The Daily Tearsheet

Stocks are higher despite a weak revenue report from OpenAI. Bonds and MBS are flat.

Home price appreciation decelerated in September according to the Clear Capital Home Data Index. Prices rose 0.7% quarterly after rising 1.5% quarterly in August. On an annual basis prices rose 2.0%. The hip-to-be-square trade continues with the Northeast and Midwest outperforming the South and the West. New York City took the top spot as the best performing MSA, with prices up 2.2% quarterly and 5% annually. The bottom 15 MSAs were dominated by the West, with Honolulu, San Jose, Tucson, Denver and Seattle all getting slammed.

Here is something that should make people in the mortgage business feel better. This is the cover of the October 10 issue of the Economist:

For those who don’t know, the Economist is a pretty reliable contra-indicator. They are usually so late to the party that by the time they pick up on something the trend is played out. Their most famous cover was “Drowning in Oil” in 1999 when oil was trading at $17 a barrel. Over the next 10 years, oil marched to $124 a barrel. They did a big feature of Cathy Wood of Ark just before her performance nosedived.

This should hopefully make mortgage bankers feel like the shelling might be over. Global sovereign yields are down across the board, even the French OAT. Does this mean the bear market in bonds is over? I don’t think so, but markets don’t go in a straight line, and bear markets often have breathtaking rallies. The secular bear market that began in 2021 will probably go on half a century if history is any guide.

Treasury auctioned off $22 billion in 30 year bonds yesterday at 5.618% with a 2.54 bid to cover ratio. So both the 10 year and the 30 year auctions went off pretty well, all things considered.

Fed Governor Chris Waller said that further rate hikes are probably needed, but there is no rush to push them out immediately. “The hikes do not need to come at consecutive meetings,” Waller told a Central Bank of Turkey forum in Istanbul. “But they should be in place in an acceptable period of time.”

The median apartment rent declined 0.1% in September to $1,388 according to Apartment List. Much of this is simply seasonal variation as we head into the slow part of the year.

Year-over-year rent growth has stagnated since the big runup in the COVID era.

The multifamily vacancy rate ticked down to 7% after hitting 7.3% earlier this year. This is above pre-pandemic levels and reflects the glut of apartments that were built in the COVID era. Things are tough for multifamily as rents are flat and financing costs rise. The index for apartment REITs is down some 5% this year compared to a 13% increase in the S&P.

Where are rents falling the most? San Antonio, Austin and the Sunbelt. The biggest increases are in the Bay Area as the AI boom pushes up prices with limited supply. The remainder of the top markets are mainly in the Midwest, where the cost of living is more affordable.

Mortgage credit decreased in September according to the MBS Mortgage Credit Availability Index. “Mortgage credit availability decreased slightly in September, as lenders tightened documentation requirements on conventional loans and reduced offerings of loans that allow for cash-out refinances and investor home purchases,” said Joel Kan, CMB, MBA’s Vice President and Deputy Chief Economist. “This tightening in credit supply also impacted jumbo loan programs, which saw credit availability decline for the second consecutive month. However, recent growth in non-agency loan programs continues to support this segment of the market. The government index was unchanged and has remained stable over the past three months.”

Stocks are lower this morning as oil rises 5%. Bonds and MBS are down.

Bonds rallied yesterday on the decent 10-year auction, but the rally was short-lived which is typical in a bear market. The path of least resistance for rates is decidedly up.

Fed Governor Chris Waller spoke this morning. Here are his prepared remarks. On further policy, he had this to say: “Based on some key data released last week, I see the economy in roughly the same place as it was at the time of the FOMC’s September meeting. While the number of jobs created was down overall, the employment report indicated that the labor market continued to be solid and stable in September. The unemployment rate remains relatively low and near the median of policymakers’ projections of its longer-run level, while payroll gains are in the range of estimates of breakeven to keep the unemployment rate steady. August inflation data, which included revisions to the government’s methodology, showed monthly core PCE inflation of 0.25 percent and the 12-month change at 3 percent. Looking at the history of 12-month core inflation, it has been between roughly 2.5 percent and 3.0 percent since the spring of 2024. This is obviously higher than we want, above our target, and not showing sufficient progress. Overall, the new data reinforce my view that the labor market is stable and inflation is too high. For at least the near term, policy will be focused on the inflation side of our mandate.”

