More Signed Contracts Despite Higher Rates

It’s a shortened holiday week with the Bond market closing at 2:00pm ET today and closed all day on Friday in observation of the Good Friday Holiday.

Stocks are slightly higher and Mortgage Bonds are slightly lower so far this morning.  Yesterday’s 7-year Auction was strong, following a good 5-year Auction.  Our Bill Hagmann graded it a “B”.

Pending Home Sales

Pending Home Sales, which measures signed contracts on existing homes, rose 1.6% in February, which was very strong considering the rise in rates during the month.  Sales are down 7% year over year, which was an improvement from almost -9% in January. 

Inventory increased in February, which translated to more sales.  We should continue to see a steady increase in inventory as there has been a nice uptick in single-family home building.

Fed Governor Waller Comments

Fed Governor and voting member, Christpher Waller, spoke yesterday and is clearly not in favor of cutting rates yet.  He explained that the inflation data so far this year has made him uncertain about the speed of continued progress on inflation and it may be prudent to hold rates at this level for longer than previously thought.  He went on to say that further progress on inflation would make it appropriate to cut rates this year, but he would need to see at least a couple of months of better data before having confidence to cut. 

Waller also said that because the US economy is strong and the labor market is resilient, the risk of waiting a little longer to ease policy is small and significantly lower than acting too soon and possibly squandering the progress on inflation.  We feel that he would likely change his tune and want to cut sooner if the unemployment rate continued to rise. 

Apartment List Rental Report

Apartment List released its March Rental Report, showing that new rents rose 0.6% during the month and are down 0.8% year over year, improving from -1% in the previous report.  This is the second month in a row of increases on new rents, although the yearly decline should eventually start to help the rental inflation components.

Final Q4 GDP Reading

The final reading of Q4 GDP showed that the US grew at a 3.4% annualized pace, which is an increase from 3.2% in the second reading. 

The quarterly PCE Core price index remained at 2%, which was one tenth lower than estimates.  While Q4 was stronger than initially expected, most of the gain was driven my consumer spending.  Since then, we have started to see the consumer appear to come under stress and some of the spending figures move lower, which could lead to some lower Q1 GDP estimates.

Initial Jobless Claims

Initial Jobless Claims, which measures individuals filing for unemployment benefits for the first time, fell 2,000 to 210,000, which is a very low number.

Continuing Claims, or those that continue to receive benefits after their initial claim, rose 24,000 to 1.819M.  The story here remains the same – Firings remain muted, while continuing claims remains near the highest levels since 2021, signaling it’s harder to find a job once let go.

CoreLogic Loan Performance Insights

CoreLogic reported that loan performance in December on those 30-days or more delinquent fell from 3.1% to 2.8%.  This metric was something we were keeping an eye on, but with the drop back to 2.8%, it’s now in line with where it has been the last few years.

Those 90+ days delinquent rose remained at 1%, while those in foreclosure stayed just off the lowest level on record at 0.3%.

Technical Analysis

Mortgage Bonds continue to trade in a very wide range between support at their 50-day Moving Average and overhead resistance at 101.273.  We do have to be careful in this range as there is a lot of room to both the up and downside.  The 10-year has been in a downtrend, but is up against stiff support at the 100-day Moving Average and 50-day…but momentum is on our side.  Begin the day floating.