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

Not that any of this week’s trading activity matters in the bigger picture, but things have been reasonably resilient after Monday’s selling.  Tuesday and Thursday saw more selling, but each day ended with a solid recovery.  Thursday was especially solid with help from the 7yr Treasury auction.  In today’s overnight session, European markets reopened after the X-mas holiday with a moderate spike in yields.  This pulled US yields higher, as is typically the case, but US traders (all 3-4 of them who are in the office today) are pushing back in early US trading. 

Mortgage rates have run higher since the most recent Federal Reserve meeting as consumer spending points to economic strength.

Jason Mitchell, the CEO of The Mitchell Group, called the CFPB’s lawsuit against both his company and Rocket Homes “a witch hunt.”

The lender and servicer is spending $9.3 million on security upgrades in addition to its pending $25 million fund for consumers and their attorneys.

At least one buyer was looking for a barndominium, while another wanted a roller coaster, according to Zillow’s analysis of data from its home search feature.

Analysts are unsure what the Federal Open Market Committee will do with monetary policy in 2025. The panel projects two rate cuts, but some analysts expect more, and others see fewer.

Bonds are back in the office for a few days, at least in the sense that there are no holiday scheduled changes, and they’ve wasted no time getting right back to the messaging that’s been in force for most of the month. Specifically, the path of least resistance is for longer term rates to move higher at a faster pace than short term rates. Things like the jobs report early in the month or the Fed announcement last week have contributed to this steepening effect (fancy jargon for 10yr yields moving higher faster than 2yr yields), but there are days where that momentum seems self-sustaining without any additional motivation.  Today is just the latest example.
The following chart is from 12/24, but nothing has changed since then in the bigger picture.

Today’s only relevant econ data is weekly jobless claims, and there’s nothing interesting to report there.  Claims came in just under forecast, and even in non-seasonally adjusted terms, they continue tracking with the recent reference years.

“My housemates are convinced our house is haunted. I don’t get it. I’ve lived here for 273 years and haven’t noticed anything strange.” Many people would be just fine with a haunted house. There are many building-related developments that would help the nation’s housing shortage, if only the Agencies or investors or local areas were more open to them. Tiny (“micro”) homes and lower-priced, smaller homes. 3-D printing. Manufactured housing. Conversions from retail or office have also helped. Over the past decade, the number of malls has decreased sharply, from 1,318 malls in the United States in 2014 to just 1,141 malls in the country as of this year. The mall enjoyed its dominance for the decades following the 1970s, serving as a major incubator of brands and a crucial meeting spot for teens. Now, some “dead” malls are getting a new life as housing or community spaces. (The make-up of “live” malls has shifted: over the decades apparel square footage has dropped, entertainment has increased, and food & beverage is flat.) (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 Realfinity’s Luca Dalhausen on the latest changes and happenings from the NAR settlement.)