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Navigating the Latest Trends: Analyzing the Mortgage Market Dynamics of January 2025

Significant and Simple Sell-Off

Today’s employment report exceeded expectations significantly, leading traders to promptly sell off bonds without hesitation, as no strong opposing factors emerged. The market’s dynamics moved predictably, with trading levels at the 3 PM close mirroring those shortly after the jobs data release, and the day transpired with little excitement. Overall, it was a straightforward yet challenging market reaction.

Economic Data/Events

Nonfarm Payrolls: 256k, compared to the 160k forecast and 227k previous

Unemployment Rate: 4.1%, against a 4.2% forecast and 4.2% previous

Market Movement Recap

08:47 AM: Significant selling following the data release. Mortgage-backed securities (MBS) dropped by half a point. The 10-year Treasury yield rose by 8.9 basis points (bps) to 4.773%.

10:31 AM: Treasuries experienced a partial recovery, with the 10-year yield increasing by only 4.8 bps to 4.734%. MBS were down 14 ticks, equivalent to .19.

02:42 PM: MBS reached new lows, falling nearly 5/8ths. The

Forecasting 2025: Analyzing Home Price Trends from Case-Shiller and FHFA Data

The current state of home price growth in the United States can be described as a mix of good and bad outcomes, puzzles, and contradictions. The optimistic view on home prices is highlighted by the latest data from the FHFA and Case Shiller home price indices, which show that homes continue to appreciate at a historically high rate. This situation contrasts sharply with the severe price declines experienced during the Great Recession over ten years ago. If appreciation levels were to decrease or temporarily fall negative, as suggested by Case Shiller, this scenario is preferable for maintaining a healthy level of buyer demand.

On the flip side, annual home price increases ranging from 4% to 7% are significantly outpacing income growth, posing sustainability concerns. Coupled with mortgage rates exceeding 7%, this creates a situation of very low affordability. To address affordability issues, several solutions could be considered: a decline in home prices, a reduction in mortgage rates, the construction of smaller homes, increased construction of homes and apartments, shared living arrangements with multiple people or families, and a decrease in the cost of other expenses.

Navigating the 2024 Mortgage Markets: Insights from Market Movements and Trends

Bonds have been experiencing a sell-off for several consecutive days, with no clear catalyst behind this trend. Such scenarios often lead bond analysts to discuss concepts like the “path of least resistance,” which frequently suggests selling pressure. This trend seemingly started in early December, when the jobs report failed to keep 10-year yields consistently below 4.17%. Others might trace it back to October’s jobs report, which alleviated any immediate pressures on the Federal Reserve to respond to potential weaknesses in the labor market. The latest bout of weakness can at least be partially attributed to last week’s Federal Reserve announcements.

The Federal Reserve’s decision to defer the rate cut outlook and suggest a higher neutral rate is in line with what’s known as the “steepening” of the yield curve. This term means that 10-year yields are climbing more steeply compared to 2-year yields, or, conversely, that 2-year yields are decreasing at a quicker pace than 10-year yields.

In essence, a struggling labor market could have potentially prompted a quicker expectation of rate cuts, regardless of persistent inflation. However, the release of October’s non-farm payroll (NFP) data shifted the emphasis back to the issue of persistent inflation, with subsequent reports

Navigating the Latest Trends in Housing Starts and Building Permits for the Residential Market

The monthly report on New Residential Construction from the Census Bureau provides insight into three main areas: building permits, housing starts, and housing completions. Of these, building permits and housing starts are the most scrutinized. It’s important to note that construction activities can’t commence without securing permits, and there is usually a delay between the issuance of permits and the beginning of construction. Occasionally, there is a discrepancy between the number of permits and actual housing starts, which is currently evident in the latest figures. Although construction has been operating above pre-COVID levels, the rate at which new homes are being started has gradually decreased. This trend might seem concerning, but it’s counterbalanced by 2024 marking the highest rate of housing completions since 2006. Overall, while the housing market experienced a significant boom in 2021 and early 2022, its subsequent cooling has been more gradual and orderly than in previous downturns. Another subtle point of interest in the current data, as well as in broader historical trends, is the difference in performance between single-family and multifamily housing starts. Single-family housing has maintained strong numbers, consistently above pre-pandemic levels, while multifamily starts have dipped to their lowest in ten years.

Rising Builder Optimism: A Positive Shift in Housing Market Confidence

Each month, the National Association of Home Builders (NAHB) and Wells Fargo release the Housing Market Index (HMI), commonly recognized in the industry as an indicator of builder confidence. The latest figure for December has been released, matching November’s levels and indicating that builders are aligning with a persistently cautious outlook. This stagnation in the index can be attributed to factors such as single-family home construction, which initially slumped in 2022, and multi-family construction, along with sustained high interest rates, both of which have hindered the index’s recovery.

Detailed construction data often provide a clearer picture of the housing market than sentiment surveys, though the latter can still offer valuable insights into current trends and potential future developments. Notably, the survey component that predicts builders’ expectations for the next six months is seeing improvement, reaching its highest point since 2022. Trends in this chart show a modest upward trajectory rather than a flat line.

Additional findings from the recent release include consistent price reductions, with 31% of builders lowering prices in both November and December, and the average reduction holding steady at 5%. Moreover, sales incentives were part of 60% of transactions, mirroring November’s figure.

Navigating the Mortgage Market: Key Insights from November’s Economic Indicators

Bonds made a noticeable rally in response to this morning’s inflation data, although the gains have largely diminished since then. Initially, the data provided a stronger rally than anticipated, reflecting the prevailing worries about rising inflation rates.

This concern originated from the last two Consumer Price Index (CPI) reports, which showed an increase to around 0.3% in the core monthly measure, after averaging 0.13% in the previous three months. Starting in July, Core CPI rose consistently each month until today’s report, which reversed that trend.

Excluding the shelter component, inflation sits at or below the Federal Reserve’s 2% target, with core at 2.1% and overall at 1.3%. Early trading saw bonds revert to levels similar to yesterday morning, not a significant achievement in the grand scheme, but a strong performance given the uneven risks involved.

The response to the CPI release almost matched the trading volume seen during the initial half-hour of the jobs report reaction.

For those seeking deeper insights, several charts highlight the CPI data. One chart indicates that goods and energy prices are contributing to deflation while housing and services mainly drive inflationary pressure.

Another chart zeroes in on housing inflation, which remains high with month-to

Understanding the Latest Trends in New Residential Construction and Their Impact on the Mortgage Market

In September, the Census Bureau released its New Residential Construction report, revealing few unexpected developments despite some varied signals. The annualized rate for building permits, which can indicate future building activity, dropped to 1.428 million. Although this suggests a slight slowdown, the decline was in line with market expectations. The cooling trend in new construction has been ongoing for over two years, but it’s worth noting that activity levels remain higher than seen in mid-2019.

Regarding housing starts, the figures showed a small increase from projections, ending at 1.354 million, with only a slight decrease from the previous month. This segment has shown a broader cooling over recent years but has remained relatively stable in the short term.

The story differs when it comes to housing completions. Unlike starts and permits, completions have not seen a correction, maintaining an upward trajectory since mid-2023 and showing a consistent rise since 2011, despite a slight drop from last month’s peak, which was the highest since 2007. This data provides valuable insight into the overall construction landscape.