We will be hosting a webinar with Charlie Oppler, the former President of the National Association of Realtors, as well as Tim Braheem on December 20 at 1:00pm ET.  They will bring you latest on the NAR lawsuits and some important strategic planning for 2024 and ways to gain market share.  Register here:

https://highway-ai.zoom.us/webinar/register/7716999074391/WN_FSujkwhKSUCoeaq82uBRbA#/registration

Stocks and Mortgage Bonds have both rallied sharply in response to yesterday’s dovish Fed Statement and press conference from Jerome Powell, with 10-year yields now under 4%!

Fed Meeting Breakdown

The Fed pivoted at yesterday’s meeting, completely changing their tone and signaling rate cuts next year.  The Fed sounded much more dovish, saying that meaningful progress on inflation has been made and downgrading their view of the economy.  Powell outright said that the Fed will not be waiting for inflation to reach their target before cutting and would do so well in advance of it to account for the lags.  When asked what inflation would have to be for the Fed to cut, he did not commit, but it seems to us if we see it get under 3% that the Fed would give the green light to cut.  The Fed is finally starting to look a bit into the future, which is a good thing.  Unlike previous talks, Powell did not try to downplay the markets expectations of cuts next year.

When asked about the balance sheet, he said that the Fed is not thinking about stopping QT (balance sheet reduction) right now, but left the door open if things slow.  He explained that if it’s just to normalize policy, the Fed could wait.  But if we see a few bad jobs numbers, the economy slows, etc, they would like begin tapering or slowing the reduction. 

The Fed’s Dots plot chart, which shows anonymously where the 19 Fed members believe the Fed Funds Rate will be over the next few years, was telling.  There were a few outliers, with two members thinking that there would be zero cuts next year, while one member is pricing in 150bp of cuts.  The vast majority believes the Fed will cut by 50 to 100bp, with the median Fed Funds rate at 4.6%.

One thing that could cause the Fed to be more aggressive is the unemployment rate.  Most Fed members don’t see the unemployment rate getting higher than 4.1%, so that will be a key level to watch.  If it gets higher then many members will likely be surprised and the Fed could do more aggressive cutting.

Fed Futures Post Fed Meeting

The Fed Futures or the markets’ odds of rate cuts next year moved sharply higher and were pulled forward.  The market thinks there is almost a 20% chance of a rate cut at the January 31 meeting, followed by an 84% chance at the March 20 meeting. 

The market has a 100% chance of a cut priced in by May 1, with an 80% chance of 50bp of cuts.  In June the odds are at 81% for 75bp of cuts!

Initial Jobless Claims

Initial Jobless Claims, which measures individuals filing for unemployment benefits for the first time, fell 19,000 to 202,000.  This figure continues to remain somewhat muted, showing that employers are trying to hold onto their workers.

Continuing Claims, or those that continue to receive benefits after their initial claim, rose 20,000 to 1.876M, which is the second highest reading since November 2021.  This figure has been rising sharply and points to a weakening labor market where it’s much harder to find a job once you are laid off as employers are hiring less.

Retail Sales

Retail Sales in November rose 0.3%, which was stronger than the -0.1% expected.  Core Retail Sales, which gets plugged into GDP, beat estimates by two tenths, but were offset two tenths downward revision to October and one tenth downward revision to September.  As a result, there should not be much of an impact on GDP estimates.

Technical Analysis

Mortgage Bonds continue to trend higher, now breaking above resistance at 101.392.  The next stop is 101.65, which is a level that is holding for now.  The 10-year is down to 3.95%, sitting directly on a floor of support.  It was significant to see yields get under their 200-day Moving Average this morning and if they can break under 3.95%, there is a lot of room to the downside until reaching 3.76%.

Stocks are higher and Mortgage Bonds are slightly lower to start an important and potentially market moving week.  All eyes will be on the Consumer Price Index inflation report tomorrow morning and Fed Meeting on Wednesday.

