Modest Friday Bounce Does Little to Alter Bigger Picture
After a decent mid-day recover, bonds gave up their gains heading into the 3pm close. It's a level of weakness that demands no explanation in the bigger picture--especially on a Friday afternoon of a week with a rally on every single previous day. Nonetheless, one could make a case for the bump by pointing to things like Senate moving closer to a spending bill vote with reports suggesting slightly more spending than before. Separate headlines involved Trump declaring an end to trade negotiations with Canada--something that might imply inflation pressure to some traders. Friday aside, the week's theme was one of lower Fed Funds Rate expectations and that will either be amplified or called into question by the key economic reports next week (as well as CPI the following week).
Econ Data / Events
Core PCE M/M
0.179 vs 0.1 f'cast
Core PCE Y/Y
2.7 vs 2.6 f'cast, 2.6 prev
Inflation adjusted spending
-0.1 vs 0.1 f'cast, 0.2 prev
Consumer 1yr inflation expectations
Down 0.1% m/m
Consumer 5yr inflation expectations
Down 0.1% m/m
Market Movement Recap
08:50 AM Slightly weaker overnight and sideways to slightly stronger after data. MBS down 3 ticks (.09) and 10yr up 1.9bps at 4.254
09:43 AM 10yr yields are up 5bps at 4.286 and MBS are down 6 ticks on the day (0.19) and an eighth of a point from AM highs.
02:02 PM Decent recovery with 10yr nearly unchanged at 3.722 and MBS down 3 ticks (.09).
Friday's mortgage rates ended up being right in line with Thursday's on average. At 6.72%, the MND daily rate index is as low as it's been since early April when it hit 6.60%. If you're thinking that 6.72 doesn't sound much higher than 6.60, you're right! Mortgage lenders tend to offer rates in 0.125% increments, so we're really only one notch away from those lows. After that, we'd need to go all the way back to October to see anything lower. While the mortgage market can languish sideways for weeks without moving outside a 0.12 range, there are also more than a few examples of that much movement in a single day, provided the news is sufficiently inspiring. The catch is that the movement could occur in either direction. In a general sense, the recent improvement has been a byproduct of slightly softer economic data and inflation. There are key reports that speak to those metrics over the next two weeks. Rates have more room to fall if the data shows a continued softening, but could spike abruptly if employment surges or tariff-driven inflation actually materializes.
Does anyone pay with cash anymore, or actually have the money in their bank account? Credit card debt is now $1.1 trillion. There is even a credit card just for automotive repairs! With those “Buy Now Pay Later” arrangements being added to the FICO reports, MLOs are asking, “What are delinquencies like? Will these add to, or subtract from, my pool of eligible borrowers? To the surprise of no veteran LO, it turns out that nearly half have experienced payment problems. Want to do a client with a high credit card balance (and paying 28 percent on it) a favor? Of course you want to put them into a cash out refi, but if that doesn’t work, for $1 have them join American Consumer Council which gives them access to membership in normally off-limit credit unions. Some, like UFCU in Austin, will accept transferred balances into an account where the rate can be only 9.9 percent. Hmmm… 9.9 versus 28. (Questions can be directed to UFCU’s Michael Jones.) (Today’s podcast can be found here and this week is sponsored by Optimal Blue. OB bridges the primary and secondary mortgage markets to deliver the industry’s only end-to-end capital markets platform, helping lenders maximize profitability and operate efficiently so they can help American borrowers achieve the dream of homeownership. Today’s has an interview with Covius’ Pete Pannes on how M&A is shaping the title industry across firsts, seconds, and defaults.) Products, Software, and Services for Brokers and Lenders
The National Association of Realtors' Pending Home Sales Index (PHSI)—which tracks contract signings on existing homes—has remained rangebound for more than two years, constrained by affordability pressures and elevated mortgage rates. This week’s update showed a modest improvement, but the broader story hasn’t changed. Pending home sales rose by 1.8% in May, marking the first increase since February. The index is now 1.1% higher than a year ago , but still well below pre-2022 norms. Zooming out, contract activity remains stuck in a narrow band. The index hasn’t been above 80 since the summer of 2022 and continues to reflect a sluggish, rate-constrained housing market. “Consistent job gains and rising wages are modestly helping the housing market,” said NAR Chief Economist Lawrence Yun. “Hourly wages are increasing faster than home prices. However, mortgage rate fluctuations are the primary driver of homebuying decisions and impact housing affordability more than wage gains.” Here’s how the month-over-month change broke down by region:
Northeast: +2.1%
Midwest: +0.3%
South: +1.0%
West: +6.0%
New Home Sales fell sharply in May according to the latest report from the U.S. Census Bureau and HUD. After a brief surge in April, the seasonally adjusted annual pace dropped to 623,000—down 13.7% from April's revised reading of 722,000 and 6.3% lower than the same month last year. When last month's data originally came out, the annual pace of 743k was the highest in several years. The drop brings sales activity back in line with late 2023 levels. While it’s not uncommon to see volatility in this data series, the sharp monthly decline is still notable, especially considering the downward revision to April’s numbers. Inventory rose modestly to 507,000 homes, which at the current sales pace represents a 9.8-month supply—up from 8.3 months in April and 8.5 months a year ago. That’s the highest months’ supply figure since late 2022, and one of the highest in more than a decade. The median price rose to $426,600 in May, a 3.7% increase from April and 3.0% higher than a year ago. The average price rose 2.2% on the month to $522,200, up 4.6% year-over-year. Both measures are now back near the recent highs seen in late 2022. Regionally, the decline in sales was led by the South and West, while the Northeast and Midwest held steadier by comparison.
