Nonagency issuances are expected to increase 85% for this year over 2023, and rise another 36% in 2025, the second best since the financial crisis.

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

Mortgage rates have been having a much calmer week compared to last week.  Monday brought a modest decline versus last Friday and today’s rates are effectively unchanged.  While the average lender is still noticeably higher compared to the first few days of the month, this resilience helps make a case that rates aren’t eager to revisit the higher levels seen during most of November. Volatility could increase tomorrow afternoon following the Fed’s rate announcement.  As a reminder, the Fed DOES NOT set mortgage rates and a Fed rate cut DOES NOT mean mortgage rates will go down by a similar amount–if at all.   The market is already well aware that the Fed is cutting rates tomorrow and those expectations are already 100% reflected in the mortgage rates that are available today.  If rates rise or fall tomorrow, it would be due to other components of the Fed announcement, such as the Fed’s quarterly rate outlook survey (officially, the dot plot in the Summary of Economic Projections, released concurrently with the rate announcement at every other Fed meeting) or the press conference with Fed Chair Powell that begins 30 minutes after the rate announcement. 

Calm and Resilient as Bonds Wait For Powell and The Dot Plot

Whereas last week saw the bond market continue selling off without overt provocation, the first two days of the present week have seen far more equanimity and even resilience. Today’s example involved a modest rally following a mixed bag of Retail Sales data.  Bonds didn’t move much after recovering overnight losses, so now it’s on to tomorrow’s Fed announcement.  Markets know the Fed will cut and that the dot plot (aka rate outlook survey that’s updated 4 times per year and closely watched by bonds) will show a higher rate trajectory than September.  We also know Powell should sound a lot like his last few public appearances.  What we don’t know is how gloomy of a dot plot or how hawkish of a Powell the market is willing to accept.  At the risk of jinxing it, this Fed meeting doesn’t feel nearly as consequential as September, but could nonetheless help set the tone into the end of the year. 

Econ Data / Events

Retail Sales

0.7 vs 0.5 f’cast, 0.4 prev

Retail Sales excluding autos

0.2 vs 0.4 f’cast, 0.2 prev

Market Movement Recap

08:41 AM modestly weaker overnight and little-changed after mixed retail sales data.  MBS down an eighth and 10yr up 3bps at 4.429

12:46 PM MBS up 1 tick (.03) and 10yr down 1.9bps at 4.382

02:08 PM MBS unchanged and 10yr down 1.7bps at 4.384

03:42 PM Losing ground slightly.  MBS down 1 tick (.03) and 10yr down less than half a bp at 4.397

Yesterday, it was S&P Global PMI data.  Today it’s Retail Sales.  Both were stronger than expected.  Both failed to cause any lasting weakness in bonds.  Today’s reaction was far friendlier, largely because the internal components of Retail Sales were NOT stronger than expected.  In fact, the “ex autos” component was 0.2 vs 0.4, and can likely be credited for early resilience in bonds.  10yr yields started the day slightly higher, but are well into positive territory at 11am.

In the bigger picture, yields are still trending higher, but today represents another attempt to break that trend as seen after last Wednesday’s CPI data (both attempts highlighted in the chart below).

Number progressions can be deceiving and surprising. Thank you to Eric D. who reminded me of “The Wheat and the Chessboard” example, guaranteed to surprise anyone. What is also surprising is that between 2022 and 2023, the Hispanic population accounted for nearly 71 percent of the overall growth of the United States population, driven primarily by Hispanic births, according to newly released Vintage 2023 Population Estimates from the U.S. Census Bureau. Hispanics of any race grew to just over 65 million, an increase of 1.16 million (1.8 percent) from the prior year. This growth significantly contributed to the nation’s total population gain of 1.64 million in 2023. The annual increase of 1.8 percent was in sharp contrast to the 0.2 percent increase in the non-Hispanic population, whose growth was tempered by a decline among non-Hispanic Whites, the largest demographic within the non-Hispanic category and the only one to experience a population loss. By the way, we should celebrate our differences… vive la difference: The top racial or ethnic groups for the United States was the “White alone non-Hispanic” population (58%, down from 64% in 2010), “Hispanic or Latino” population (19% of the total population), and then “Black or African American alone non-Hispanic” population was the third-largest group at 12%. (Today’s podcast can be found here and this week’s podcasts are sponsored by Visio Lending. Visio, which has a top-notch broker program, is the nation’s premier lender for buy and hold investors with over 2.5 billion closed loans for single-family rental properties, including vacation rentals. Hear an Interview with Garrett, McAuley & Co.’s Joe Garrett on GSE reform, the CFPB under Trump 2.0, and what it takes to run a profitable mortgage company in this environment.)

