The Daily Tearsheet

Stocks are lower this morning after a wave of strikes in Iran. Bonds and MBS are continuing the sell-off after yesterday’s hot PPI report.

As expected, the Fed maintained rates at current levels, with Stephen Miran dissenting, who wanted to cut rates. The statement referred to “somewhat low” job gains and “somewhat elevated” inflation.

“The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Uncertainty about the economic outlook remains elevated. The implications of developments in the Middle East for the U.S. economy are uncertain. The Committee is attentive to the risks to both sides of its dual mandate.”

The forecast for economic growth was nudged up for 2026 and 2027, while the unemployment forecast was steady at 4.4%. The PCE Price index forecast was bumped up from 2.4% to 2.7% while the core rate was raised from 2.5% to 2.7%

The dot plot looks like we might get one more rate cut this year. The range of outcomes has compressed compared to December, however we are slightly more hawkish.

At his press conference Jerome Powell said: “The forecast is that we will be making progress on inflation, not as much as we had hoped, but some progress on inflation.” He also pushed back on the use of the term stagflation: “I always have to point out that that was a 1970s term, at a time when unemployment was in double figures and inflation was really high,” he said. “We actually have unemployment really close to longer-run normal, and we have inflation that’s 1 percentage point above that.”

He added, “I would reserve the term stagflation for a much more serious set of circumstances.”

The Fed Funds futures see about a one-in-three chance of another rate cut this year, and is pricing in some small probability of a rate increase. Separately, the Bank of England maintained rates at current levels, citing uncertainty in the Middle East. Until the Strait of Hormuz is back open, oil will remain elevated and central banks will have inflationary pressures to deal with.

Separately, Powell said he isn’t going anywhere until the DOJ ends its probe into him over the Fed renovations.

Independent Mortgage Bank profits declined in the fourth quarter to $674 per loan compared to $1,201 in the third quarter. Given that the mortgage business is pretty seasonal this sequential decline is to be expected. The gain of 17 basis points compares favorably to a loss of 4 basis points in the fourth quarter of 2025.

“Net production profits averaged 17 basis points in the fourth quarter of 2025, an increase from losses of 4 basis points in the fourth quarter of 2024,” said Marina Walsh, CMB, MBA’s vice president of industry analysis. “Combining both production and servicing operations, 68% of mortgage companies in MBA’s sample posted overall profits in the fourth quarter of 2025, a modest increase from 61% one year ago.”

Added Walsh, “Despite these improvements, fourth-quarter production profits were down from the previous quarter. Compared to the third quarter of 2025, production volume rose, production revenues dropped, and the cost to originate stayed relatively flat.”

Stocks are flattish despite a lousy PPI report. Bonds and MBS are up small.

The FOMC decision is due at 2:00 pm this afternoon. We will get a new dot plot and updated economic forecasts. The Fed is not expected to make any changes to policy, although markets will be focusing intently on their forecasts for inflation.

The Fed Funds futures still predict two more rate cuts this year, but now see only one cut as the second most likely outcome.

Inflation at the wholesale level rose 0.7% in February, after rising 0.4% in December and 0.5% in February. Final demand services drove the increase. About 20% of the increase was driven by a 5.7% increase in hotel prices. Rising food prices also contributed to the increase.

The PPI ex food and energy rose 0.5% MOM and 3.9% YOY,

Mortgage applications decreased 10% last week as purchases rose 1% and refis fell 19%. “Mortgage rates continued to move higher, driven by increasing Treasury yields as the conflict in the Middle East kept oil prices elevated, along with the risk of a broader inflationary shock. Mortgage rates increased across the board, with the 30-year fixed rate rising to 6.3%, the highest rate since December 2025,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Rates were around 20 basis points higher than they were two weeks ago and this caused a reversal in refinance activity, particularly for conventional refinance applications, which decreased 27% over the week. Government refinances also declined but by 5%, as FHA rates have not increased quite as rapidly. Purchase applications remained steady despite the higher rates, with conventional purchase applications unchanged and growth in both FHA and VA segments. Overall purchase applications remained ahead of last year’s pace, continued to be supported by higher inventory and slowing home-price growth in many markets.”

