 11.2bps at 3.514.  MBS down 3/8ths of a point in 5.0 coupons, and half a point in 4.5s.

10:05 AM More losses after ISM data.  10yr up 15bps at 3.552.  MBS down 5/8ths of a point.

01:43 PM 10am marked the weakest levels and bonds have erased about half of the post-ISM losses.  MBS trading flat with 5.0 coupons down just under half a point.  10yr up 11.5bps on the day at 3.517.
Source: Mortgage News Daily

Big Double Whammy For Bonds, But With a Few Caveats

While we may not have a great explanation or even the capacity to believe it, nonfarm payrolls came in at 517,000 this morning versus a median forecast of 185,000.  The bond market has reacted about like you’d expect: with a large, immediate sell-off.  While that number does indeed seem very high (and it is–especially relative to the forecast), there are two caveats.
1. It doesn’t look ridiculously high in the context of the past 2 years.  

2. Today’s data was also affected by the annual re-working of seasonal adjustment factors.  This isn’t some conspiracy or deception.  The BLS (the entity that collects and publishes this data) has an established procedure for updating seasonal adjustments once per year.  The changing landscape of the post-pandemic labor market has thrown a few curve balls to revision processes such as this.  And while we can’t comment on whether this particular revision caused overly optimistic distortion of today’s number, it’s fair to say it may have helped the number be a bit higher than it otherwise would have been.  
But before you cry foul and blame BLS math for overstating the level of employment, consider that the NON-ADJUSTED numbers suggest an average monthly job gain of more than 400k over the past year (same as the adjusted numbers).  
Adding insult to injury is a significantly stronger number reported in ISM’s non-manufacturing index 90 minutes after the jobs report. The index came in at 55.2 vs a median forecast of 50.4.  That is definitely a big “beat,” and an even bigger improvement from the 49.2 reported last month, but the caveat is much more obvious in this case.  Last month really sucked and economists incorrectly guessed that today’s number would follow suit.  Here too, changes in seasonal patterns are likely contributing to forecasting errors.

Given all of the above, the 11bp sell off in 10yr yields and the half point loss in MBS seem reasonable.  Both remain in stronger territory vs last week.
Source: Mortgage News Daily

Enterprise Sales; Staffing, Compliance, Tools; Angel Oak Security; Events and Training; Surprise Jobs Number

Fun with numbers! 1: the number of Chinese surveillance balloons over Montana. (That we know of.) Did you know that the last day of 2023 is 123123? (You heard it here first!) While we’re on random numbers, Atlanta has almost 25 thousand surveillance cameras, grabbing the honors as the most heavily surveilled city in the U.S. with 50 CCTV cameras for every 1,000 inhabitants. (“The research also suggests that there is little correlation between higher camera figures and lower crime indexes.”) Shifting to mortgage-related numbers, given the Fed news this week, overnight interest rates aren’t the same as 30-year mortgage rates, of course, but moves in interest rates impact a potential borrower’s ability to buy a home in a given price range. Here’s a handy-dandy chart for LOs to help borrowers to see how rates impact affordability. With generic rates in the 6’s for home loans, LOs are keenly interested in how that compares to, say, student loan rates. Federal student loans for undergraduates currently have an interest rate of 4.99 percent for the 2022-23 school year, while grad students have interest rates of 6.54 percent or 7.54 percent for unsubsidized loans or Direct PLUS loans, respectively. Private student loan interest rates range from 2 percent to 14 percent and are based primarily on one’s credit score. Keeping with the homeowner theme, today’s podcast can be found here and this week’s is sponsored by Milestones. Giving homeowners an all-inclusive homeownership experience including home value and equity monitoring, home maintenance reminders and how-to articles, cloud-based document storage, one-click access to hire professionals for various projects around the home, and much more.
Source: Mortgage News Daily

Bonds Talked Into Modest Gains by Europe

Bonds Talked Into Modest Gains by Europe

US bond traders didn’t necessarily come into work with the intention of adding to yesterday’s rally.  It was only after European bonds exploded into stronger territory that US yields grudgingly followed–very grudgingly.  In fact, as soon as European trading wrapped up for the day, US yields rose back to meet yesterday’s 3pm closing levels.  Several big corporate bonds may have added some pressure.  We can also consider that US bonds already had a fairly big rally after the Fed yesterday.  But the simplest view would be that it didn’t make sense to get too carried away with the jobs report on deck in the morning.

