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)

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

The deal mitigates mortgage-pool risk with CLO credit strengths

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

According to an order by the SEC, the bank negligently under-reported what it knew about a data breach and ransomware attack it suffered that year.

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.

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).