Pending Home Sales rose 1.8% in February, according to the National Association of Realtors. “The slight gain in pending contracts appears to be driven by improved affordability conditions. However, those conditions could reverse if higher oil prices lead to an uptick in mortgage rates,” said NAR Chief Economist Dr. Lawrence Yun. “The Midwest—the most affordable region of the country—was the strongest performer in February. But the Northeast was held back by a combination of higher home prices and a shortage of supply.”

Stocks are higher this morning as the Fed begins its meeting. Bonds and MBS are up.

Homebuilder sentiment improved in March according to the NAHB Housing Market Index. Rates have been improving, but affordability remains a big constraint. The latest events in Iran certainly aren’t helping things. More than a third of builders reported cutting prices by an average of 6%.

“Affordability for buyers and builders remains a top concern,” said NAHB Chairman Bill Owens, a home builder and remodeler from Worthington, Ohio. “Many buyers remain on the fence waiting for lower interest rates and due to economic uncertainty. Builders are facing elevated land, labor and construction costs and nearly two-thirds continue to offer sales incentives in a bid to firm up the market.”

“While the Freddie Mac 30-year fixed rate mortgage averaged 6.05% in February, the lowest since August 2022, downpayment hurdles and uncertainty from the conflict with Iran and the price of oil will be headwinds going forward,” said NAHB Chief Economist Robert Dietz. “The administration’s executive orders issued last week to reduce regulatory burdens associated with home building are a positive step toward increasing attainable housing supply.”

I am not so sure new home supply is the big issue here given the glut of inventory:

We are at levels last seen during the housing bust of 2006-2008. The homes are out there.

The NAHB is also happy with the recent executive orders and legislation on housing:

“NAHB commends President Trump for taking bold actions to empower home builders to build the housing supply America needs. Today’s executive orders get at the root of the housing affordability problem by eliminating obstacles to build more homes and providing better access to financing.

“The president’s executive order to remove regulatory barriers will enable builders to build more housing by reducing red tape, streamlining permitting requirements and easing costly environmental regulations. The executive order for access to mortgage credit also takes important steps to provide better financing options for home buyers and home builders and make it easier for families to achieve the American dream of homeownership. NAHB looks forward to working with the Trump administration to implement these important directives.”

Industrial Production and Manufacturing Production both increased by 0.2% MOM in February. Capacity Utilization increased to 76.3%

Stocks are higher this morning as oil finds its footing. Bonds and MBS are up.

President Trump has asked allies for help in re-opening the Strait of Hormuz. He is specifically asking China. Given that China gets a lot of its supply through the Strait, it should be in their best interest to help out. As Trump noted, the US doesn’t get its oil from the Persian Gulf – it gets it domestically and from the Americas.

“I’m demanding that these countries come in and protect their own territory, because it is their territory. It’s the place from which they get their energy. And they should come and they should help us protect it,” Trump said.

“Why are we maintaining the Hormuz Strait when it’s really there for China and many other countries? Why aren’t they doing it?”

The week ahead will be dominated by the FOMC meeting on Tuesday and Wednesday. The Fed is expected to maintain rates at current levels, so the meeting should be a nonevent. Aside from the FOMC meeting we will get the PPI and new home sales.

Consumer sentiment fell 2% in March, according to the University of Michigan Consumer Sentiment Survey. About half of the interviews were collected before the military action in Iran. Year-ahead inflation expectations were flat at 3.4%, while longer-term expectations declined slightly.

Job openings in January rose to 6.946 million, which was well above expectations. They are still down on a YOY basis. The quits rate was unchanged at 2.0%. Healthcare and trade / transportation / utilities saw the biggest increases, while professional / business services saw the biggest decline.