Week Ahead

Monday: 10-year Note Auction

Tuesday: Consumer Price Index, 30-year Bond Auction

Wednesday: Producer Price Index, Fed Meeting

Thursday: Retail Sales

Consumer Price Index Preview

The highly anticipated Consumer Price Index report will be released tomorrow morning at 8:30am ET.  Market estimates are looking for the headline reading to be flat in November and to drop from 3.2% to between 3.1% to 3% on year over year basis.

The market believes the core reading, which strips out food and energy prices, will rise 0.3% in November and go from 4% to between 4% to 4.1%. 

Essentially, the market is expecting the headline to make some progress, but for the core to be flat to slightly higher.  Part of the reason for the lack of progress is due to weak comparisons or replacement figures in the year over year calculations from last year. 

We believe the headline reading is likely to be flat and we agree with market consensus.  We think the core reading could come out one tenth lower than estimates, as the comparisons from shelter last year are higher and used car prices continued to come down.  Additionally, the volatile lodging away from home component, which is comprised of hotel/motel prices and things like AirBNB’s can be the X factor.  We correctly forecast this last month and we don’t believe it will negatively impact in November.  Our work shows that hotel prices for most major cities besides Miami declined between Oct and November.

Technical Analysis

Stocks are mixed and Mortgage Bonds are trading near unchanged levels so far this morning.

Case Shiller Home Price Index

The Case Shiller Home Price Index, which is the “gold standard” for appreciation, showed that home prices rose 0.2% in December.  Home prices have been on the rise since January and are now up 5.6% from last year.  Case Shiller has continued to set new all-time highs in home prices as of July.  Since 2019, Case Shiller is reporting that home values have risen 46%!

FHFA House Price Index

The FHFA (Federal Housing Finance Agency) released their House Price Index, which measures home price appreciation on single-family homes with conforming loan amounts.  Different than Case Shiller, it does not include cash buyers or jumbo loans.  The FHFA reported that prices rose 0.1% in December and are up 6.6% year over year.  FHFA has continued to set new record highs in home prices every month since February of this year.

With the December numbers now in for all of our appreciation reports that we track, here is how 2023 finished up:

Case Shiller: 5.6%

FHFA: 6.6%

CoreLogic: 5.5%

Black Knight: 5.6%

Durable Goods Orders

Durable Goods Orders in January were reported at -6.1%, which was even less than the estimates looking for -4.5%.  Adding to the weakness was a revision lower to December from 0% to -0.3%.  It appears we had a strong November head fake, followed by two negative months.

Even when stripping out transportation, which can be heavily impacted by aircraft orders, sales fell 0.3%.

Core Durable Goods rose 0.1%, which was as expected, but the previous month was revised lower by seven tenths from 0.1% to -0.6%.

Bottom line – After a weak Retail Sales number in January, we got a weak Durable Goods figure this morning, signaling a potential slowdown.

Technical Analysis

Mortgage Bonds continue to trade in a narrow range between important support at the 200-day Moving Average and overhead resistance at 100.428...but Bonds are testing that support level and trying to remain above it.  If this level fails to hold, there is nearby support at 100.068.  The 10-year is trading in a range between 4.25% and the 100-day Moving Average, which has kept a lid on yields and has prevented them from moving higher. 

Yesterday, a weak 2-year and 5-year Auction pressured the Bond market. 

We will see a 7-year Auction at 1:00pm ET, which is something to keep an eye on, as it’s additional supply that has to be absorbed by the Bond market. 

Stocks are lower and Mortgage Bonds are higher to start the day.

Q4 GDP (Second Reading)

The second reading of Q4 GDP showed that the US grew at a 3.2% annualized pace, which is a decline from the first reading of 3.3% and a lower rate of growth than the 4.9% seen in Q3.  The slightly lower second reading helped Bonds move a bit higher.

PCE Expectations

The big news tomorrow will be the Fed’s favorite measure of inflation, Personal Consumption Expenditures, for the month of January.  The market is expecting headline inflation to rise 0.3% and for the year over year reading to decline from 2.6% to somewhere between 2.4% to 2.3%.

The Core rate is expected to rise between 0.3% to 0.4% and for the year over year reading to decline from 2.9% to somewhere between 2.8% to 2.7%.