Northeast : 27k (up 4k from April)
Midwest : 82k (down 2k from April)
South : 365k (down 113k from April)
West : 149k (down 9k from April)
Watching Rates
Check our some recent articles and posts about current rates.
Friday's mortgage rates ended up being right in line with Thursday's on average. At 6.72%, the MND daily rate index is as low as it's been since early April when it hit 6.60%. If you're thinking that 6.72 doesn't sound much higher than 6.60, you're right! Mortgage lenders tend to offer rates in 0.125% increments, so we're really only one notch away from those lows. After that, we'd need to go all the way back to October to see anything lower. While the mortgage market can languish sideways for weeks without moving outside a 0.12 range, there are also more than a few examples of that much movement in a single day, provided the news is sufficiently inspiring. The catch is that the movement could occur in either direction. In a general sense, the recent improvement has been a byproduct of slightly softer economic data and inflation. There are key reports that speak to those metrics over the next two weeks. Rates have more room to fall if the data shows a continued softening, but could spike abruptly if employment surges or tariff-driven inflation actually materializes.
After topping out on May 21st, the average day for mortgage rates has been a good one. This has been especially true since June 6th with our 30yr fixed index moving down almost 0.25% through this afternoon. Today's gains contributed nicely with a drop of 0.07%. Normally, we'd point to the economic release calendar to help explain this sort of momentum. There were numerous reports out this morning and several of them could be viewed as helpful for rates. But when rates move lower in response to economic data, we tend to see at least some semblance of weakness in the stock market--even if only briefly--and that was nowhere to be found. The implication is that the market is broadly shifting to expect a lower path for the Fed Funds Rate (something that would help both rates and stocks). It's always good to remember that the greater number of days in a mortgage rate winning streak, the greater the odds of a bounce. Sometimes that only means a single day moving modestly higher. Other times, the rate market hits a short term floor and moves back up into its recent range for a while. There is absolutely no way to know which sort of bounce the next one will be, only that it grows slightly more likely with each passing day of victory. Note: our winning streak is at 5 days currently, and we don't tend to call attention to these risks until we hit 8 days. Some of the longest streaks go more than 10 days.
The average top tier 30yr fixed mortgage rate had already dipped to the lowest levels since May 1st at the start of the week. Two additional days of modest improvement brings us to the lowest levels since April 4th as of today. April 4th is probably a day that's worth remembering. If rates take out that particular floor, it would signify some more serious momentum toward lower borrowing costs. Reason being: April 4th's MND rate index was 6.6%--almost 0.20% lower than today's 6.79%. Rates jumped abruptly after April 4th as the bond market reacted to a sharply stronger jobs report. They continued higher the following week after the tariff "pause." Today's improvement is really more a reflection of yesterday afternoon's bond market strength. As a reminder, lenders prefer to change their rates as infrequently as possible after setting them initially in the morning. If the bond market moves enough, they will issue mid day "reprices." Many lenders did so in response to yesterday's bond market gains, but in those scenarios, there tends to be a bit more left on the table. If the bond market holds reasonably steady overnight (as it did today), lenders can then pass along the additional improvement.
Yesterday saw mortgage rates fall to the best levels since early May. Now, today, we'd have to go all the way back to the end of April to find anything lower. Are the changes massive? Not by a long shot, but it sounds/looks that much better hear/read. This wasn't destined to be the case today. The underlying bond market actually began the day in a stance that would have kept rates sideways or just a hair higher. But after the morning's economic data and Fed Chair Powell's congressional testimony, bonds improved and the average mortgage lender was able to offer a mid day reprice. The data that mattered was the Conference Board's Consumer Confidence Index. Specifically, a closely watched component of that index, the labor differential (a measurement of consumers who day jobs are plentiful versus those who say jobs are hard to get), pointed to the weakest labor market conditions since the easing of initial covid lockdowns. At the same time, Fed Chair Powell began answering questions before the House Financial Services Committee. He struck a slightly softer tone on potential rate cuts today compared to the press conference at last week's Fed meeting and the bond market reacted accordingly. In general, when bonds improve enough during the day, mortgage lenders are increasingly able to execute a mid-day price change.