Stocks are higher as we round out a volatile week. Bonds and MBS are up small.

Personal incomes rose 0.4% in January, according to BEA. Disposable personal incomes rose 0.9%. Personal outlays rose 0.4%.

The PCE Price Index for January rose 0.3% MOM and 2.8% YOY. The core rate, which strips out food and energy rose 0.4% MOM and 3.1% YOY.

The inflation numbers were more or less in line with expectations and don’t change the inflation narrative a bit.

Fourth quarter GDP growth was revised down from an initial estimate of 1.4% to 0.7%. All components of GDP were revised downward. The government shutdown was certainly a drag on economic growth, so the fourth quarter was destined to be weak.

The Atlanta Fed GDP Now model was predicting 5% GDP growth for Q4, so that model really got it wrong. This is from Jan 28. Looks like the Blue Chip Consensus had it more or less correct, but the model was way off. Given the consumer sentiment numbers, the layoff announcements, declining job growth etc, this estimate always looked like an outlier.

Durable goods orders disappointed as well.

The Senate passed its affordable housing bill yesterday, and it was overwhelmingly embraced on a bipartisan basis. Republican Tim Scott and Democrat Elizabeth Warren sponsored the bill.

The bill will make it easier for manufactured housing to get loans, which should help on the affordability front. Mannies will no longer have to be attached to a permanent foundation.

The bill directs the CFPB to give a report on LO comp policies and point / fee caps to see how they affect small dollar loans and state affordable housing initiatives. Many lenders avoid these loans simply because the rules make them unprofitable. I wonder if this is the first salvo in a plan to relax LO comp rules that require the commission to remain the same regardless of the product.

The bill also bans institutional investors from purchasing single family homes. The MBA issued a statement saying that this will limit build-for-rent supply and they are probably correct. The institutional investor ban was always a specious solution to the affordability problem.

Stocks are lower this morning as oil rises despite a record release from the IEA strategic reserve. Bonds and MBS are up small.

Housing starts rose 7.2% MOM to a seasonally adjusted annual rate of 1.487 million units in January, which was above expectations. This was up 9% on a YOY basis. Building permits fell to an annual rate of 1.376 million. This was a decrease of about 5% on a monthly and annual basis.

The 10 year auction went off fine yesterday with a 4.217% yield and a 2.45 bid to cover ratio.

The International Energy Agency agreed to release 400 million barrels of oil to alleviate market stress over Iran. “The conflict in the Middle East is having significant impacts on global oil and gas markets, with major implications for energy security, energy affordability and the global economy for oil,” IEA Executive Director Fatih Birol said in remarks broadcast from the group’s headquarters in Paris.

“I can now announce that IEA countries have unanimously decided to launch the largest-ever release of emergency oil stocks in our agency’s history,” Birol said. IEA members currently hold more than 1.2 billion barrels of public emergency oil stocks, with a further 600 million barrels of industry stocks held under government obligation.

Separately, Energy Secretary Wright said that US warships are not quite ready to begin escorting tankers through the Strait of Hormuz. “It’ll happen relatively soon but it can’t happen now,” Wright said. “We’re simply not ready. All of our military assets right now are focused on destroying Iran’s offensive capabilities and the manufacturing industry that supplies their offensive capabilities.”

Purchase lock rebounded in February, according to Optimal Blue. After a slow start to the year, we are seeing more interest in home purchases, especially from the first time homebuyer. Lower rate (and tighter MBS spreads) are helping things. While affordability is still strained, it is not nearly as bad as it was 4 years ago and has been helped by falling mortgage rates, flatlining home prices and wage growth. Wage growth has been outstripping home price appreciation for years.

Stocks are flattish after good earnings from Oracle. Bonds and MBS are down. Bond yields should be falling in theory after the CPI report, but we are seeing European yields spike this morning (Bund yields up 9 basis points, Gilts up 12 basis points) and global sovereigns tend to correlate.

