Market Matters

This has been some move in treasuries and MBS since the Fed meeting last Wednesday. The 10-year did hit 4% on Wednesday this week, before a strong rally due to the Bank of England (BoE) announcing that they would step in and buy as many of their long maturing GILTS as was needed. This had the 10-year rally all the way to 3.68% on Wednesday. The point here is that there is a lot of volatility in treasuries and in MBS, so it is best to be defensive as the market really seems to be trading off momentum at this point.

 

Initial Jobless Claims

Initial Jobless Claims were down by -16k to 193k for the week ended September 24th vs. the prior week's revised print at 209k (orig. 213k). The 4-week moving average on headline claims is at 207k, which is a significant decline from last week's revised 215.8k. Continuing claims, which lag by a week, fell -29k to 1.347mln from a downwardly revised 1.376mln (orig. 1.379mln). This is the lowest count on continuing claims since the week of July 2nd.

 

GDP

The third release of Q2 GDP saw overall growth unrevised at annualized -.6%, which now confirms a second consecutive quarter of contraction. While the headline print looked unchanged, the details showed a bit different picture. The contribution from personal consumption expenditures improved from +0.99 percentage points to +1.38, balanced by weaker contributions from fixed investment (-0.92 from -0.84), the change in inventories (-1.91 from -1.83), and net exports (+1.16 from +1.42). Government consumption and investment was little changed, to -0.29 from -0.32. It was nice to see the increase in consumption, but the negative to fixed investment (the lowest reading since Q2 2020, and second lowest since Q2 2009) suggests weaker potential for growth in the future.

 

Pending Home Sales

The National Association of Realtors' Pending Home Sales Index fell another -2.0% in August vs. expectations of a -1.4% decline. July's figures were revised upwardly, however, from -1.0% to -.6%. Looking YoY in August, sales fell by -24.2%. By region, the Northeast fell -3.4% MoM and -19.0% YoY; the Midwest fell -5.2% MoM and -21.1% YoY; the South slid -.9% MoM and -24.2% YoY; the West rose +1.4% MoM and down -31.3% YoY. "The direction of mortgage rates – upward or downward – is the prime mover for home buying, and decade-high rates have deeply cut into contract signings," said NAR Chief Economist Lawrence Yun. "If mortgage rates moderate and the economy continues adding jobs, then home buying should also stabilize." Yun notes that limited housing inventory and almost non-existent distressed property sales have supported home prices. Overall, he forecasts prices will rise by +9.6% in 2022.

 

Mortgage Applications

The MBA weekly mortgage applications index declined by -3.7% for the week ending September 23rd. Purchase applications decreased by -.4% and were -29.0% lower than the same week one year ago. Refinance applications fell by -11.0% and were -84.0% lower the same week last year. "Applications for both purchase and refinances declined last week as mortgage rates continued to increase to multi-year highs following more aggressive policy measures from the Federal Reserve to bring down inflation. Additionally, ongoing uncertainty about the impact of the Fed's reduction of its MBS and Treasury holdings is adding to the volatility in mortgage rates. The 30-year fixed rate was 6.52 percent, its highest level since mid-2008. After a brief pause in July, mortgage rates have increased more than a percentage point over the past six weeks," said Joel Kan, MBA's Associate Vice President of Economic and Industry Forecasting. "With rates now more than double what they were a year ago, the pace of refinancing is running at a 22-year low and last week was more than 80 percent below last year's level. Similarly, purchase activity was 29 percent lower than a year ago, with higher rates and economic uncertainty weighing on buyers' decisions." Added Kan, "With the recent jump in rates, the ARM share reached 10 percent of applications and almost 20 percent of dollar volume. ARM loans remain a viable option for qualified borrowers in this rising rate environment."