Mortgage Rates Edging Back Toward Recent Highs

One important disclaimer right upfront: there’s no real need to concern yourself with recent day-to-day movement in mortgage rates if your goal is to witness something significant.  As we discussed yesterday, things have been very sideways and have exhibited a distinct lack of volatility. Today’s movement happened to be toward slightly higher rates.  It’s not a huge departure from yesterday’s offerings.  But because the recent range is so narrow, and because the past two days have seen rates move higher, we’re now closer to the highest rates of the month after seeing the lowest rates of the month on Tuesday.
Source: Mortgage News Daily

Powell Says Old Things in New Ways and Bonds Don't Like It

Powell Says Old Things in New Ways and Bonds Don’t Like It

It was day 2 for Fed Chair Powell’s congressional testimony.  These are normally uneventful as any bombshells for the week are typically dropped in the previous day’s testimony.  But Powell put a different spin on things today thanks to one particularly worthwhile question in which he was asked to define what it meant for the economy to evolve as expected (an important definition considering this is the condition that has to be met for the Fed to proceed with the 2 additional hikes it thinks will probably be appropriate).  It turns out the bar isn’t as high as the market may have thought.  Bonds were already on the run due to hefty corporate issuance and Jobless Claims data that failed to inspire the same sort of surprise as the previous 2 weeks.  Powell’s relative hawkishness simply offered no objection to the selling pressure.

Econ Data / Events

Jobless Claims

264k vs 260k f’cast, 262k prev

Continued Claims

1.759m vs 1.782m f’cast

Market Movement Recap

08:37 AM Flat in Asia, initially weaker in Europe, but a friendly bounce followed the BOE announcement and Jobless Claims data.  10yr up just under 1bp at 3.736 and MBS down less than an eighth after accounting for illiquidity.

09:15 AM quick reversal into negative territory with little to blame apart from corporate debt issuance.  10yr up 5bps at 3.779.  MBS down just over a quarter point. 

02:01 PM Weakness leveling off in early PM hours.  10yr up 6.4bps at 3.791.  MBS down just over 3/8ths of a point.

03:41 PM MBS at lows, down nearly half a point.  10yr up 7.5bps at 3.802.
Source: Mortgage News Daily

Two Ways to Look at Existing Home Sales

The reality of the home sales market is in the eye of the beholder these days and the just-released Existing Home Sales report doesn’t shed much light.  The National Association of Realtors (NAR) logged an annual pace of 4.3 million units, essentially unchanged from last month’s 4.28m and close enough to the median forecast of 4.25m.   Existing sales bottomed in January at 4.0m units, and you’d have to go back to 2010 to find anything lower.  The bounce back since then has lacked a certain sense of urgency, but that’s not a huge surprise given the persistence of mortgage rates near 7%.  A frequent observation is that the rapid rise in rates has homeowners reluctant to give up the low rates achieved in 2020 through early 2022, thus crimping supply and restricting sales. The housing market has certainly managed to post a lot more inventory at rates this high, but only have years of getting used to them (not to mention the fact that rates were still generally falling from the ultra-high levels of the early 80s at the time). A chart of actual sales (as opposed to inventory) versus mortgage rates suggests that the ultra-low rates achieved in 2020 through early 2022 also helped pull forward a few years worth of housing demand. All that having been said, those who continue to lament inventory being a bigger issue in the resale market certainly have a leg to stand on.  The difference in “months of supply” versus the new homes market is very enlightening in that regard. 
Source: Mortgage News Daily

Claims, Powell, and Corporate Issuance Reinforcing Range

Have you heard the one about the 3.72-3.84 range?  While we haven’t seen much of the ceiling this week, the floor is getting a workout.  Yesterday afternoon saw 3.72 block a late day rally attempt.  Now this morning, it is serving as a springboard for a bounce back up toward the top of the range.  Blame can be assigned in some combination to Jobless Claims holding steady, elevated corporate issuance, and Powell’s ability to find new ways to say old things. 

