Rates Defy Jobs Report; No New 40yr Loan; Red Hot Home Prices

A heat wave on the west coast got national attention this week. Despite temps close to 120°, Tuesday's home price data was even hotter with both of the big reports telling the same story.

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FHFA prices (nationwide) are increasing at a record pace.  Case Shiller (20 major metro areas) price appreciation isn't quite back to its pre-mortgage-meltdown level.

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How hot is too hot?  That depends.  Prices can't continue this pace indefinitely, but many people said the same thing late last year only to regret not pulling the trigger.

Some recent sales numbers cast doubt on buyers' willingness to chase these prices, but now this week's Pending Home Sales report shows that May was one of the best months on record.

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Rates had a good week, with most lenders at or near their best levels since mid June at the very least.  10yr Treasury yields trickled to their best levels in months by Friday afternoon after managing to break the 1.44% floor that had turned away several recent attempts.

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That's a surprising outcome given the strong reading in the latest official jobs report on Friday.  It shouldn't be too surprising, though, given that the Fed has clearly stated it wants to see how the data looks this fall before making any big decisions about its rate-friendly policies. 

Indeed, the mirror image of stock prices and bond yields is often the result of a market betting on a friendly Fed.

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The other way to look at it would be to consider there's still a long way to go before the labor market is back to pre-covid levels.  

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As the data rolls in later this year, bonds will be faced with the choice to double down on the "friendly Fed" bets or to proceed with the rising rate reality that seemed to be much more of a sure thing at the end of last year.  For now, the intermission continues.

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Last but not least, there were a few confusing news stories this week that made it seem like the FHA announced a new 40-year loan.  It didn't.  It was a behind-the-scenes change for the government agency that guarantees FHA/VA loans that will allow lenders better access to liquidity in cases where they've had to MODIFY existing 30yr loans by increasing the term.  

Recently Released Economic Data

Time Event Actual Forecast Prior
Tuesday, Jun 29
9:00 Apr CaseShiller 20 yy (% ) 14.9 14.5 13.3
9:00 Apr Monthly Home Price yy (%) 15.7 13.9
10:00 Jun Consumer confidence 127.3 119.0 117.2
Wednesday, Jun 30
7:00 w/e MBA Purchase Index 255.2 268.0
7:00 w/e MBA Refi Index 2856.6 3110.3
8:15 Jun ADP National Employment (k) 692 600 978
9:45 Jun Chicago PMI 66.1 70.0 75.2
10:00 May Pending Sales Index 114.7 106.2
10:00 May Pending Home Sales (%) 8.0 -0.8 -4.4
Thursday, Jul 01
7:30 Jun Challenger layoffs (k) 20.476 24.586
8:30 w/e Jobless Claims (k) 364 355 411
10:00 Jun ISM Manufacturing PMI 60.6 61.0 61.2
10:00 May Construction spending (%) -0.3 0.4 0.2
Friday, Jul 02
8:30 Jun Average earnings mm (%) 0.3 0.4 0.5
8:30 Jun Non-farm payrolls (k) 850 700 559
8:30 Jun Unemployment rate mm (%) 5.9 5.7 5.8
10:00 May Factory orders mm (%) 1.7 1.6 -0.6
Monday, Jul 05
0:00 Independence Day
Tuesday, Jul 06
10:00 Jun ISM N-Mfg PMI 60.1 63.5 64.0
10:00 Jun ISM N-Mfg Bus Act 60.4 66.4 66.2
Wednesday, Jul 07
7:00 w/e MBA Purchase Index 252.4 255.2
7:00 w/e MBA Refi Index 2791.3 2856.6
Thursday, Jul 08
15:00 May Consumer credit (bl) 35.28 18.40 18.61
Friday, Jul 09
10:00 May Wholesale inventories mm (%) 1.3 1.1 1.1

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