Even if we don’t get as favorable of a PCE reading as the market is hoping for, we already saw Bond price sell off in response to the CPI and PPI reports, so much of the downward move could be priced in.  Additionally, if we get a surprise lower figure, we could see outsized returns.

Atlanta Fed Wage Tracker

Wages in January moderated from 5.4% to 4.7%, which is a significant deceleration…And this figure was +6.2% a year ago.  And wage growth would have been even slower if not for the government wage increases, which rose 6.7% year over year, an acceleration from 5.8% a year ago. 

Consumer Confidence

The Conference Board released their Consumer Confidence for February, showing that overall confidence fell from 111 to 107.  Both the present situation and expectations for the future fell.  Of importance was the job related questions, which showed that those reporting jobs harder to get rose from 11% to 13.5%.

This coincides with Continuing claims, which have been elevated, showing it’s harder to find a job once laid off.  We also just heard that Macy is closing 30% or 150 of their stores. 

Fed Comments

Fed Governor Bowman spoke yesterday and acknowledged the PCE inflation is below 3%, but mentioned that the recent CPI and PPI inflation readings were hotter than anticipated.  He believes the Fed policy is appropriately restrictive and is not ready to cut yet.

The new KC Fed President Jeff Schmid, who will vote next year, said he is no rush to cut rates and is not a big fan of slowing the reduction of the balance sheet. 

MBA Mortgage Applications

The MBA released their Mortgage Application data for last week, showing that purchases fell 5% last week and are down 12% year over year.  Refinances fell 7% last week and are down 1% from last year.  Refinances made up 31% of all transactions, which is nearly a third.  There are still cash out refinances being done, but now even some rate and term refinances and removal of MI.  Make sure to tap your database.

Interest rates rose slightly to just over 7% and are roughly 0.3% higher than this time last year. 

Technical Analysis

Mortgage Bonds continue to trade in a narrow range between important support at the 200-day Moving Average, which held yesterday and this morning, and overhead resistance at 100.428.  The 10-year is trading in a range between 4.25% and the 100-day Moving Average, which has kept a lid on yields and has prevented them from moving higher. 

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Stocks are lower and Mortgage Bonds are higher to start the day.

Leading Economic Index

The Conference Board released their Leading Economic Index, which is forward looking index that takes a broad look at the economy.  In January, LEI fell 0.4%, which is the 22^nd consecutive month of declines.  The Conference Board softened their tone on recession expectations, saying “the leading index currently does not signal recession ahead. While no longer forecasting a recession in 2024, we do expect real GDP growth to slow to near zero percent over Q2 and Q3.”  Even though recession is not forecasted in 2024, a recession-like slowdown would lower inflation and, in turn, lower mortgage rates.

MBA Mortgage Applications

The MBA released their Mortgage Application data for last week, showing that purchases fell 10% last week and are down 13% year over year.  Refinances fell 11% last week and are flat from last year.  Interest rates rose back above 7% to 7.06% from 6.9% and are roughly 0.4% higher than this time last year.

Leading Economic Index The Conference Board released their Leading Economic Index, which is a forward looking index that takes a broad look at the economy. In January, LEI fell 0.4%, which is the 22nd consecutive month of declines. The Conference Board softened their tone on recession expectations, saying “the leading index currently does not signal recession ahead. While no longer forecasting a recession in 2024, we do expect real GDP growth to slow to near zero percent over Q2 and Q3.” Even though recession is not forecasted in 2024, a recession-like slowdown would lower inflation and, in turn, lower mortgage rates.

Potential Market-Moving News

Later this afternoon at 1:00pm ET and 2:00pm ET, there will be a 20-year bond auction and the release of the Fed minutes from the January 31 meeting, respectively.  The minutes are old news from three weeks ago and will likely be overshadowed by the auction.  

Technical Analysis

Mortgage Bonds are continuing to trade in a tight range with support at their 200-day Moving Average and resistance at 100.428, which is an important Fibonacci level.  At 1:00pm ET we'll need to be on guard for the 20-Year Bond Auction, which may decide the direction MBS break out.

