Monetary policy officials greenlighted a 25 basis-point federal funds cut but mixed economic signals dimmed hopes for more affordable home financing costs.

Homeowners experiencing a death in the family, divorce or domestic violence complained of being strong-armed into costly refinances, facing long delays or simply not being helped.

Premium volume increased by 5.3% year-over-year, while operating income was up, but industry expenses also rose in the third quarter, the American Land Title Association said.

If anyone needed any further convincing that a Fed rate cut is no guarantee of lower mortgage rates, today is a great piece of evidence.  Perhaps “great” is the wrong word.  There was nothing great about the mortgage rate movement following today’s Fed rate cut. The average lender is at least 0.20% higher than earlier this morning.  Lenders are still in the process of adjusting their rate sheets, so the total damage could vary slightly by the time we’re able to run the full numbers.  Either way, the top tier conventional 30yr fixed rate will easily be back over 7% for the average lender. What gives? First off, the mortgage rate spike has nothing to do with the Fed’s rate cut.  That cut was only a small part of the information released by the Fed today.  It was also the most predictable part.  When something is predictable in financial markets, it can be traded, and that trading means that longer term rates (like mortgages) can move into position well in advance of Fed cuts/hikes. Moreover, mortgage rates care more about the Fed’s rate cut/hike outlook than they do about one individual cut/hike.  That’s where things started going wrong today.  The Fed communicates its outlook 4 times a year via the summary of economic projections and the infamous “dot plot” (a chart with each Fed member’s view on the appropriate Fed Funds Rate at various points in the future).  Today’s dot plot showed the median Fed member sees much higher rates by the end of next year compared to the last dot plot 3 months ago.  The following chart shows the new dots in blue and old dots in red. The year to focus on is 2025.  Note the migration upward from the low 3 to high 3 percent range.

Dots and Powell Were Much Less Friendly Than Markets Expected

We knew the bond market was expecting a hawkish shift in the dot plot (the chart that shows each Fed member’s expectation for the Fed Funds Rate in the coming months/years), and while there is now easy way to know exactly how big the expected shift was, it was clearly not as big as the shift we actually saw!  The median dot moved from the low 3% range for the end of 2025 to just under 4%.  On top of that, Powell’s press conference offered no reprieve as he confirmed the Fed was entering a new policy-making phase marked by the possibility of pausing rate cuts and the reality that current rates are closer to neutral than previously believed. Bonds tanked immediately upon the release of the dots and then tanked some more as Powell began answering questions 30 minutes later.

Econ Data / Events

Housing Starts

1.289m vs 1.34m f’cast, 1.312m prev

Building Permits

1.505m vs 1.43m f’cast, 1.419m prev

Market Movement Recap

10:04 AM weaker overnight with Europe, but recovering in early domestic trading.  MBS up 2 ticks (.06) and 10yr down 1bp at 4.391

12:47 PM 10yr down 1.5bps at 4.386.  MBS up 1 tick (.03).

02:13 PM Sharply weaker after Fed announcement (and dot plot).  MBS down a quarter point and 10yr up 4.7bps at 4.447

02:57 PM More losses during Powell Press Conference.  MBS down almost half a point and 10yr up 8.5bps at 4.486

03:38 PM How low can we go?  MBS down more than 5/8ths.  10yr up 10.3bps at 4.505

The Census Bureau releases its report on New Residential Construction each month which offers 3 key metrics: building permits, housing starts, and housing completions.  Of those, the first two are most closely watched. There is typically a solid buffer between permits and starts.  After all, housing construction cannot “start” unless it is “permitted.”  Oftentimes, there’s a divergence between housing starts and building permits on any given month.  This is one of them. This data series has been fairly unremarkable recently.  Construction continues running above pre-pandemic levels, but new homes have been started at a slower and slower pace.  That might sound problematic until one considers that 2024 has seen the highest pace of completions since 2006. Bottom line, housing definitely surged in 2021 and early 2022, and it has definitely cooled off since then, but the cooling has been very orderly compared to some past episodes.   One last nuance to consider in today’s data (and in general, for this data series) is the divergence between single and multifamily housing starts.  Single fam has been doing much better recently–still easily holding above pre-pandemic levels.  Multifamily starts, however, are near their lowest levels in a decade. 

Heading into the first part of December, mortgage rates were at their lowest levels in a month and a half.  Much of the improvement from the recent highs occurred in a single week (the last week of November).  That made for an obvious and logical uptick in refinance applications the following week, according to the Mortgage Bankers Association’s (MBA) application survey.  In the latest numbers reported this morning, the refinance index didn’t change much after that, which is “good” at face value because it means refi activity remained at the modestly elevated levels reported last week.  But things start looking less than good when we add context from the September mini-refi-surge. As has been and continues to be the case, none of the recent activity amounts to much when compared to the true refi booms of the past. Unfortunately, that line will have an even harder time moving up in the coming weeks.  This afternoon’s Fed announcement was not well received by the rate market.  Mortgage rates are moving up quickly even though the Fed cut its policy rate. The average lender is already back up to the recent highs seen in early November. Movement in purchase applications has been less interesting and less eventful by comparison.  Simply put, there hasn’t been much movement for at least a year. Other highlights from today’s data:
Refi apps accounted for 46.7% of the total vs 46.8 last time
FHA share of total apps increased to 17.6 from 16.5
VA share declined to 15.3 from 16.3
Rates rose to 6.75 from 6.67 (note: that refers to MBA’s survey rate for last week.  Average daily rates are back over 7% as of this afternoon)

The deal mitigates mortgage-pool risk with CLO credit strengths

Six years after Pres. Trump signed Dodd-Frank reform, the Consumer Financial Protection Bureau issued rules bringing these loans under Truth-in-Lending.

The sales pace of new constructions in November was the third highest this year, according to the Mortgage Bankers Association.