Mortgage rates began the day at new multi-decade highs, but only by a small margin over yesterday.  This was counterintuitive at first glance because the bond market was in better shape this morning (something that usually connotes lower rates).  The issue was simply due to timing, however, as bonds lost quite a bit of ground yesterday and hadn't gained it back by this morning. As the day progressed, that began to change--not at first, but eventually.  Bonds/rates took some solace in the weaker ADP Employment data out this morning, but then had an indecisive reaction to the important Non-Manufacturing Index from ISM, which came out right in line with forecasts. In a data-dependent environment, both reactions make sense.   Ultimately, bonds improved enough for a majority of lenders to offer mid-day improvements, thus bringing today's average 30yr fixed rate just slightly below yesterday's.  With economic data in mind, today's reports pale in comparison to the big jobs report that comes out on Friday morning.  If it is as weak as today's ADP data, rates could continue to move lower.  If it sings a different tune, we could be right back to multi-decade highs. 

Surprisingly Calm and Logical Rally Today's economic data came in either flat or noticeably weaker depending on the report.  Bonds rallied as a result. This is a logical outcome, and logical outcomes seem like the exception to the rule lately.  That said, keep in mind that part of our baseline for the current rising rate trend is to see short term pull-backs every 3-4 days.  This fits the bill.  Being able to use data as an excuse makes it a no-brainer.  Nothing about the bigger picture has changed.  This week's focus remains on Friday's jobs report. Econ Data / Events ADP Employment 89k vs 153k f'cast, 177k prev ISM Services 53.6 vs 53.6 f'cast, 54.5 prev ISM Biz Activity 58.8 vs 56.5 f'cast, 57.3 prev Market Movement Recap 09:07 AM Initially weaker overnight, then stronger.  More gains after ADP.  10yr down 5.6bps at 4.739.  MBS up 9 ticks (.28). 11:39 AM Some losses after ISM data, but now back in line with 10am levels. 10yr down 4.7bps at 4.748.  MBS up 7 ticks (.22). 02:33 PM Decent ground-holding continues.  MBS still up 7 ticks (.22) and 10yr down 5.2bps at 4.743. 04:13 PM Additional gains, and a modest pull-back in MBS, now up 12 ticks (3/8ths).  10yr down 6.4bps at 4.731.

Bonds had a scary overnight session with 10s hitting highs of 4.884 around 3am ET.  They rallied a full 15bps over the next 6 hours, most recently with help from the weaker ADP reading.  90 minutes later, the as-expected ISM data is standing aside to allow bonds to go where they please.  Big rallies are unlikely considering this week's big to-do is still Friday's jobs report.  Simply holding on to some of the gains from the morning would be a victory. Bonus chart, unrelated: oil prices vs bond yields.  If we zoomed out, we'd see strong correlation since July and generally good correlation since 2015.  Many have observed that higher oil prices bode ill for inflation, thus making bond weakness a rational result.  The past 2 weeks show us that the correlation is highly inconsistent over shorter time horizons.  In fact, the same could be said for the past year and a half with oil falling by roughly 40 dollars and yields rising by more than a point and a half.

I head to Vancouver, WA, this morning for a Banner Bank event and will probably have the option of Wi-Fi on the plane. How is it that NASA is able to receive data from 4.6 billion miles away, but I lose my Wi-Fi signal in my kitchen? Having a computer or smart phone has a price. I use Duck Duck Go for a search engine… Don’t think that Google doesn’t alter your search queries to reach your wallet. In other tech news, and you will forget about this note by then, your phone will blare a national emergency alert test today at 2:20PM ET, 12:20 PM MT. Of course, the messages will be accompanied by a “unique tone and vibration.” Listen for a jarring and obnoxious alarm that will immediately make you stop what you’re doing, utter obscenities, and pick up your phone to make it stop. Who can concentrate on Taylor Swift munching on football stadium dogs, or the lack of inventory and high rates, when the Las Vegas oddsmakers are making an active market in Fat Bear Week? (My 401(k) money’s on Otis!) Or maybe you’re watching the courtroom drama in NY or the machinations in Washington DC as groups come together and separate. (Today’s podcast can be found here and this week’s is sponsored by TRUE. TRUE creates accurate data that powers automation and optimizes every step of the lending lifecycle, helping lending organizations rapidly process loans, dramatically cut costs and risk, and radically improve the customer experience. Hear an interview with TRUE’s Bob Noble on practical applications for AI in today’s mortgage industry.)