The 10-year is trading just above a floor of support at 4.25%, with resistance overhead at 4.34%, which is the 100-day Moving Average. 

Stocks are lower and Mortgage Bonds are higher to start the day.

Q4 GDP (Second Reading)

The second reading of Q4 GDP showed that the US grew at a 3.2% annualized pace, which is a decline from the first reading of 3.3% and a lower rate of growth than the 4.9% seen in Q3.  The slightly lower second reading helped Bonds move a bit higher.

PCE Expectations

The big news tomorrow will be the Fed’s favorite measure of inflation, Personal Consumption Expenditures, for the month of January.  The market is expecting headline inflation to rise 0.3% and for the year over year reading to decline from 2.6% to somewhere between 2.4% to 2.3%.

The Core rate is expected to rise between 0.3% to 0.4% and for the year over year reading to decline from 2.9% to somewhere between 2.8% to 2.7%.

Even if we don’t get as favorable of a PCE reading as the market is hoping for, we already saw Bond price sell off in response to the CPI and PPI reports, so much of the downward move could be priced in.  Additionally, if we get a surprise lower figure, we could see outsized returns.

Atlanta Fed Wage Tracker

Wages in January moderated from 5.4% to 4.7%, which is a significant deceleration…And this figure was +6.2% a year ago.  And wage growth would have been even slower if not for the government wage increases, which rose 6.7% year over year, an acceleration from 5.8% a year ago. 

Consumer Confidence

The Conference Board released their Consumer Confidence for February, showing that overall confidence fell from 111 to 107.  Both the present situation and expectations for the future fell.  Of importance was the job related questions, which showed that those reporting jobs harder to get rose from 11% to 13.5%.

This coincides with Continuing claims, which have been elevated, showing it’s harder to find a job once laid off.  We also just heard that Macy is closing 30% or 150 of their stores. 

Fed Comments

Fed Governor Bowman spoke yesterday and acknowledged the PCE inflation is below 3%, but mentioned that the recent CPI and PPI inflation readings were hotter than anticipated.  He believes the Fed policy is appropriately restrictive and is not ready to cut yet.

The new KC Fed President Jeff Schmid, who will vote next year, said he is no rush to cut rates and is not a big fan of slowing the reduction of the balance sheet. 

MBA Mortgage Applications

The MBA released their Mortgage Application data for last week, showing that purchases fell 5% last week and are down 12% year over year.  Refinances fell 7% last week and are down 1% from last year.  Refinances made up 31% of all transactions, which is nearly a third.  There are still cash out refinances being done, but now even some rate and term refinances and removal of MI.  Make sure to tap your database.

Interest rates rose slightly to just over 7% and are roughly 0.3% higher than this time last year. 

Technical Analysis

Mortgage Bonds continue to trade in a narrow range between important support at the 200-day Moving Average, which held yesterday and this morning, and overhead resistance at 100.428.  The 10-year is trading in a range between 4.25% and the 100-day Moving Average, which has kept a lid on yields and has prevented them from moving higher. 

Take a minute to fill out our March Housing Survey and share it with your Realtors for their insights.  We will provide you with a beautiful touch point in the coming week that you can share.  Take the survey HERE.

We will be hosting a webinar on March 6 at 1:00pm ET with Jeffery Love to learn how to protect your assets through estate planning.  Make sure to join us by registering HERE.  

Stocks and Mortgage Bonds are both starting the week lower.  It’s an important news week, highlighted by Jerome Powell speaking to congress and the Jobs data for February.

Early estimates are looking for 150,000 jobs created in the ADP on Wednesday and 200,000 in the BLS report on Friday.

OPEC+ is extending oil production cuts through Q2.  This could push oil prices higher, which have been on the rise and now trading around $80/barrel.  This could be another headwind for overall inflation and is something to keep an eye one.

Reverse Repo Facility Depletion

The Fed’s Reverse Repo Facility has been drained over the past year from a level of $2.4T not too long ago, now down to $441B.  Over just the last two days it has been depleted by $127B.

