“What do they call the 4th of July in nursing homes? In Depends Day.” (Another joke at the bottom.) There are plenty of elderly people, year ‘round, and hurricanes, seasonally, in Florida. There are ways to build homes that will survive hurricanes. Wood is not the solution! Here’s a story about Florida resident Amy Hawk who was paid only $8,000 by her insurance company after a hurricane destroyed her house and what she’s doing about it. Damages from weather disasters hit $92.9 billion last year, according to NOAA, and years of increasingly damaging weather events have provoked a reaction in the insurance market, with costs up 13 percent from 2020 to 2023. Those are being driven by premium increases in some of the areas most prone to disasters, and a big driver in turn is the rising cost of reinsurance, which is the insurance bought by insurance companies which itself has increased in costs 100 percent between 2017 and 2023. Home insurance companies are roughing it: for the fifth year in a row, insurers paid out more than they brought in with premiums, and in 2023 they paid out $1.11 in claims for every $1 they made. (Today’s podcast can be found here and this week’s is sponsored by The BIG Point of Sale, which offers a highly configurable, easy to install point of sale solution. Its simplified consumer workflows and web-based portals allow for consumers and loan originators to collaborate with the back-office team to keep everyone informed throughout the loan process. Hear an interview with Nectar’s Derrick Barker on the Federal Housing Finance Agency announcing higher caps that allow Fannie and Freddie to purchase up to $146 billion in multifamily loans.)

The National Association of Realtors (NAR) releases monthly reports on both existing and pending home sales. The latter tracks signed purchase contracts that have not yet closed. As such, it’s seen as a good early indicator of existing home sales in the following month.  The housing market would take any help it can get at the moment and November’s pending sales numbers are actually legitimately encouraging, even if the overall level of activity remains historically low. This is the 4th consecutive month of improvement for the index and it brings it to the highest level since February 2023.  Contract signings were up 2.2% versus last month and 6.9% versus last year, even as mortgage rates remain elevated. That makes the past few months significant because this the first meaningful break into positive year-over-year territory since early 2022. “Consumers appeared to have recalibrated expectations regarding mortgage rates and are taking advantage of more available inventory,” said NAR Chief Economist Lawrence Yun. “Mortgage rates have averaged above 6% for the past 24 months. Buyers are no longer waiting for or expecting mortgage rates to fall substantially. Furthermore, buyers are in a better position to negotiate as the market shifts away from a seller’s market.” Regionally, the South led the charge with a 5.2% increase vs last month.  The Midwest and Western regions advanced less than 1% and the Northeast declined 1.3%.  All 4 regions are stronger in year over year terms.

Stop the presses!  MBS are up almost 3/8ths of a point in early trading and 10yr yields have surged lower by 8bps.  This is a massive and miraculous rally that surely must have some compelling and obvious motivation!  Here’s the motivation: take everything you saw last week and throw it out.  We kept saying different versions of that directive at the time. To be fair, it’s probably a good idea to do the same in the present week.  We’ll all find out where bonds want to trade later this week, but for sure by next week. 
Today’s trading levels are right in line with those seen immediately after Fed day and–therefore–not interesting or indicative of anything new and different. For those who aren’t comfortable with such a dismissive, cavalier approach to market movement, if you’d like to make something up, just tell people that it’s “year end positioning and asset allocation trading driving forced buying of bonds and selling in stocks.”  No one would argue with you.
For those more interested in participating in reality, simply consider that trading levels are right back to where they were at the exact moment that we told you to stop paying attention due to the extreme drop-off in volume and

Loan officers say the main reasons real estate partnerships fall through are poor communication and mismatched expectations.

Only 5% of homeowners in designated disaster-assistance areas were required to hold flood insurance, according to the Federal Housing Finance Agency’s dashboard.

The regulator said users had trouble finding information like tenant rights and contact information for local government housing offices.

Proceeds from the sale will be used by HomeStreet to pay down Federal Home Loan Bank advances and brokered deposits.

“I’ve just checked my home insurance policy and apparently if my blanket is stolen in the middle of the night, I’m not covered.” For many home owners, taxes and insurance now cost more every month than the mortgage. Is the cost of some imported merchandise from some countries about to go up? Will anyone notice their laptop went up $300 or smartphone $200? Will the dollar’s strength or weakness impact consumers, therefore the economy, therefore lenders? As Dr. Elliot Eisenberg put it, “While Trump speaks of wanting a weak dollar, imposing tariffs will strengthen it. It’s because imposing a tariff makes foreign goods more costly and that means fewer such goods will be imported and thus fewer dollars will be converted into foreign currency. Moreover, tariffs will reduce growth abroad, especially in export-focused nations, which lowers foreign interest rates which causes investors to seek higher rates and thus hold more dollars.” (A tariff primer is below.) (Today’s podcast can be found here and is sponsored by Gallus Insights, the go-to reporting and analytics platform for mortgage lenders and servicers. Gallus makes it easy to access real-time data, create custom reports, and uncover actionable insights, all with a user-friendly design. Simplify your reporting, streamline your decisions, and drive profitability with Gallus Insights. Hear an interview with Spring EQ’s Reno Heine on the home equity lending market) Software, Products, and Services for Lenders

Mortgage rates didn’t move much today, and markets have been very quiet due to the holiday week.  So we’ll take a quick moment for a retrospective. In September 2022, 30yr fixed mortgage rates crested 7% for the first time in more than 2 decades. The following year saw rates move momentarily under 6% and over 8% before returning to 7% by December.  Surely, that broadly sideways performance in 2023 meant that a corner had been turned. Up until the past few months, 2024 indeed looked like a decisively more hopeful year.  To be fair, it was still better than 2023, but ultimately, just as sideways in the end. Will we find ourselves in the same position at the end of 2025? That depends on the state of the economy and inflation.  The latter is of critical importance.  Until and unless inflation sustainably returns to 2% or lower, longer term rates will have a very hard time making significant progress.  Even then, the U.S. will need to avoid and preferably reverse the post-pandemic trend of heavy issuance of Treasuries–something that keeps rates elevated regardless of inflation or the economy. If there’s a saving grace, it’s that this 3 year time frame (2022-2024) now looks a lot like 1980-1982 in terms of the trajectory of rates, and that was the big turning point for the only comparable episode in modern economic history.  

Weaker Afternoon, But Still Uneventful

Bonds began the day in decent shape by pushing back against weakness during European hours.  MBS were briefly in just-barely-positive territory in the first hour.  Things deteriorated very slowly, but very steadily after that.  It took the entire trading session for MBS to give up an eighth of a point.  10yr Treasuries had it worse, with yields moving back up near yesterday morning’s highs.  Chalk that up to ongoing “curve steepening” (fancy talk for 10yr yields rising faster than 2yr yields, and combine that notion with the fact that the average mortgage trades more like a 5yr Treasury these days). Modest volatility aside, volume and liquidity remained “holiday low.”  Next week brings different risks, mainly due to the chance that some big traders will be able to reposition bond portfolios after 2024 is officially over.  These could go either way.  The bigger volatility risk won’t show up until the delayed jobs report on Jan 10th.

Econ Data / Events

Wholesale Inventories

-0.2 vs 0.2 f’cast, 0.2 prev

Market Movement Recap

09:08 AM Slightly weaker overnight, all during European hours.  Holding ground now with 10yr up 1.6bps at 4.594 and MBS down 1 tick (.03).

11:17 AM 10yr up 1.5bps at 4.593.  MBS unchanged. 

02:05 PM hovering near weakest levels.  MBS down 2 ticks (.06) and 10yr up 3.5bps at 4.612