Note that the bloodbath in the long end of the curve and global sovereign debt is not mentioned. I had hoped that the Fed might consider that to do the the tightening work for them, but he didn’t address it.

The FOMC minutes were released yesterday and didn’t have much impact on the market. The Committee noted that “inflation remained elevated and that they had not seen sufficient progress on lowering inflation in recent months.” While some of these effects were considered temporary (things like tariffs, the war in Iran, AI buildouts) the fear is that inflation expectations might become embedded into the economy and drive price and wage decisions (the classic wage-price spiral).

They saw the labor market as stable and “at or near maximum employment.” They noted that we are in a low hire / low fire environment and most agreed the labor market had strengthened recently. Some participants argued that the labor market isn’t driving inflation.

They also noted that the economy in general appeared to be “solid” and that credit spreads was generally available. Higher mortgage rates were expected to be a drag on housing.

Everyone agreed that that it was appropriate to increase the Fed Funds rate by 25 basis points and most believed another rate hike would be necessary this year. That said they made the usual caveats about being data-dependent. Note this quote on r-star: “A couple of participants remarked on having increased their estimate of the neutral federal funds rate and thus their view of the appropriate setting of the target range for the federal funds rate. Several participants stated that they viewed the current policy rate as not restrictive or only mildly restrictive.” It is getting harder and harder to support the idea that the current Fed Funds rate is restrictive given the employment situation and the overall growth of the economy.

UWM is changing its credit score policy by now selecting the best score from FICO and Vantage. “Our goal is simple: put borrowers in the best possible position while making it easier for brokers to do business,” said Mat Ishbia, President and CEO of UWM. “No one should have to worry about which credit model wins. We handle that automatically by obtaining FICO and Vantage on all credit pulls to help consumers save more money and improve affordability, empowering brokers to close more loans and further strengthening UWM’s position as the mortgage industry leader in delivering innovation, value and better outcomes for brokers and borrowers alike.”

UWM stock has gotten crushed this year, with the stock well below the $2 strike price for the rights issue it wants to do.

Stocks are lower as global yields move higher. Bonds and MBS are down again.

We will have a 10 year auction at 1:00 pm today and the FOMC minutes at 2:00. So we could see some volatility around rates during that time, especially if investors turn their nose up at the auction. The minutes will prove interesting, however the Fed Funds futures are decidedly predicting no change in policy at the October meeting.

NY Fed President John Williams said there is “no need for urgency” in continuing to hike rates. The move in the 10 year over the past month fulfils much of the same role as an increase in the Fed Funds rate. San Francisco Fed President Mary Daly also indicated that an October rate hike might be unnecessary.

The global sovereign debt sell-off continues, with UK Gilt yields up 11 basis points today. French and Italian sovereign yields are up big, with the French OAT up 15 basis points and the Italian BTP up 14. Since global sovereign yields tend to correlate, this is pushing down govvies across the board.

European yields are diverging, indicating investors are getting skittish again about some of the Southern European sovereigns. The spread between the French OAT and the German Bund (the German Bund is still the benchmark for Europe) is now 138 basis points, compared to about 70 at the beginning of the year. The impact on US bonds should be minimal, unless it simply means investors are souring as sovereign debt as an asset class. It is tough to call the sell-off a global risk-on trade given that the breadth in the S&P 500 is pretty lousy. A few big names that dominate the index are driving it higher, while vast swaths of US stocks languish.

