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.

“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.)

We all know that today’s jobs report is the most important economic data on an given month. We also know that a higher payroll count tends to be bad for bonds/rates.  So why are bonds rallying despite payrolls coming in at 227k versus a 200k forecast?  First off, in the realm of nonfarm payrolls (NFP), this is a small enough beat to be considered “as expected.” 
Perhaps more importantly, traders assumed that last month’s incredibly small 12k NFP would be revised much higher.  Instead, it was only revised up to 36k. Finally, the combination of the labor force participation rate and unemployment rate suggests the actual level of unemployment was 0.2% higher than last time. 
Even without the additional context from the labor force participation rate, the unemployment rate trend seems clear. 
The counterpoint is that 4.2+ is still historically low, but this isn’t a data series that tends to reverse course so quickly once a new trend gets underway.
 

These mitigating factors are more than enough for traders to look past the modest beat in the headline NFP number.

The counterpoint to this morning’s rally is that it’s just not that big as far as NFP-driven rallies go–not even as big as Wednesday’s ISM/Powell combo.

The reaction has been more compelling with respect to Fed rate cut expectations, helping quite a bit to increase the odds of a December cut.  Notice the lack of a reaction in Fed Funds Futures to Wednesday’s data in the chart below.  This is just an interesting observation about what matters to the Fed rate outlook and what doesn’t.

The influence of expected policy changes from President-elect Trump will have on real estate next year could be mitigated by economic factors, Realtor.com said.

These regulatory announcements in the banking industry are currently open to public comment.

The Toronto-based bank suspended its medium-term growth targets and announced a full-scale review of its strategies following historic anti-money-laundering failures.

The Consumer Financial Protection Bureau is giving the funds to more than 4.3 million consumers harmed by a defunct credit-repair conglomerate, the largest-ever distribution from the bureau’s victim-relief fund.

The 30-year fixed rate mortgage is at its lowest point since the end of October, but it is still relatively elevated at near 7%, Freddie Mac reported.

Calm Week So Far, But All Bets Are Off After Jobs Report

Bonds were slightly weaker overnight and did just a bit more selling after the Jobless Claims data, but the losses were erased by the early afternoon.  Even then, they were never that big in the first place.  The muted volatility fit nicely in a week where the tone has been decidedly calm and the range has been reliably narrow. It’s also a perfect set up for the report that always reserves the right to rock the boat (Friday morning’s jobs report).  Expectations are for a fairly middle-of-the-road 200k print for nonfarm payrolls and a slight uptick in the unemployment rate.  

Econ Data / Events

Jobless Claims 

224k vs 215k f’cast, 213k prev

Continued Claims

1871k vs 1910k f’cast, 1896k prev

Market Movement Recap

08:46 AM Modestly weaker overnight and slight additional losses after solid jobless claims data.  MBS down 5 ticks (.16) and 10yr up 2.6bps at 4.214.

02:13 PM Bouncing back a bit into the PM hours.  MBS down only 1 tick (.03) and 10yr down half a bp at 4.183

03:29 PM Best levels of the day with MBS now unchanged and 10yr down 1.5bps at 4.173

It’s been a remarkably calm week for mortgage rates, and a fairly decent one relative to several recent examples.  The average top tier 30yr fixed rate hovered just over 7% for most of November before breaking back into the high 6% range at the beginning of last week.  Since then, there haven’t been any “bad days” for the mortgage market, even if we’re still a long way from the low rates of September. If rates can’t be as low as we might like them to be, the next best thing is for them to be stable and they’ve done exceedingly well on that front.  Since last Friday, the average top tier 30yr fixed rate hasn’t moved more than 0.02% on any given day.  Today was the least volatile as there was no change versus yesterday’s latest levels. This little “ledge” in the high 6% range corresponds to a similar ledge in 10yr Treasury yields at 4.17%.  Both are arguably bracing for impact from tomorrow’s big jobs report.  Said “impact” could either help or hurt, depending on the outcome of the data.  In general, the lower the job count, the better it would be for rates, and vice versa.