Flood insurance could hold up some home sales and lending, while major bank regulatory agencies will remain funded even if the government is unable to pass the necessary legislation before funding runs out.

Activity from smaller mom-and-pop investors dominates the segment, but their impact on overall housing prices might be overstated, Corelogic’s research found.

The fiscal condition at the government agency is much healthier today than when the Department of Housing and Urban Development put the policy into effect back in 2013.

The residential market is expected to face challenges from stubbornly high mortgage rates and limited supply in 2025, particularly after Fed Chair Jerome Powell’s comments on Wednesday indicating fewer rate cuts are coming.

This week’s biggest to-do in terms of economic reports was this morning’s PCE inflation data.  The fact that the Fed just said it was shifting its primary focus away from the labor market and back toward inflation made PCE all the more interesting.  Thankfully, it came out lower than expected  at the core level, both in monthly and annual terms (a nice development considering yesterday’s Q3 numbers were higher than expected).  The unrounded monthly number of 0.11 was very close to the rounded 0.1%.  Bonds rallied in response, but the gains have been modest in comparison to Wednesday’s losses.

In addition to the modest response to the PCE data, it’s also important to remember that PCE isn’t the only market mover in play.  It’s the end of the week and effectively the end of the year for many traders.  Year-end trading can have it’s own impact on yields, regardless of economic data.  This could create a situation where we see selling pressure later today for no apparent reason.  That said, it could also create buying demand, but that hasn’t been the norm for this year’s suspected year-end trades.

The week’s big story is still the big jump in rates that took place after Wednesday’s Fed announcement.  And while rates remain noticeably elevated on the week due to that jump, they’re set to end the week at slightly less elevated levels. Credit this morning’s inflation data for that development! Part of Wednesday’s Fed Day drama involved a renewed focus on inflation reports.  That added to anxiety because Friday’s PCE inflation index is one of the two big inflation reports that come out each month. The bond market that underlies day-to-day interest rate movement is most focused on what’s known as “core” inflation, which discounts the more volatile food and energy components.  If month over month core inflation is running just under 0.2%, annual inflation would eventually hit its 2.0% target.  Today’s monthly core PCE came in at 0.1%, which was lower than the market expected. In year over year terms, there’s more work to do, as PCE remained at 2.8%.  The market actually expected a 0.1% increase on the annual number. In general, when reports like PCE (or its counterpoint, CPI) come in lower than expected, it puts downward pressure on rates.  Today was no exception with the average lender getting back almost half of the ground lost on Wednesday.  Top tier 30yr fixed rates are still over 7%, but only just.

Not as Bad as it Could Have Been

After Wednesday’s Fed-driven sell-off, it was unlikely if not impossible that bonds wouldn’t end up saying they had a bad week.  That is certainly still the case, but after Friday, it’s not as bad as it could have been.  PCE inflation came in at 0.1% at the core level, month over month.  If inflation repeated that performance for 12 months, annual inflation would be below the 2.0% target. Headline inflation is even lower and has been doing even better in terms of getting back to a target trajectory.  Bond traders are largely able to price in PCE data because a good amount of it can be calculated from CPI/PPI which come out 2 weeks earlier. There was still enough of a surprise for 10yr yields to drop a quick 6bps and ultimately end the day 4bps lower than yesterday.

Econ Data / Events

M/M Core PCE

0.1 vs 0.2 f’cast, 0.3 prev

Y/Y Core PCE

2.8 vs 2.9 f’cast, 2.8 prev

Market Movement Recap

09:25 AM Slightly stronger overnight with additional gains after PCE data.  MBS up 11 ticks (.34) and 10yr down 6.8bps at 4.503

01:14 PM Generally stronger, but off the highs.  MBS up 10 ticks (.31) and 10yr down 6.4bps to 4.507

01:52 PM Down just over an eighth from highs in MBS.  10yr down 6bps at 4.511

The senior vice president who played a key role in instituting an industry scorecard passes on some insights with future relevance as she prepares to depart.

Over the past two weeks, the 10-year Treasury yield, priced on market expectations, increased over 40 basis points and that is finally being seen in the Freddie Mac survey.

A Congressional Budget Office report updating one from four years ago finds 60% of its 250 scenarios will result in the Treasury getting fully repaid, up from 12%.