It isn’t clear where the money exiting sovereigns is going. It isn’t going into MBS because spreads are widening. There are reports that investors are shortening duration (in other words selling the 10 year and buying 3 month T bills to roll over as the Fed hikes rates.

Mortgage applications fell 4.2% last week as purchases decreased 2% and refis fell 8%. Mortgage rates hit their highest levels in 3 years. “Mortgage rates moved to their highest level in almost three years last week, with the 30-year fixed rate reaching 7.49% as both Treasury rates increased and spreads widened with the increase in rate volatility,” said Joel Kan, CMB, MBA’s Vice President and Deputy Chief Economist. “Very few homeowners have an incentive to refinance at these rates, and the jump in borrowing costs has caused many potential borrowers to step back from the purchase market. With rates roughly a percentage point higher than a year ago, refinance applications last week were at the lowest level since 2025 and fell to less than half of last year’s pace.”

By my calculations, the P&I payment on the median home at the prevailing mortgage rate has increased by 20% YTD. So while home prices are falling in real terms (i.e. rising slower than inflation) affordability isn’t being improved because of rate movement.

On the refi side, yes rates are a headwind, but as mortgage rates increase so do credit card rates and other revolving debt. A cash-out debt consolidation refi can still make a lot of sense for a borrower struggling with credit card debt.

Homeowners in the Northeast who generally use heating oil can expect to see big bills this winter. Prices are expected to be $5.26 a gallon, up 34% from a year ago. Luckily we have a strong El Nino, which generally leads to milder winters in the Northeast. That said, heating oil bills for the winter are expected to run about $2,115, up 21% from a year ago.

Blame refining capacity shortages. Global supply disruptions are blowing out crack spreads which influence the price of distillates independent of the level of crude oil.

I will be at the MBA Conference in Chicago if anyone wants to meet. Should be an interesting conference given the move in rates.

Stocks are higher this morning as oil prices ease. Bonds and MBS are up small.

More and more oil is getting out of the Middle East which is helping push prices lower. The blockade on Iranian oil is working and insurance rates are falling. Current transit rates are around 13.5 million barrels per day through the Strait, which is around 80% of pre-war levels. It had fallen to around 6 million barrels per day during March and April. The Saudis have diverted some of their production to pipelines which reach the Red Sea, which is also helping.

Diesel fuel is still elevated, however that is a refining issue more than a crude oil issue. This is particularly an issue in the West Coast where refineries are cutting / shutting down due to onerous environmental restrictions. West Coast refining capacity has fallen some 30% over the past 5 years. Diesel costs flow into all sorts of prices.

Ever since the beginning of the energy prices have seen a double whammy, from rising crude prices and rising crack spreads. The increase in crack spreads (i.e. refining margins) have blown out this year:

Like mortgage rates are a function of the Treasury rate and the MBS spread, gasoline and diesel prices are a function of the oil price and the crack spread. So the issue is a function of refining capacity and oil prices. Since diesel and heating oil are the same thing, East Coast refineries are diverting production to heating oil stocks, which means less diesel. So falling oil prices are encouraging, however they aren’t the whole story and investors hoping for a bond rally on falling crude prices might be disappointed.

The services economy expanded in September, albeit at a slower pace according to the ISM Services Report. Business activity decelerated as did new orders. Employment picked up and prices continue to increase. Exports fell pretty dramatically.

The Prices Index was above 70 for the sixth time in 7 months and hit the highest level since 2022. Energy is the main driver here, especially diesel.

“Tariffs and fuel cost impacts were the most cited issues impacting respondents’ supply chains; in fact, fuel costs were mentioned twice as often as any other single issue impacting performance. Supply chain constraints were also a top concern of respondents and were impacting both lead times and costs. The Employment Index’s first reading above 50 percent in three months seems to have resulted from increasing backlogs, as well as high levels of business activity and new orders. Although business activity and new orders growth rates have eased a bit, the Backlog of Orders index hit its highest level since July 2022 (58.3 percent).”

