Both of the key metrics for residential construction, housing permits, and housing starts, beat analysts’ expectations in October. The U.S. Census Bureau and Department of Housing and Urban Development said permits rose 1.1 percent compared to September while housing starts increased by 1.5 percent. Permits were issued at a seasonally adjusted annual rate of 1.487 million units compared to 1.471 million units in September. The September estimate was only a slight revision from the 1.473 million originally reported. Analysts polled by Econoday had estimated that permits would come in at 1.463 million units. [housingpermitschart] The permits issued in October 2023 were 4.4 percent fewer than the 1.555 million permits authorized in October 2022. The annual rate of permitting for single-family houses was 968,000 units, 0.5 percent higher than the 963,000 units in September and an improvement of 13.9 percent year-over-year. Multifamily permits increased by 2.2 percent to 469,000 but dropped 27.9 percent compared to October 2022. On a non-adjusted basis, there were 124,000 permits issued last month, 79,700 of which were for single-family houses, an improvement on the relative numbers in September of 116,700 and 76,500. Permits for the first nine months of 2023 total 1.252 million, down 13.8 percent from the same period last year. The 773,600 permits for single-family houses are a reduction of 10.6 percent from the same period last year and the 432,300 multifamily represent a decrease of 20.1 percent.
Source: Mortgage News Daily
Our recent analytical thesis runs the risk of being all dressed up with nowhere to go between now and the first full week of December. As such, things could get repetitive in the coming week although monotony could be broken by unexpected headlines (geopolitical flare-ups, political surprises, major corporate developments like huge layoffs at huge firms).
Monotony can also give the appearance of being broken simply because it will be a holiday week with lighter volume/liquidity–a combination that makes it easier for fewer trades to have a greater impact on trading levels. For today, markets are left mainly with a smattering of Fed speaker snippets that largely echo what we already know. As such, it’s no surprise to see bonds coasting sideways in the prevailing range.
This wasn’t necessarily destined to be the case according to the overnight session. Weak economic data in Europe pushed EU yields sharply lower and brought US yields along for the ride. But US traders have quickly pushed yields back into the range. This is the baseline resistance level for the rest of the day, and for next week unless something big happens.
Source: Mortgage News Daily
Talk can be humorous. “That lowdown scoundrel deserves to be kicked to death by a jackass, and I’m just the one to do it.” (Attributed to a congressional candidate in Texas.) Here in Dallas, mortgage talk is certainly wide-ranging and varied as there’s a lot going on out there as we head toward Thanksgiving week, including cost cutting, M&A, and Fair Lending. Today’s Rundown features Feliks Viner, VP of Capital Markets with First World Mortgage discussing rate volatility at 3PM ET. We have the Wall Street Journal story about the union between hoops and loans: “Mortgage King Wants the NBA Crown, Too.” Some housing industry observers may only think it was “only a flesh wound,” but the Realtors™ antitrust case decision in Missouri, coupled with other recent settlements and an onslaught of new cases, likely portend real changes for how homes are bought and sold in the US with the assistance of real estate brokers. Attorney Brian Levy, breaks it down and offers his view of the crumbling dam for buyer broker commissions and the Realtors’ control over local listings in his most recent Levy’s Mortgage Musings. (Today’s podcast can be found here, sponsored by LoanCare, the mortgage subservicer known for delivering superior customer experience through personalization and convenience. Its award-winning portfolio management tool, LoanCare Analytics, supports MSR investors with a focus on customer engagement, liquidity, and credit risk. Interview with Calque’s Chandra Srivastava on the inner workings of a mortgage marketing department and how companies justify ROI on marketing spend.)
Source: Mortgage News Daily
After a fantastic day on Tuesday and frustrating little bounce after yesterday’s Retail Sales data, mortgage rates have fully recovered back to the recent lows. Any time rates move enough to merit a discussion, it coincides with a similar move in the broader bond market. Bonds are currently highly susceptible to economic data (as seen on Tue/Wed). Whereas Wednesday’s data pushed bond yields and interest rates higher, Thursday’s data sang a different tune. weekly Jobless Claims (not to be confused with the big monthly “jobs report” that comes out on the first week of any given month) were higher than expected and several other reports also spoke to a modest uptick in economic headwinds. The economy may not like headwinds, but what’s bad for the economy is generally good for bonds/rates. Today was no exception. As bonds erased all of yesterday’s losses, interest rates moved back in line with best recent levels. For some lenders, that was Tuesday. For others, it was last Friday. This leaves the average lender at the lowest levels in almost 2 months. Top tier conventional 30yr fixed scenarios are safely back below 7.5%, but safety can only be assessed one day at a time in this market. That said, rates won’t get their next dose of critically important data until the first week of December.