As mortgage rates continued to climb, mortgage applications took their biggest hit since mid-April. The Mortgage Bankers Association (MBA) said its Market Composite Index, a measure of application volume, decreased 6.0 percent on both a seasonally adjusted and unadjusted basis compared to the previous week.    The Refinance Index dropped by 7.0 percent and was 11 percent lower than the same week one year ago. The refinance share of mortgage activity decreased to 31.7 percent of total applications from 31.9 percent the previous week. [refiappschart] There was also a 6.0 percent decrease in the seasonally adjusted and unadjusted Purchase indices. This drove the unadjusted index to a level 22 percent lower than the same week one year ago. [purchaseappschart] “Mortgage rates continued to move higher last week as markets digested the recent upswing in Treasury yields. Rates for all mortgage products increased, with the 30-year fixed mortgage rate increasing for the fourth consecutive week, up to and above 7.53 percent – the highest rate since 2000,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “As a result, mortgage applications ground to a halt, dropping to the lowest level since 1996. The purchase market slowed to the lowest level of activity since 1995, as the rapid rise in rates pushed an increasing number of potential homebuyers out of the market. ARM loan applications picked up over the week and the ARM share increased to 8 percent, as some borrowers searched for ways to lower their payments.” 

Mortgage rates were already close to the highest levels in more than 20 years yesterday--an unpleasant milestone that was easily surpassed after today's Job Openings data came in much higher than expected. Interest rates are always dependent on the economy and inflation--sometimes more than others.  Even without the Federal Reserve, rates would still need to pay attention to these things and stronger econ data would still imply higher rates, all other things being equal. But the Fed's role as short-term rate setter only amplifies the volatility produced by key economic data.  This is especially true in recent months as the Fed reiterates a "data dependent" stance time and again.  It is also especially true for reports the Fed has specifically called out.  Today's report is one of only a handful. Job openings have been declining since March, and that's a good thing for rates, technically, but the decline hasn't been as quick as expected.  Then days like to day cast doubt on the decline.  Openings jumped to 9.61m from 8.92m previously.  They'd need to be under 8m for the Fed to feel that its policies were having the desired impact on the labor market (and thus, on inflation prospects).  Much of the rapid rise in rates over the past two weeks has been in anticipation of this week's economic data.  Traders were bracing for bad news.  Today delivered. And now the market is bracing for more of the same in the remainder of the week.  Risks are biggest on Friday morning when the Employment Situation (the bigger, more timely jobs report) comes out.

"Higher For Longer" Fears Becoming a Reality After JOLTS The Job Openings and Labor Turnover Survey (JOLTS) is not a report we paid much attention to as a market mover until the past year or two.  Since then, it has increasingly been mentioned by the Fed.  That alone is reason enough to pay attention, but it's also able to teach investors things about the labor market that don't show up as readily in other data. It had been trending lower (and arguably, still is), but as was the case in February and June, total job openings popped higher into a position where a subsequent increase would break the downtrend.  Bonds were nearly unchanged before the data, but sold off abruptly in its wake.  Both 10yr yields and mortgage rates hit new long-term highs.  Econ Data / Events Job Openings 9.61m vs 8.8m f'cast, 8.92m prev "Quits"  3.638 vs 3.549 prev (lower is better for rates) Market Movement Recap 08:36 AM Another rout overnight. 10yr up 3.9 bps at 4.724 (overnight high = 4.752).  MBS down just over a quarter point. 11:08 AM Weaker after JOLTS.  10yr up 7.7bps at 4.762.  MBS down 5/8ths. 03:06 PM Steady selling all day.  10yr up 12.1bps to new highs of 4.806.  MBS down more than 5/8ths.  