National rent growth declined in September, according to Apartment.com. The national average rent declined 0.08% from August to $1,752. The West and the South are struggling, while the Midwest and Northeast are a bit more balanced. There was a lot of apartment construction over the past 5 years, and most of it was in the Sunbelt and the Southeast.

A lot of apartment rehab projects were started during the COVID years and these newly refurbished units are competing with new buildings that are offering heavy incentives to lure tenants. These projects were financed with 5 year bridge loans which are coming due. It is going to be hard to refinance these projects given current rates and rent levels. We could start to see some pressure in the resi CLO space.

Berkshire Hathaway picked up more stock in Lennar. It now owns 12% of the company. Berkshire is big in the homebuilding space, owning Taylor Morrison and Clayton. It also has stakes in Lennar, NVR and D.R. Horton. Like mortgage banking, homebuilding is highly cyclical and we are at the nadir of the cycle.

Stocks are flattish this morning on no real news. Bonds and MBS are up small. It is a slow news day.

The upcoming week will be relatively data-light, with only ISM data and consumer sentiment. We will get the FOMC minutes on Wednesday and Fed speakers on Tuesday and Thursday.

Bonds rallied on Friday after the weaker-than-expected jobs report, but the lower rates didn’t last long. It is hard to see a catalyst for the resumed sell-off. Austan Goolsbee made some comments later on Friday, but they seemed relatively benign.

We are in a bear market for sovereign debt at the moment, and one of the main characteristics of a bear market is that the path of least resistance is down. In other words, it doesn’t take a catalyst to sell – it takes a catalyst to buy. Bond market cycles are very, very long. The current one which ended in 2021 began in 1981, when your local bank would pay 17.6% on a six month CD and the 10 year yield was in the high teens.

Chicago Fed President Austan Goolsbee said that both a hike and a pause are “on the table” for the October meeting. “There is plenty ⁠of room ⁠for anything to ​be on the table,” ​Goolsbee told Fox Business’ ‌Edward Lawrence, who asked if he felt the Fed ⁠ought to raise rates or pause this month as ⁠markets ‌now expect. “Let’s see ⁠if we ​can ‌get some evidence ​put together ⁠that suggests we’re headed back to 2% inflation.”

As we look at the Fed Funds futures, the markets are handicapping a 20% chance of a rate hike at the October meeting. The Atlanta Fed GDPNow model didn’t change on the employment report – it still sees robust 3.7% growth for Q3.

Stocks are higher this morning (and oil lower) on a potential plan for the EU to release a 50 million barrels of diesel fuel from storage stocks. The IEA is also considering a release of 50 million barrels of crude. Bonds and MBS are up.

Yesterday’s rally in the 10 year (falling yields) indicates there might have been some end-of-quarter noise going on towards the end of September which pushed yields up above 5.3%.

The economy added 29,000 jobs in September, according to the Employment Situation Report. The unemployment rate ticked up to 4.2% from 4.1%. The payroll number was below expectations, and the unemployment rate was above.

That said, the internals of the report are encouraging. The labor force increased by 485,000 as 346,000 people who were previously out of the labor force re-joined. The number of people employed rose by 406,000, while the number of unemployed rose by 78,000.

This drove the labor force participation rate up by 0.1% to 59.2% and the employment-population ratio to 61.8%. Average hourly earnings rose 3% on a YOY basis.

Health care / social assistance was the leader in payroll additions, followed by manufacturing. Jobs were lost in IT and government.

Stocks and bonds are rallying in the immediate aftermath of the report with the October Fed Funds futures now handicapping only a 14% chance for a rate hike this month.

