It’s been a bit of a chaotic morning so far, but in a narrow enough range to make it relatively boring in the bigger picture.  Bonds began the day in slightly stronger territory and managed to improve a bit more after the 8:30am econ data.  Selling picked up mysteriously at 9am and buyers fought back at the 9:30am NYSE open.  After multiple lead changes, weaker momentum has prevailed since 10am and bonds are entering the 2nd half of the day in microscopically weaker territory. 

The friendly reaction to the data is impressive, given the state of jobless claims.  We continue to prefer comparing non-seasonally adjusted numbers to their comparable weeks from previous years.  In so doing, we find 2024 is doing about as well as any of the recent benchmark years.

The counterpoint to the jobless claims reactions continues to be the state of continuing claims which continue (yes, I said it 3 times in one sentence) to paint a less optimistic picture than initial claims. 

Critical defects increased for the second consecutive three-month period, with appraisal-related errors nearly doubling, Aces Quality Management said.

In a congressional hearing, top officials from the Federal Reserve, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency said no new rules will be adopted or proposed this year.

The Federal Reserve governor said the Supreme Court ruling could bring needed transparency and efficiency to regulatory policymaking.

The Federal Housing Administration wants to make it easier for mortgage applicants to use rental income received from boarders in the underwriting process.

Vista Point Mortgage and Rockport Mortgage reported attacks on their systems, with over 14,000 customers potentially affected by compromised data.

First thing’s first, mortgage applications increased last week, both for purchases and refinances! It was the first improvement for refi demand since mid September, when rates were well into their lowest levels in more than 2 years.  Top tier conventional 30yr fixed rates were being quoted at around 6% at the time, but moved rapidly up to 7%+ in the first 3 weeks of October. The resulting drop in refi demand was as logical as it was unfortunate, and it didn’t really let up until 2 weeks ago.  Since then, last week saw only a microscopic decrease which, in turn, paved the way for this week’s microscopic increase.  In the bigger picture, the refinance index remains in the lowest territory in decades. The Purchase Index is actually in a similar boat.  In fact, we’d need to go even deeper into the past to see demand at current levels.  The key difference is that there wasn’t any interesting rate-driven bump in the past few months.  Purchases apps simply ground to a halt by late 2023 and haven’t done much since then. Other highlights from MBA’s weekly application update:
Refi share of total activity: 41%, up from 39.9 previously
FHA share: 16.6% vs 16.0 previously
VA share: 13.6% vs 13.3 previously
Average contract rate (30yr fixed) 6.90 vs 6.86

Orig/Points up to 0.7 from 0.6

Jumbo rates were 0.13% higher than conventional and FHA rates .22% lower

Remember October and the first part of November–not because of the election, but rather because of the relentless rise in mortgage rates?  Would you rather forget?  You’re not alone.  It was the fastest rate spike since 2022, and it was made all the more memorable because it put an end to the first real uptick in refinance activity in just as long. In the days following the election, there was quite a bit of volatility in rates, but with the benefit of hindsight, we can say that the volatility has subsided.  Tuesday, November 12th was the last time rates made a decently big day-over-day move.  Since then, we haven’t seen top tier 30yr fixed rates change by more than 0.04% in either direction.  More impressively, they’ve held a range of only 0.06% during that time.  That’s a low volatility environment by any standard. Today fit perfectly in that narrative with the average lender only moving up 0.01%.  After adjusting for upfront costs,  30yr fixed rates remain just over 7%.   Any time we’re marveling at the absence of volatility, a word of caution is in order.  Volatility can come back any time.  Its return can be driven by surprises or by scheduled data.  At the very least, we can be sure that the scheduled data in the first two weeks of December has immense potential to reignite volatility, for better or worse.

There has been plenty of news over the past 48 hours regarding the U.S. greenlighting Ukraine to use long range missiles to attack Russia.  Yesterday’s examples resulted in relatively modest overnight gains for the bond market. Today’s example is a developing story. It involves Ukraine firing multiple UK-supplied missiles into Russia. Headlines to that effect began making the rounds at 9:20am and the result in trading levels and volumes was, once again, clear but modest. It was almost enough to help the bond market move back into positive territory after overnight weakness, but the rally has already met with resistance.

If nothing else, note that the prevailing momentum has been steadily higher in yield.  These geopolitical headlines have merely been speedbumps in that process.

“I thought swimming with dolphins was expensive until I went swimming with sharks. It cost me an arm and a leg.” Through the wonders of modern air travel, I find myself in St. Louis for the MBA of St. Louis event. Here in St. Louis, lending costs, rates, and regulations are on the minds of lenders, as well as where Freddie and Fannie are going and how. “Rob, although the funding mechanism is in place, couldn’t the U.S. Government cut off funding for the CFPB, therefore leading to it scaling back because it doesn’t have the money? And if that happens, won’t the states ramp things up?” Yup. “Rob, what’s the deal with rates? Wasn’t a campaign promise lower rates?” Slightly hot consumer and producer inflation data, along with a comment from Federal Reserve chair Jerome Powell on Thursday that suggested the Federal Reserve would not be “in a hurry to lower rates” weighed on markets. With longer-term Treasury yields holding high and a December cut on shaky ground, mortgage rates are prone to staying elevated… not good heading into the winter. (Today’s podcast can be found here and this week’s is sponsored by PHH Mortgage. If you are looking for a Correspondent Lending partner or an experienced, award-winning subservicer who can manage your forward and reverse, residential and commercial, and performing and non-performing loans look no further than PHH. Hear an interview with Diverse Mortgage Services’ Chuck and CJ Sanders on how the mortgage industry can become less pale, male, and stale, and the benefits associated with that.)