What exactly did Powell say?  Here are a few bullet points:

FED CHAIR POWELL: A STRONG MAJORITY OF COMMITTEE FEELS THERE IS A LITTLE FUTHER TO GO WITH RATE HIKES (additionally, he mentioned his views aligned with the majority)
When asked what “as expected” means, Powell said: “Continued modest growth + continued cooling of labor market + continued cooling of inflation”

In other words, 2 more hikes doesn’t require inflation remaining stubbornly high or the economy showing signs of surprisingly resilient growth.  The Fed is actually expecting the labor market and inflation to cool while growth remains only “modest.”  
Source: Mortgage News Daily

MSR Valuation, Non-QM, DPA, Mobile Property Valuation Tools; What's the Fed Chair Up To? New-Home Housing Market List

“So, HBO Max is now just ‘Max.’ Your move, Peacock.” Lenders continue to cogitate on their next moves as rates remain stubbornly high and inventory available for sale stubbornly low, and neither appears ready to change much any time in the near future. As I continue to visit with groups of lenders and vendors, lender’s overhead, and how comp figures into that, continues to be a hot topic. STRATMOR’s current blog is titled, “Compensation: Ever Changing,” and I asked STRATMOR CEO Lisa Springer about what lenders are doing in that area. “Lenders in increasing numbers are reaching out to STRATMOR to advise on compensation strategies from a holistic point of view, seeing how changes fit within the entire company. Management teams are thinking about structural changes and capitalizing on the opportunity to create win-win comp programs for both the employees and the companies.” In housing and inventory news, a recent real estate report from Zillow predicts 5% growth in home values this year. Housing inventory remains limited, which in turn continues to push property prices skyward and inflate home value appreciation. And sure you can read this list of hot new-home markets, and may even have branches in them, but do you have the products to offer those buyers? (Today’s podcast can be found here and this week’s is sponsored by MCT and its Hedge Advisory division. Download their recently released whitepaper, Mortgage Pipeline Hedging 101, for more information on hedging in today’s market. Today’s has an interview with Optifunder’s Carmel York that goes through a comprehensive overview of the warehouse lending space and current environment.)
Source: Mortgage News Daily

No Whammies From Powell, 20yr Auction Helps

No Whammies From Powell, 20yr Auction Helps

After a clear rejection of the 3.72% floor in 10yr yields overnight, bonds continued drifting into negative territory ahead of Fed Chair Powell’s congressional testimony today.  As the Q&A portion got underway, it soon became clear that there would be “no whammies.”  In other words, Powell wasn’t saying anything that hadn’t already been said last week and the market’s understanding of the Fed’s reaction function remains entirely appropriate.  Yields stabilized and inched lower as a result.  Better gains followed the strong 20yr bond auction at 1pm ET with longer-term Treasuries and MBS getting back to ‘unchanged’ by the 3pm CME close.

Market Movement Recap

09:54 AM Moderately weaker overnight with additional selling ahead of Powell testimony.  10yr up 6.2bps at 3.781.  MBS down a quarter point.

01:10 PM Pushing back into stronger territory after 20yr bond auction.  10yr almost back to unchanged at 3.725.  MBS just hitting unchanged.

03:17 PM Leveling off near unchanged in both MBS and Treasuries.  10yr at 3.72 and MBS up 1 tick (0.03).  Not much movement since before 2:30pm ET.
Source: Mortgage News Daily

Mortgage Rates Rise Modestly; Extremely Flat Overall

Any discussion about mortgage rates rising or falling in the month of June requires the caveat about the trend being exceptionally flat in the bigger picture.  Most borrowers wouldn’t see more than an eighth of a percent between any two days so far this month.  In fact, our 30 day volatility index is as low as it’s been since June 2022. The volatility index measures the average change in our 30yr fixed rate index–positive or negative–from the previous day over 5, 10, or 30 day averages.  The chart above shows only 10 and 30 day averages, but the dynamic chart can be found here.  With all of the above by way of disclaimer, mortgage rates rose modestly today.  By the afternoon, many lenders were roughly unchanged due to mid-day reprices for the better.
Source: Mortgage News Daily