Fed Vice Chairman Philip Jefferson spoke yesterday and implied that an October rate hike isn’t a slam-dunk:

As we look ahead, my view is that any future adjustments in policy should be determined by carefully examining trends in the data, the evolving outlook, and the balance of risks. Since our September meeting, yields across the term structure have increased further, a sign that investors are reassessing the evolving macroeconomic landscape. My colleagues and I will need to come to our own judgment, which may take more time. I will continue to assess whether underlying trends suggest that inflation will return to target with sufficient speed. With more data in hand, such trends may lend themselves to better discernment, as may the appropriate stance of monetary policy.

Since the September FOMC meeting, the 10 year yield had picked up 30 basis points in yield, and it had been steadily rising in the lead-up to the meeting. Rising long-term rates also have a tightening effect and the Fed doesn’t want to kill the labor market just to move inflation from 3.4% to 2%.

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The MBA Annual conference in Chicago is rapidly approaching. Are you looking to hedge a pipeline of non-QM loans or your servicing portfolio? CME Group lists SOFR futures including Eris SOFR Swap futures and are an excellent way to manage this risk. Plus, with the rollout of Eris Options this past summer, you have even more tools to tailor your strategy. Talk to John Douglas at john.douglas@erisfutures.com to book a meeting.

In addition, Eris Innovations will also have a cocktail hour on Monday afternoon. Space is limited. Please reach out to john.douglas@erisfutures be placed on the guest list.

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The manufacturing economy expanded in September, albeit at a slightly slower pace than August. “In September, U.S. manufacturing activity remained in expansion territory. Of the five subindexes that make up the PMI^®, only New Orders and Employment grew faster than the previous month. In September, 40 percent of the comments were positive and 60 percent negative, with a 1-to-1.6 ratio of positive to negative sentiment. Among negative comments, pricing volatility was mentioned in 46 percent, tariffs 34 percent, the Iran war 30 percent and increasing lead times 21 percent; most comments mentioned multiple factors.

Prices increased by 6.8 points, which to the fastest level since the beginning of the Iran War.

Stocks are higher as we enter the final quarter of the year. Bonds and MBS are down small.

The 10 year got smashed again yesterday despite the less bad than feared PCE inflation report. Over the third quarter, the 10 year bond yield increased by 81 basis points. Most of the decline happened last month.

There was no particular catalyst that drove the big decline. Oil did rise, but the move seems outsized given the change. It is a global phenomenon where all sovereign debt benchmarks are getting hit simultaneously. The more interesting question is what are these sellers doing with the proceeds of these sales.

Interestingly, the October Fed Funds futures moved pretty dramatically the other way, with no move now the most likely outcome. They now see a 37% chance of a rate hike and a 63% chance of no change in policy. The December futures have a 58% chance of one more rate hike this year as the base case.

CNBC wins clickbait title of the year “Mortgage rates could reach 9%, says Cotality’s Selma Hepp” If you watch the interview, you see it is more of a worst-case scenario, where the 10 year Treasury goes into the 6%-7% range and people lose confidence in the US dollar as a safe haven asset. Cotality’s base case is that mortgage rates stay in the 7% range.

The most likely scenario for a spike in Treasury rates would probably not be inflation or oil. The worst case scenarios there have come and gone. It would be a debt-ceiling standoff. The debt limit will probably have to be raised in mid 2027, and if the Democrats take Congress there is a definite possibility that we will see some brinkmanship negotiations. The other thing to keep in mind here is that monetary policy acts with a 6-9 month lag, so the effects of the Fed tightening cycle will start to be felt next spring and summer. So that works against higher rates as well.

The US dollar is in zero danger of losing its safe haven status simply because there is no alternative. The debt issues in the US are high, but the competitors (Japan and the EU) have the same issue or worse. Japan’s debt to GDP ratio is 2.5x (compared to the US at 1.3x). The EU and the UK have better debt-to-GDP ratios than the US, but the liquidity of the US Treasury market is better. To be a reserve currency you need liquidity and stability. China will never permit its currency to fluctuate and will impose capital controls if necessary so that currency is out. The US more or less wins by default.