A tempest in a teapot or the start of an uprising? Redfin, the publicly owned Seattle-based real estate company with 50 offices nationwide, announced on Monday it is walking away from the National Association of Realtors (NAR). The company, in a letter published on its website, said it was moving to end its association with NAR. The letter, signed by CEO Glenn Kelman and seven other members of Redfin’s leadership team, said it was making the change because of NAR policies requiring a commission be paid to the buyer’s agent on every listing and “a pattern of alleged sexual harassment.”  In August, the New York Times reported that a number of NAR employees had come forward with claims of sexual harassment, discrimination and retribution at the association’s Chicago headquarters and local offices. Many of the complaints involved former NAR president Kenny Parcell. Both NAR and Parcell denied the allegations. Parcell quit shortly after the article was published.   Redfin said it had resigned its national board seat in June, before the alleged sexual harassment came to light, because of NAR’s policies on commissions and its prohibition on websites like Redfin.com from showing for-sale-by-owner homes. “Removing these blocks would be easy, and it would make our industry more consumer-friendly and competitive,” the letter said. Redfin said it will now require its brokers and agents to leave NAR wherever possible but because of the independent agent nature of most brokerages “they don’t want to impose a policy that could alienate any of the people who generate its revenue.” However, NAR rules require that Redfin also leave local and state associations even though its beef is only with the national group. In about half of Redfin’s markets, losing membership will mean loss of access to listing databases, lockboxes, and industry-standard contracts. “It’s impossible to be an agent if you can’t see which homes are for sale, or unlock the door to those homes, or even write an offer.”

In the wake of the Fed announcement from 2 weeks ago, one key component of our bearish thesis was that bonds had to brace for the potential impact that would result from data being strong in the first week of October.  It is now the first week of October and data has been stronger.  This morning's JOLTS (job openings and labor turnover survey) is the biggest, baddest confirmation so far this week, and it's pushing yields to fresh long-term highs.  Pretty simple stuff, actually, even if unpleasant and unfortunate for fans of low rates...

How will you always know that this Commentary is not produced by some AI thingy? Because of mistakes like yesterday, leaving Illinois off the list of top pumpkin growing states as several folks pointed out (thank you). Here are pumpkin stats out the proverbial wazoo. What autumn would be complete without this map of when fall foliage is peaking across the nation? While we’re on maps, the U.S. Census Bureau released an interactive map illustrating 2020 Census data about homeownership by the age, race, and ethnicity of the householder. The map provides data at the national, state and county levels and data from the 2010 Census for comparison. The Census Bureau also released the brief Housing Characteristics: 2020, which provides an overview of homeownership, renters, vacant housing and other 2020 Census housing statistics previously released through the 2020 Census Demographic and Housing Characteristics File (DHC). (Today’s podcast can be found here and this week’s is sponsored by TRUE. TRUE creates accurate data that powers automation and optimizes every step of the lending lifecycle, helping lending organizations rapidly process loans, dramatically cut costs and risk, and radically improve the customer experience. Interview between Robbie and Rob Chrisman on chatter from the capital markets and why people should tune in to their weekly Mortgage Matters video show each Wednesday.) Lender and Broker Software, Programs, and Services Not many lenders know this, but you can buy down points with down payment assistance (DPA). DPA has evolved over the years, and there are 2,373 to choose from today according to Down Payment Resource’s Q2 HPI report. What’s more, consumer interest in DPA is savage, and lenders who offer it have a competitive edge. Just ask anyone who originated one of the 2,300 CalHFA programs that disappeared in just 11 days. DPA is one of the best tools lenders have in today’s market and for the foreseeable future. Want to know how many homebuyer assistance programs are offered in your markets or to learn more about how Down Payment Resource makes it easy to support DPA? Schedule a demo with the Down Payment Resource team today.