Weaker Start Offers Clear Reinforcement of The Range

While it would be nice to have our 3.4-3.6 range back, the past few weeks have seen the adoption of a new 3.72-3.84 range.  While ranges this narrow often prove to be fleeting, traders opted to reinforce the lower boundary yesterday with a strong rejection of the 3.72 floor.  For those who’d rather not bring technicals into the analysis, higher UK inflation set a weaker overnight tone that spilled over to US trading. 
Sprinkle in some anxiety ahead of Powell’s testimony (and early analysis of his prepared remarks) and yields were already halfway back to the ceiling.  Bonds have been able to push back in a friendlier direction as Powell answers the extremely limited number of questions that are anything more than political grandstanding.
Source: Mortgage News Daily

Referral, Servicing Strategy Products; FHA, USDA, Ginnie News; Mortgage Application Stats

I realize that this is a mortgage commentary, but our business touches many aspects of many lives. Today is the summer solstice, marking the astronomical first day of summer in the Northern Hemisphere. Yes, there is quantitatively less sunlight going forward. While we’re on quantitative things… “Two hearts are better than one… two hearts gonna’ get the job done…” Are you thinking about your heart? Me neither. It just motors along while you’re doing mortgage stuff, beating 32 million times a year, year in and year out, pumping two thousand gallons of blood each day. Up until recently there were only about 2,000-2,500 heart transplants but 2022 set a U.S. record with over 4,000. On average that’s only about 6 per month per state. They’re special. Amy Silverstein was well known about speaking on improving organ donor drug regimens, and the quality of treatment received by those receiving organs. Amy died last month. I hope that she had an impact. Like being a loan officer and prospecting for loans, transplants are a numbers game. The majority of Americans, 95 percent, are in favor of organ donation. But only 58 percent are actually registered. The most commonly transplanted organs are the kidney, liver, heart, lungs, pancreas and intestines. Register today. It won’t hurt a bit. (Today’s podcast can be found here and this week’s is sponsored by MCT and its Hedge Advisory division. Download their recently released whitepaper, Mortgage Pipeline Hedging 101, for more information on hedging in today’s market. Today’s includes an interview with Morris, Manning & Martin, LLP’s Bonnie Hochman Rothell on risks and legal considerations for lenders in a high-rate environment.)
Source: Mortgage News Daily

Mortgage Application Volume Fairly Flat, Despite Lower Rates

The Mortgage Bankers Association (MBA) said home purchase activity increased last week, allowing for a small gain in its Market Composite Index. That index, a measure of mortgage loan application volume, increased 0.5 percent on a seasonally adjusted basis although it was down 1.0 percent compared with the previous week before adjustment.    The Refinance Index decreased 2 percent from the previous week and was 40 percent lower than the same week one year ago. The refinance share of mortgage activity decreased to 26.9 percent of total applications from 27.3 percent the previous week. [refiappschart] The seasonally adjusted Purchase Index increased 2 percent although it was 0.1 percent lower compared to a week earlier before adjustment. The index was down 32 percent from the same week in 2022.   [purchaseappschart] “The 30-year fixed mortgage rate declined for the third consecutive week to 6.73 percent, while other mortgage rates saw mixed results,” Joel Kan, MBA’s Vice President and Deputy Chief Economist said.  “ Purchase applications increased, driven by a 2 percent gain in conventional purchase applications and a 3 percent increase in FHA purchase activity ,” “First-time homebuyers account for a large share of FHA purchase loans, and this increase is a sign that while buyer interest is there, activity continues to be constrained by low levels of affordable inventory. Refinance applications continued their decline after the previous week’s increase, with the refinance share of applications just below 27 percent.”
Source: Mortgage News Daily