Market Update/Mortgage Rates 09.27.23

It’s been another tough one for the bond market with the 10-year rising to 4.626% this morning.  Earlier today the MBA reported that the average contract rate on a 30-year mortgage rose 10bps to 7.41% last week, the highest rate in 23 years.  Things have continued to deteriorate for mortgages this week, including today’s selloff of 11/32nds for the current MBS contract.     The news takes a toll on already depressed home-purchase applications, which have fallen to the lowest levels in decades.

Besides mortgage apps, data is very light today.  Tomorrow, we get GDP, Personal Consumption, and Core PCE – all important drivers of Fed monetary policy.  We’ll also get another round of housing data before the week ends with PCE Deflator, UofMIch Consumer Confidence, and Personal Income/Spending.  Technically, maybe a little support for the bond market here; I'm just not sure if it’s enough to fend off all of the bearish momentum fueled by the latest round of Fedspeak. 

Minneapolis Fed President Neel Kashkari sees another rate hike and wants to keep the Fed Funds Rate there until this time next year. He said the housing market is red hot – we know volumes are extremely low, although homes have been appreciating. But home prices don’t make their way into the inflation reports.

Additionally, he wants people to make more wages, but doesn’t he understand that it is inflationary? Remember, this is the same guy that two years ago was shouting from the rooftops that we needed to keep rates at zero, and we needed more inflation.

Remember, the Fed can shift gears very quickly. Many are not contemplating how much rates have gone up, and the 10-year has gone up since the last rate hike – it’s in the neighborhood of 60bp, so the Bond market is tightening for the Fed.

The big news will be the Oct 6 jobs report – we hope to see a continued slowdown in Jobs.

Durable Goods Orders

Durable Goods Orders in August were up 0.2%, which was stronger than expected. Core Durable Goods, which strips out defense and aircraft orders, were up 0.9%, which was much stronger than expected. There was a 0.5% negative revision to the previous report, which tempered things a bit. Helping orders were electrical equipment and orders for vehicles/parts ahead of the auto strike.

Core shipments, which is factored into GDP, rose 0.7%, which was much better than the estimate of no change and may result in some upward tweaks to Q3 GDP.

Mortgage Apps

The MBA released their Mortgage Application data for last week, showing that purchases fell 2% last week and are down 27% year over year. Refinances fell 1% last week and are down 21% year over year.

According to the MBA, Interest rates increased slightly last week and are around 7 3/8%, with rates now about 1% higher than this time last year.