The consumer price index rose 0.3% MOM and 2.4% YOY, while the core rate (excluding food and energy) rose 0.2% MOM and 2.5% YOY. The index for shelter rose 0.2% MOM and 3.0% YOY and was the biggest item in the index. Energy services picked up, as did food from home (i.e. groceries). Gasoline fell. Note the spike in energy prices from Iran isn’t captured in the February data.

Overall, it shows that inflation is working its way back to back to the Fed’s target despite the effects of tariffs. The hyper-inflation scenario has simply failed to play out.

Existing home sales rose 1.7% MOM to 4.06M units. This was a small decrease on a YOY basis. “Housing affordability is improving, and consumers are responding,” said NAR Chief Economist Dr. Lawrence Yun. “Still, there is a long way to go to return to pre-pandemic levels of transaction activity. There are more than 6 million more jobs than in 2019, yet home sales per year are down by one million.”

“Despite the modest gain in home sales, actual housing demand remains muted relative to wage growth and job gains,” Yun continued. “Wage growth is now outpacing home price growth by almost four percentage points. Mortgage rates are also measurably lower compared to a year ago.”

“Inventory is growing, but sluggishly,” he added. “If demand picks up notably in the coming months and outpaces supply growth, home prices will inevitably rise. That is why increasing supply is so important to help limit home price growth, improve housing affordability, and boost transactions.”

Inventory was up slightly to 3.8 month’s worth of supply. A balanced market is around 6 – 6.5 months’ worth, so we still have restricted supply. First time homebuyers accounted for 34% of sales, up from 31% a year ago.

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Mortgage applications rose 3.2% last week as purchases increased 7.8% and refis rose 0.5%. “Financial markets were volatile last week amid the ongoing turmoil in the Middle East. Mortgage rates increased on net over the week, while refinance volume was roughly flat. Borrowers in recent weeks were able to get 30-year conforming rates below 6%, but with the current volatility, longer-term rates have moved up, pushing up the 30-year fixed rate to 6.19%,” said Mike Fratantoni, MBA’s SVP and Chief Economist. “Purchase activity increased last week, particularly for FHA loans, which moved up more than 11%. The pace of homebuying continues to track ahead of last year’s pace, with overall purchase volume up 10%. More inventory on the market is supporting more transactions.”

Stocks are higher this morning after oil reversed course yesterday. Bonds and MBS are up.

The G7 had a call yesterday about releasing reserves to help calm the oil markets. This was the catalyst to reverse the dramatic rise in prices. The US has offered political risk insurance for ships traversing the strait, and it appears (if the rumors are correct) that we are seeing ship traffic return.

Trump had a press conference last night about the situation saying that it will be over soon. The Iranian Navy is pretty much out of commission, and drone attacks are declining. I am not sure that Trump will follow the Colin Powell policy of “you break it, you buy it” with respect to Iran. Trump wants to avoid the mistakes of Afghanistan and Iraq – getting mired in a situation with troops on the ground.

The Ayatollah’s son has been named as Supreme Leader, and Iran has problems outside of the US / Israel military strikes. The Iranian Rial has devalued massively against global currencies, the revolutionary push will probably continue, and Iran needs to sell oil in order to support its economy. Without a government, there is no one to negotiate with, so I think the plan is to see what forms and then take it from there.

House prices fell 0.5% quarterly and rose 1.7% annually, according to the Clear Capital Home Data Index. The Northeast was flat on a quarterly basis, while the West, Midwest and the South were negative. Of the top 15 MSAs, 10 experienced positive quarterly growth, and five had negative growth. The Northeast is the last holdout still exhibiting nonnegative growth.

In the commentary, I talk about the nascent credit issues we are seeing in private equity and how that could affect mortgage rates and home prices.