Econ Data / Events

Jobless Claims

183 vs 200 f’cast,186k prev

Unit Labor Costs, Q4

1.1 vs 1.5 f’cast, 2.0 prev

Market Movement Recap

09:05 AM Flat to slightly stronger overnight.  Additional gains after ECB announcement.  10yr down 8bps at 3.34%.  MBS up 3/8ths of a point

12:51 PM Largely sideways during the domestic session, but off the best levels from earlier this morning.  10yr down 3.8bps at 3.376.  MBS up 6 ticks (.19) in 4.5 coupons and 3 ticks (0.09) in 5.0 coupons.

01:51 PM Weakest levels of the day in Treasuries with 10yr up to 3.404 (still down 1.3bps on the day).  MBS are also still slightly stronger, but more than a quarter point off the highs.

03:18 PM Not much additional weakness over the past hour.  Still slightly stronger on the day but near the weakest levels of the day.
Source: Mortgage News Daily

Mortgage Rates Back Under 6% For First Time in Months, But Just Barely

Mortgage rates responded favorably to yesterday’s press conference with Fed Chair Powell.  We discussed that move in detail in yesterday’s commentary: Fed Hikes Rates. Mortgage Rates Drop. Here’s How That Works. Now today, the average lender improved just a bit more as the Fed’s European counterpart released its latest policy announcement.  Like the Fed, the European Central Bank (ECB) hiked rates at the same pace expected by markets but delivered comments that left the bond market feeling more upbeat. In the case of the ECB announcement, it was logically the European bond market that felt more upbeat.  But there’s a certain amount of interconnectedness among the world’s leading markets, so it’s common to see spillover into US rates when something is pushing EU rates lower.   Given that US rates already experienced a fairly large move yesterday, they were somewhat resistant to the idea of going on a wild road trip toward even lower levels with their crazy European friends.  US rates were nonetheless on that trip just long enough for the average 30yr fixed rate quote to touch 5.99% for top tier scenarios.  For all practical purposes, that means mortgage rates are basically at 6% with some lenders quoting slightly lower and a few more lenders quoting slightly higher. Friday morning brings the important jobs report which has the power to push rates quickly higher or lower depending on the outcome of the data.
Source: Mortgage News Daily

Europe Driving Gains While US Bonds Resist

Today’s big story is the European bond market’s reaction to the European Central Bank (ECB) announcement.  The hike was as-expected, but the ECB also said the next rate hike is already locked in for March at which point it will reevaluate.  That reevaluation means a pivot toward smaller rate hikes followed by a pivot to no rate hikes.  And if you ask markets, there will then be a pivot to rate cuts as early as Q4 2023.  Traders see the pre-commitment for March’s hike as evidence that the dovish shift has begun.  The result is a massive rally in EU bonds–far too big for US bonds to try to match.  In fact, 10yr yields are rallying at a mere quarter of the EU 10yr pace.
The caveat is that US 10s got in quite a bit of rallying yesterday while EU bonds were already done for the day.  If we use the same 30bps of y-axis range for both, the net effect is only slightly lopsided in EU bonds’ favor.

The gains mean the prevailing range (which had bottomed out at 3.40-3.42) has been broken yet again.  This happened a few weeks ago as well, but it didn’t stick.  Things look more serious this time, so it makes sense to consider subsequent technical targets.  3.31 jumps off the page as the absolute intraday low from January 19th.  

3.25 gets the nod, and probably always will, due to its role as a ceiling level in late 2018. 
Source: Mortgage News Daily