Source: Mortgage News Daily
Yesterday’s Losses Easily Erased By Data
Wednesday’s bond market losses rained on Tuesday’s post-CPI parade. Justification was adequate, with Retail Sales coming in 0.2 higher than expected, but the implications for the near future were uncertain. Were bonds only reacting to the data or was the CPI rally overdone to some small extent? Today’s session helped answer those questions. All it took was a modest miss in Jobless Claims and a few other 2nd tier reports for bonds to fully erase Wednesday’s losses.
Econ Data / Events
Jobless Claims
231k vs 220k f’cast, 218k prev
Continued Claims
1865k vs 1847k f’cast, 1833k prev
Philly Fed Index
-5.9 vs -9.0 f’cast/prev
Philly Fed Prices Paid
14.8 vs 23.1 prev
Industrial Production
-0.6 vs -0.3 f’cast, +0.1 prev
Market Movement Recap
08:47 AM Slightly stronger overnight with additional gains after AM econ data. 10yr down 8bps at 4.457. MBS up just over a quarter point, but closer to 3/8ths after adjusting for illiquidity.
11:26 AM Best levels of the day about an hour ago, but giving up ground since then. MBS up 6 ticks (.19) before accounting for illiquidity (8-10 ticks otherwise). 10yr yield down 7.2bps at 4.465.
02:14 PM Flat near best levels. MBS up 14 ticks (.44) and 10yr down 8.8bps at 4.449.
03:20 PM No change from last update. 10s hit the 3pm close at the exact same 4.445 level as Wednesday. MBS still up 14 ticks.
Source: Mortgage News Daily
With yesterday’s Retail Sales data in the rearview, the base case between now and the first week of December is for more moderate volatility in a relatively flat range. Nothing about today’s trading is arguing for a different take. Econ data was generally supportive, so today’s range-bound volatility is pushing yields back toward the floor of this week’s range.
To be clear, the “base case” is not a prediction. It’s merely the least surprising path for rates in the absence of any legitimate surprises. An exogenous shock or a highly consequential piece of news can certainly do what those things always do. The point is that if we don’t see any such surprises, the inbound economic data would have to be quite far from forecasts to coax yields out of the current range.
What is the current range? There are a few different cases to be made. On the bearish side, the recentness of the 4.70 ceiling (3 days ago) means it is worth considering. On the bullish side, the 4.34% ceiling that existed before the September break-out isn’t a crazy low range target given the shift in Fed verbiage, economic data, and even the Treasury issuance outlook.
Amid those extremes, the most central range would be just over 4.4 on the low end and 4.55 on the high end. It’s rare to see a range that narrow follow a level of volatility seen in recent weeks, but that’s why it’s the base case and not a prediction. Regardless of the yields in question, the theme is that bonds are cooling back down after a big scare in late October.
Source: Mortgage News Daily
“Every disaster movie starts with the government ignoring a scientist.” Vendors and lenders can’t ignore red ink. Here in Kansas City, one of the discussion topics is how relationships are important during these days when the balance sheets of many lenders and vendors don’t look so great after, for many companies, several quarters of losses. How much pain do some owners want? Balance sheets were plump after 2020 and 2021, and warehouse banks and investor counterparties continue to do business with companies that are losing money based on those balance sheets along with the servicing income. Now? The MBA’s oft-quoted Marina Walsh, VP of Industry Analysis, reported, “Independent mortgage banks and mortgage subsidiaries of chartered banks reported a pre-tax net loss of $1,015 on each loan they originated in the third quarter of 2023, an increase from the reported loss of $534 per loan in the second quarter of 2023. (Today’s podcast can be found here, sponsored by LoanCare, the mortgage subservicer known for delivering superior customer experience through personalization and convenience. Its award-winning portfolio management tool, LoanCare Analytics, supports MSR investors with a focus on customer engagement, liquidity, and credit risk.) Lender and Broker Software, Products, and Services Plug-n-play your way to better relationship marketing with Velma, an effortlessly simple CRM tailor-made for smaller lenders, banks, and credit unions. Say goodbye to expensive, complex systems. Velma delivers budget-friendly marketing automation solutions featuring zero implementation fees and seamless, hassle-free setup. With hyper-personalized engagement, effortless efficiency, and a proven track record with over 40,000 mortgage professionals since 2007, Velma simplifies your journey, supercharges your marketing, and keeps your loan officers doing what they do best. Join the Velma revolution today and transform your lending business!