This may be due to some of the auctions last week and banks wanting to take advantage of the higher yields and lock those in, especially as it’s expected that the Fed will eventually begin cutting rates.  Another drain in liquidity will be the ending of the Fed’s Bank Term Funding program, which ends next week.

The Fed has been conducting Quantitative tightening or reducing their balance sheet by roughly $90-95B per month.  Thus far this has not been a problem because banks have been able to get liquidity from the Reverse Repo Facility and Bank Term Funding program, but once it’s drained/ended, we could start to see issues and that may force the Fed’s hand to reduce Quantitative Tightening sooner rather than later. 

We know their balance sheet is going to be a major topic of discussion at the Fed’s March 20 meeting because they told us it would be at their last meeting and the most recent Fed Minutes.  If the Fed were to begin tapering their balance sheet reduction, it would mean that they would start to purchase MBS and Treasuries with some of the funds they receive from assets falling off their balance sheet and would likely be a big help to MBS and rates.

News This Week

Wednesday: ADP Employment Report, JOLTS, Mortgage Apps, Powell Commentary

Thursday: Initial Jobless Claims

Friday: BLS Jobs Report

Technical Analysis

Mortgage Bonds are trading in a range between support at the 100.428 Fibonacci ceiling and overhead resistance at the 25-day Moving Average. 

The 10-year yield made a nice move lower of the past week after the 100-day Moving Average held and kept a lid on yields.  Yields are now testing the 25-day Moving Average as support, along with the 200-day Moving Average.  All eyes will be on Powell’s testimony and the Jobs data, which kicks off on Wednesday.  

Take a minute to fill out our March Housing Survey and share it with your Realtors for their insights.  We will provide you with a beautiful touch point in the coming week that you can share.  Take the survey HERE.

We will be hosting a webinar tomorrow at 1:00pm ET with Jeffery Love to learn how to protect your assets through estate planning.  Make sure to join us by registering HERE.  

Stocks are lower and Mortgage Bonds are higher to start the day.

Raphael Bostic Comments

Atlanta Fed President and voting member, Raphael Bostic, said he is in no rush to begin cutting rates and thinks it would be appropriate to cut 50bp in the second half of the year…but not consecutively.

He is also not in a rush to taper Quantitative Tightening or the reduction of their balance sheet.  Although we have largely not felt the impact of QT because the Reserve Repo facility has been getting drained and offsetting the effects…but that is now down to very low levels and if the Fed doesn’t adjust QT soon, we could start to see some negative impacts at banks and in the economy.  This may move up their time-table – we know it will be a main topic of discussion at the March 20 meeting.

On rate cuts – It appears that it is going to take a rise in the unemployment rate to get the Fed to move quicker/more aggressively, which is why Friday’s BLS Jobs report has a ton of importance. 

CoreLogic Home Price Insights

CoreLogic reported that home prices fell 0.1% in January and are now up 5.8% year over year, which is an increase from 5.5% in the previous report.  We are seeing a similar pattern to last year where appreciation went negative in December and January, but to a lesser degree this year, which is why appreciation is rising year over year.

CoreLogic forecasts that home prices will be flat in February and will rise by 2.6% over the next 12 months.  It’s also worth noting that they have historically been very conservative.  They originally forecasted that we would see 3% appreciation in 2023, meanwhile we saw 5.5%.  And going back to 2021, CoreLogic forecasted home prices would decline 6.6%, meanwhile we saw 19% appreciation.

Technical Analysis

Mortgage Bonds are testing the 25-day Moving Average ceiling once again after failing to break above it the last two days.  If Bonds can get above this level, the next stop is the 50-day, a little over 30bp higher. 

The 10-year yield has temporarily broken beneath the 25-day and 200-day Moving Averages, which is a significant development.  If yields can remain beneath these levels, the next stop is the 50-day Moving Average at 4.07%.  A lot will depend on tomorrow’s ADP report and comments from Fed Chair Jerome Powell…As well as Friday’s BLS Jobs Report.