30-year mortgage rate courtesy of Mortgage News Daily

Worst Year For Rates Since 1979

Please note 2022 is Already The Worst Year For Rates Since 1979

Year-over-year change courtesy of Mortgage News Daily

Hope vs Reality

Expectations vs reality courtesy of Mortgage News Daily 

Mortgages Go No Bid

One of the best ongoing blog discussions on the web, updated weekly is Mortgage Credit News by Louis S Barnes

June 10th, 2022

During the last forty-four years, my days have begun and ended with the mortgage market. Four painful moments stand out. Today makes five. (There have been many more good days, but even the Fairy Godmother has her limits.)

Mortgages are covered poorly in financial press, as stocks and such are much more entertaining. Today’s events still unfolding will take days for good coverage. Freddie’s weekly survey will not discover today until next Thursday. But the MBS market is real-time, not like old, sleepy S&L days.

The CPI news this morning was so awful that it changed the bond market’s view of Fed trajectory, and the weakest sector broke. In bond jargon, MBS went “no-bid.” No buyers for MBS. Then a few posted prices beyond borrower demand, not wanting to buy except at penalty prices. Overnight the retail consequence has been a leap from roughly 5.50% to 6.00% for low-fee 30-fixed loans.

Today’s CPI Trigger. Markets were braced for a bad report, but not this. Overall CPI jumped 1.0% in May. Any thought of deceleration... ka-blooie. CPI 8.6% in the last year, accelerating under pressure from Ukraine energy dislocation.

Now What? At Thanksgiving 2008 the credit markets (all markets) were rescued by Ben Bernanke’s genius, announcing quantitative easing -- buying enough MBS and Treasurys to unlock markets in which all had been afraid to buy.

Today... is it a coincidence that MBS have blown simultaneously with the Fed’s flip from QE buying to allowing runoff and threatening to sell? The weak break first. MBS are weird, and weird under stress is weak.

The Fed has had a plan, Powell becoming more concise each day: We will raise the cost of money until inflation comes under control. “It is our job to calibrate demand to supply.” A good, tidy, sorta mathematic way to proceed. But destruction of demand has limits, and this morning we hit one.

In today’s US, nobody is prepared to deal with inflation as it has developed in the last 90 days. 

Punished Until We Behave

There is much more in the report. Inquiring minds may want to give it a look.

Here's a single paragraph from May 20th that I like.

The recession-watch: watching the Fed watch us. We will be punished until we behave. Supplies limited, the Fed must remove our ability to compete for things in short supply.

Lumber Futures 

Lumber Futures courtesy of trading economics

Lumber is crashing but that says little about the price of rent, just the price of homes.

Reflections on Mortgage Rates 

At a 6.125% mortgage rate the average home price in the US needs to fall ~32% to reach its pre-Covid affordability relative to income.

— Sid Prabhu (@sidprabhu) June 13, 2022

Why Did Economists Blow the CPI Forecast So Badly This Month?

For a look at the June 10 CPI which fueled the mortgage carnage, please see Why Did Economists Blow the CPI Forecast So Badly This Month?