The National Association of Home Builders (NAHB) and Wells Fargo publish the Housing Market Index (HMI) each month. The industry refers to this as “builder confidence” and December’s number came out today. It was right in line with November’s, and it suggests builders are increasingly honing in on a relatively gloomy baseline in the bigger picture. There are several ways to approach the languishing of the index, with the easiest being some combination of single family construction (which capture the initial drop in 2022) and multi-family construction (which, along with persistently high rates, helps explain why the index may not have recovered). Both are charted below. Ultimately, actual construction figures are a better indicator of the housing market than sentiment surveys, but the latter can offer some insight to trends and future opportunities.  On that note, the component of the builder survey that tracks the outlook for 6 months into the future continues moving to the highest levels since 2022.  As seen the following chart, it’s less “sideways” and better described as gently trending higher. Other highlights from today’s release:
31% of builders cut prices in December, vs 31% in Nov
Average price reduction was also unchanged at 5%
Sales incentives were used in 60% of transactions, also unchanged from Nov

American Mortgage Network accused CCM of racketeering for running a “transition desk” to divert loans, claims a judge dismissed.

Bonds Hold Ground Despite Unfriendly Econ Data

If there was a prime directive for the bond market last week, it was to sell off regardless of any counterargument from the economic data.  The new week got off to a distinctly different start with stronger economic data only causing a temporary inconvenience for bonds.  Both MBS and Treasuries were pushed back in line with Friday’s weakest level, but both found support in the PM hours before going on to make it back to unchanged territory, or close to it.  Volume was low and the volatility was small in the bigger picture, but at the very least, it was nice to see a different reaction than last week’s default weakness. 

Econ Data / Events

NY Fed Manufacturing

.20 vs 12 f’cast, 31.2 prev

S&P Services PMI

58.5 vs 55.7 f’cast, 56.1 prev

Market Movement Recap

09:46 AM Modestly stronger overnight, but giving up gains in domestic trading.  MBS up 2 ticks and 10yr down less than 1 bp at 4.385

12:15 PM Trying to bounce after hitting weakest levels.  MBS down 1 tick (.03) and 10yr up 0.7bps at 4.399

03:28 PM Off the weakest level.  MBS unchanged and 10yr 0.2bps higher at 4.394

You don’t become cooler with age, but you do care progressively less about being cool, which is the only true way of being cool. This is called the “Geezer’s Paradox.” People change, and so do industries. Things are always changing in our business. For example, take this plethora of mortgage law changes hitting Texas originators and lenders. Although ATR (Ability to Repay) has given us years of strong borrowers, credit analysis is changing. “Rob, is it true that the three credit bureaus own VantageScore?” Yes, it is owned by the three national credit bureaus (Equifax, Experian and TransUnion); VantageScore Solutions, LLC is an independently managed company. (Today’s podcast can be found here and this week’s podcasts are sponsored by Visio Lending. Visio, which has a top-notch broker program, is the nation’s premier lender for buy and hold investors with over 2.5 billion closed loans for single-family rental properties, including vacation rentals. Hear an interview with Fairway Independent’s Steve Jacobson on leading a mortgage company and the individuals that work for it.) Lender and Broker Software, Services, and Products ‘Tis the season of giving, and what better way to celebrate than by treating borrowers’ pets to shiny new tags for their new home? With Operation Fido, tags are automatically ordered directly from Encompass® by ICE Mortgage Technology™ when a loan closes, ensuring furry friends stay safe as they explore their new neighborhoods. It’s a simple, thoughtful way to make borrowers (and their four-legged family members!) feel at home. Watch the video to see how it works!