Source: Mortgage News Daily
Happy Thanksgiving From The Bond Market. See You in December
After Tuesday’s big CPI reaction, Wednesday brought the week’s only other top tier economic report. Retail Sales may have been negative, but by coming in 0.2% higher than expected, the report paved the way for weakness in the bond market. Actually, it’s probably more accurate to say that yesterday’s big rally paved the way for weakness in the bond market and today’s Retail Sales data confirmed that sellers need not fear a big, immediate extension of the rally. Consider that 10yr yields rallied almost 50bps in just 2 weeks. It makes sense to a moment to cool off. Unfortunately, due to holiday timing, we may be in for a weird two weeks of “cooling off” with random volatility inside a moderate range–one that is ultimately broken by the first full week of data in December.
Econ Data / Events
Core m/m PPI
0.0 vs 0.3 f’cast, 0.2 prev
Headline PPI m/m
-0.5 vs 0.1 f’cast, 0.4 prev
Retail Sales
-0.1 vs -0.3 f’cast
prev month revised up to 0.9 from 0.7
Empire State Manufacturing
9.1 vs -2.8 f’cast, -4.6 prev
Market Movement Recap
09:16 AM Moderately weaker overnight with additional selling after AM data. 10yr up 7bps at 4.524 and MBS down 3/8ths
12:48 PM A bit weaker in Treasuries with 10s up 9bps at 4.543. MBS down a quarter point.
02:46 PM Very flat! MBS unchanged from last update. 10yr up 8.6bps on the day at 4.539
Source: Mortgage News Daily
The story of the week for mortgage rates continues to be the substantial drop seen on Tuesday in response to the Consumer Price Index (CPI). But that story is a bit less epic and exciting after today’s Retail Sales data. Retail Sales was the only other economic report this week that was remotely as important to rates as CPI. Thankfully, it’s not AS important or we might be seeing a bigger bounce today. As it stands, Retail Sales beat forecasts by 0.2%–a margin that could be considered too large to be inconsequential and too small to be highly significant. For the bond market, it was worth unwinding about half of yesterday’s improvement, but mortgage-specific bonds fared a bit better than US Treasuries. The average mortgage lender moved up less than an eighth of a percent and remains closer to the bottom of this week’s range. Between now and the first full week of December, there are no other economic reports or scheduled events with the same potential energy as those seen over the last 2 days. That doesn’t mean rates can’t move higher or lower–only that such movement would not be easy to line up with specific times on specific days.
Source: Mortgage News Daily
If you had to script out the most likely course of events after Tuesday’s big post-CPI bond rally, the safest expectation would be for a token pull-back that helps consolidate and solidify a majority of the gains. In order for that baseline assumption to pan out, you’d need this morning’s data to come in neutral to slightly stronger and with 2 beats (retail sales and Empire State) and one miss (PPI), that’s exactly what we have.
All that having been said, let’s not give too much credit to PPI or Empire State as they pale in comparison to Retail Sales. The latter is the reason for this morning’s moderate weakness, if we could only choose one. We could also consider that the Empire State manufacturing data is the most recent (November data vs October for Retail Sales and PPI) and also the most bullish in terms of the result versus the forecast.
The most immediate implication is a strange combination of a concern and a victory as yields bounce at the 4.43 technical level in fairly obvious fashion. Based on overnight trading, markets were already leaning in a bouncy direction before the data.
So why a victory? Rate bulls, please be patient… We don’t want to do the big rally all at once. We need periodic consolidation and current yields–even after this morning’s weakness–would make for the 2nd best closing level in more than 2 months. When this party is officially underway, we will be seeing a clear move through the gap that currently exists between 2022’s high yields and the most recent lows.
Source: Mortgage News Daily