Small business optimism declined in February, according to the NFIB. Net sales and employment improved, while capital expenditures fell. Compensation increased. Government regulations and red tape were mentioned as the single biggest problem, with insurance as the second. The third was competition from large businesses. That might be tariff-related as bigger businesses can absorb price shocks easier than smaller businesses.

Recently released government data are framing economic conditions as a mixed picture with solid GDP estimates and employment reports that move wildly monthly to month. When the government hires 100 workers, GDP goes up. When GM hires 100 workers, GDP goes up. GDP counts the values of all goods and services produced in the US, government and private alike. From 2020 to 2024, job growth and GDP were boosted by increases in government employment and spending, but that trend has now reversed. This will lead to some decline in the job numbers. While private sector capital spending does raise GDP by producing lots of stuff, feeling the impact of that spending may take some time as the new investments are put to work. The process is simple: Give employees better tools to do their jobs and output per hour rises. Salaries rise and fewer workers are needed, freeing up employees to apply their skills elsewhere. Capital spending has not been particularly strong for small businesses, but what they buy is undoubtedly more productive. Robots and AI will continue to increase worker productivity, especially in the small business sector.

Mortgage credit availability increased in February, according to the MBA. “Lenders increased mortgage credit supply last month, particularly for refinancing, as mortgage rates moved lower in January and February. Most of last month’s supply growth was in loan programs that allowed for cash-out refinance and on investor homes, although these were still limited to lower LTV borrowers,” said Joel Kan, MBA’s vice president and deputy chief economist. “The jumbo index increased by 3% for the second straight month, again driven by growth in non-QM loan programs. The government index was the only component that saw a decline in credit supply over the month, as lenders likely tightened underwriting standards given the recent increase in FHA mortgage delinquency rates.”

Markets are getting clobbered as oil skyrockets. Bonds and MBS are down. In the overnight session, oil spiked to $118 before coming back down, and the stock index futures were down a couple of percent.

Traffic through the Strait of Hormuz has basically ground to a halt, which is sending oil prices through the roof. While US gets most of its oil domestically – US consumers use West Texas Intermediate – it still correlates price-wise with North Sea Brent. Shortages are a definite risk for Europe and China, but are not on the table in the US. California does import a lot of its oil, however it mainly comes from the Americas.

There are a slew of wells that were drilled when oil prices were much higher, and they all have oil price points where they become economic to operate. So supply is available domestically and will come on line the longer oil prices stay here. This won’t be a repeat of the Arab Oil Embargo of 1973 where the US had gas lines which kicked off the 1970s inflation. This is not a structural supply issue.

The US has said it will begin shepherding tankers through the Strait with the US Navy, which should help increase global supply. The longer this goes on, the worse it will be for markets and commodity prices in general. It certainly won’t help for the summer driving season, nor will it help for consumer confidence.

Iran has named Mojtaba Khamenei, the son of Ayatollah Ali Khamenei as the Supreme Leader. Trump said last week that “Khamenei’s son is unacceptable to me.”

The 10 year bond yield continues to rise, however mortgage rates are not up as dramatically. As a general rule MBS will lag movements in Treasuries, so this may not last. So far, we are seeing non-QM rates hold steady. Still none of this is good news for the Spring Selling Season.

The week ahead will be dominated by inflation data with the consumer price index on Wednesday and the personal incomes / outlays report on Friday. We will also get housing starts, the first revision of Q4 GDP and existing home sales. Given the situation in Iran, a rate cut at the March meeting is off the table, so the inflation data probably won’t have much of an impact on the markets.

Boston Fed President Susan Collins is in no hurry to make any changes to monetary policy. From her prepared remarks: “I do not see an urgency for additional policy adjustments, and I will be looking for clear evidence that inflation is moving durably toward the 2 percent target – something that might occur only over the second half of the year. Of course, it remains very important to continue assessing the incoming data in their entirety – and policy is well positioned to adjust as needed, depending on how conditions and the outlook evolve.”

