Mortgage rates ended last week with an impressive drop to the lowest levels in more than a month and a half.  Today’s rates ended up being the 2nd lowest over that time after the average lender moved to just slightly higher levels to start the new new week.  Top tier conventional 30yr fixed rates spent most of November over 7% but fell back into the high 6% range by the end of the month. Our rate index fell from 6.84 to 6.68 on Friday and moved up to 6.72 today.  Economic data is the key motivating factor for rate movement, in general, but there were no major economic reports today. Instead, we could say that investors are simply choosing to reinforce a range in the bond market (bonds dictate rates) as they wait for the week’s most relevant data. In terms of economic reports, Wednesday’s Consumer Price Index (CPI) has the most potential to cause volatility, for better or worse.

Inconsequential Weakness

Bonds lost a moderate amount of ground on Monday with 10yr yields moving back above the levels seen before last Friday’s jobs report.  MBS  didn’t lose quite as much ground thanks to their higher correlation with shorter-dated Treasuries these days.  There were no significant economic reports and it was the lowest volume day of the year so far–a stunning reality considering that honor would usually go to the Friday after Thanksgiving. In addition to the low volume qualifier, today’s weakness is inconsequential simply because it keeps bonds right in line with the flat-line in yields seen over the past 6 trading days.  If anything, Friday was the outlier there and today is just another day with 10yr yields near 4.20. It’s also just another day where bonds are grinding sideways as they wait for bigger inspiration. 

Econ Data / Events

Wholesale Inventories

0.2 vs 0.2 f’cast, -0.2 prev

Market Movement Recap

10:04 AM Initially stronger overnight, then weaker in Europe and in early domestic session.  MBS down almost an eighth.  10yr up 3.6 bps at 4.191

01:51 PM Unchanged from previous levels in MBS.  10yr now up only 3.3bps at 4.187

04:19 PM Weakest levels now with MBS down 6 ticks on the day and 10yr up 4.2bps at 4.196

Up until last Friday, 10yr yields closed at 4.17% for 5 days in a row. While that’s technically “resistance,” we’re not complaining considering that’s more than 30bps below the highs from 2 weeks earlier. In fact, it’s probably better for rates to consolidate here as traders wait for auctions and CPI data in the week ahead. With that in mind, last Friday threw a bit of a curveball with a small but noticeable break to even lower yields.  Now at the start of the new week, bonds have moved quickly back to the familiar consolidation range marked by a floor of 4.17. Meaningful improvement from here will require concrete motivation from this week’s CPI/PPI.  Auctions can play a supporting role, to some extent. 

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“Today’s three-year-olds can switch on laptops and open their favorite apps. When I was three, I ate mud.” Times change. Remember when homeowner’s insurance was an after-thought? In some counties and states, being approved for insurance has become as big a concern as being approved for a loan. “Nonadmitted” insurance is becoming the new norm in many places that face untenable economics when it comes to insuring houses, like coastal Florida or wildfire-prone California. Essentially, insurance tends to be a heavily regulated field, with governments ensuring that insurers have enough money to compensate those they insure, that they’re maintaining high-quality business practices, and that price hikes are limited year to year. When those insurers won’t touch an owner, perhaps they can go to a state-backed insurer, but when even those go out of reach, nonadmitted insurance is there. They have none of the protections or backing of the government and existed at first to insure the comically uninsurable, like nuclear waste projects or fireworks factories. Nonadmitted premiums rose 27.5 percent from 2022 to 2023, compared to 13.8 percent among the admitted market. The number of nonadmitted policies in Florida rose 73 percent to hit 92,000 over the past 14 years. (Today’s podcast can be found here and Richey May is sponsoring this week’s. Richey May’s consulting, cybersecurity, business intelligence, and automation services are designed by mortgage experts to help you continue to drive growth and increase profitability. Hear an Interview with Richey May’s Michael Nouguier on cybersecurity to thwart holiday attacks and best practices as we enter 2025.)

As of last week, rates were showing some signs of resilience, but they had to wait for the true test from this week’s jobs report. Spoiler alert: they passed the test. It wasn’t that the headline job count was particularly low, but it wasn’t strong enough to argue against the fact that the labor market has cooled off compared to the first half of the year, or that 2024 is much cooler than 2023. The simplest way to visualize the cooling is via this chart of the unemployment rate.  It would be fair to point out that 4.2+ is still a historically low unemployment rate, but just as fair to point out that the unemployment rate tends to move with a sort of glacial momentum that rarely changes course abruptly. This cooling is one of the reasons the Fed decided to begin cutting rates in September. As we discussed in the weeks leading up to that, the market is able to anticipate those decisions, thus pushing rates lower before the Fed actually pulls the trigger.  The same thing is arguably happening this week, especially after today’s jobs report. 10yr Treasury yields serve as a benchmark for mortgage rates, indirectly.  They can help us understand how rate sentiment reacts to data.  Here’s how they reacted today: In addition to the jobs report, Wednesday’s ISM Services index was also rate-friendly (i.e. it came out weaker than expected). Mortgage rates don’t always track perfectly with Treasury yields, but they’ve also been moving lower–especially after the jobs report.  The average lender is at the best levels in a little over a month and a half.