Separately, San Francisco Fed President Mary Daly noted the weak jobs report on Friday: “This jobs market report has got my attention,” she said during a “Squawk Box” interview. “I don’t think you can look through this report, but I also don’t think you should make more of it than one month of data.”

The Senate has added a provision to its housing affordability legislation to require institutional investors who build for rent to sell their properties within 7 years. The White House had sent a proposal which excluded build-to-rent funds. “It’s about making sure people like the single mom who raised me in North Charleston, South Carolina, have even greater access to economic opportunity and the American dream of homeownership,” Sen. Tim Scott (R., S.C.), who is co-sponsoring the bill with Massachusetts Democratic Sen. Elizabeth Warren, said last week.

The bigger question is how this will affect the supply of homes for sale. Theoretically this could make it tougher for builders to finance these properties, although that seems like a stretch given that these funds raise capital independent of the properties that secure them. They aren’t taking out DSCR loans for each property – they are raising $200 million in the bond market at a clip.

What happens with tenants who are living in the homes when the forced sale date arrives? Do they get evicted? If the government wants investors to sell the home to a first-time homebuyer, presumably they would have to.

Ultimately, if the government wants to increase housing supply, this doesn’t look like a helpful step in that direction. The ban on institutional investor home ownership is a specious solution to the affordability problem.

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Stocks are lower as oil prices continue to spike higher. Bonds and MBS are up as everyone was caught leaning the wrong way going into the jobs report.

Nonfarm payrolls fell by 92,000 last month, which was way below the street estimate of a 60,000 gain. December payrolls were revised down by 65,000 and January was revised down by 4,000. The unemployment rate ticked up to 4.4%. The labor force participation rate and the employment-population ratios declined by 0.1%.

The population was more or less unchanged, as was the labor force. About 185k less people were employed and the number of unemployed rose 200k. About 72k people exited the labor force.

Healthcare and social services payrolls declined slightly after a huge jump in January. Manufacturing was down as was leisure / hospitality. Average hourly earnings increased 3.8% on a YOY basis.

Retail sales fell 0.2% MOM in January, according to the Census Bureau. They were up 3.0% on a YOY basis. This number is not adjusted for inflation, so on a real basis they were up small. The Street was looking for a 0.4% decline so the number was a positive surprise.

Taxes and insurance now account for about 21% of the typical monthly mortgage payment. In some MSAs like Pensacola Florida, they account for 43% of the monthly payment. Places like California and Florida which are seeing more expensive natural disasters have been experiencing higher homeownership premiums. Other states like Illinois generally have high property taxes. HOA fees add another layer to higher costs.

Despite the sell-off in the TBA market, non-QM pricing has been holding in relatively well. This makes sense since SOFR futures are a better hedge than TBAs. SOFR is tied to short-term rates, not agency MBS. Given that we are seeing some delinquencies tick up in NQM, we might see a move in the basis (i.e. a credit move), but that wouldn’t be interest-rate related. Unfortunately basis risk is something secondary folks have to live with and it isn’t hedgeable.

Nonfarm productivity rose 2.8% in the fourth quarter, which was well above expectations and follows a 5.1% surge in the third quarter. Unit labor costs rose 2.8%.

The Spring Selling Season is underway, and sellers are re-listing homes that they took off the market last fall. Nearly 45,000 homes that were de-listed last year have been re-listed. Many pulled their homes off the market because they were unable to get the price they wanted. Despite lower supply, buyers are in a better position these days.

“Homebuyers are already scoring discounts because there are more homes for sale than people who want to buy them, and it’s possible those discounts will get bigger if relistings boost supply further,” said Redfin Senior Economist Asad Khan. “Some sellers will be more flexible on price when they relist since they’ve already been burned once. Buyers shouldn’t be shy about asking for concessions; even if the list price is high on paper, the seller may be open to negotiating.”