Regardless, 9% mortgage rates don’t seem to be in the cards any time soon. The most likely case is that rates stay here and don’t move much. I think a recession which takes rates back into the 6% level is more likely than her 9% scenario, FWIW.

__________________________

The MBA Annual conference in Chicago is rapidly approaching. Are you looking to hedge a pipeline of non-QM loans or your servicing portfolio? CME Group lists SOFR futures including Eris SOFR Swap futures and are an excellent way to manage this risk. Plus, with the rollout of Eris Options this past summer, you have even more tools to tailor your strategy. Talk to John Douglas at john.douglas@erisfutures.com to book a meeting.

In addition, Eris Innovations will also have a cocktail hour on Monday afternoon. Space is limited. Please reach out to john.douglas@erisfutures be placed on the guest list.

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More evidence the employment market is getting better: Job cuts fell 18% MOM and 20% YOY to 43,281 according to outplacement firm Challenger, Gray and Christmas. This is the lowest monthly total since 2022. Hiring plans picked up as well.

“Companies are in a wait-and-see period right now. Employers are facing high energy costs, an uncertain war in Iran, a rate hike that could make hiring more expensive, plus the liklihood of surging healthcare costs. We’ve seen layoff activity subside over this year, and September continues to illustrate this point,” said Andy Challenger, workplace expert and chief revenue officer for Challenger, Gray & Christmas.

“Hiring plans are up over the year, but we’re not seeing the surge of hiring plans that come with the holiday season, which suggests a very cautious approach,” he added.

Companies are reluctant to add seasonal holiday help quite yet. I guess the fear is that higher gasoline prices are going to depress disposable income which means less spending at the stores. The early indications for back-to-school spending were good, though September retail sales will be a better tell than August’s.

Yesterday’s personal incomes and outlays report caused the Atlanta Fed’s GDP Now model to forecast 3.7% growth for Q3 compared to the 5.1% it was previously showing. That 5.1% number always seemed suspect and was way out of step with the forecasts of everyone else.

Stocks are flattish this morning after a strong ADP report and an inflation reading that wasn’t as bad as feared. Bonds and MBS are still down regardless as the sentiment in the bond market remains putrid. Note that today is the end of the quarter so we might see some weirdness towards the close on window dressing.

Personal incomes rose 0.2% MOM while personal consumption expenditures (i.e. spending) rose 0.9%. The all-important PCE Price Index (the Fed’s preferred inflation measure) rose 0.3% MOM and 3.4% YOY. The core rate, which excludes food and energy, increased 0.2% MOM and 3.0% YOY. This numbers were below Street expectations, but still well above the Fed’s target rate. Still, it looks like inflation is at least flat, and the rate hikes haven’t even begun to take effect yet.

The private sector added 90,000 jobs in September according to the ADP Employment Report. “It’s a strong report. After a three-month slowdown, job creation rebounded and pay growth remained solid.” Education / Health Services accounted for 55k, followed by leisure / hospitality at 22k. Financial activities declined as did professional / business services. The 90k increase is higher than the Street estimate for 75k private payrolls in Friday’s report.

Job openings fell by 258k last month to come in just above 7 million. We saw big declines in professional / business services and healthcare / social assistance. Trade / Transportation / Utilities saw an increase.

Home prices rose 1.9% YOY in July according to the Case-Shiller Home Price Index. Again we saw a wide divergence between MSAs with Chicago leading the pack (up 6.9% YOY) and Seattle (down 1.6%) bringing up the rear. New York and Cleveland also were top gainers.

“While home prices continued to decline in real terms in July 2026, marking the 14th consecutive month of real declines, slightly lower inflation and stronger nominal home price appreciation helped narrow the gap,” said Rebecca Kaufman, Associate Director of Commodities at S&P Dow Jones Indices. “In July 2026, the S&P CoreLogic Case-Shiller National Home Price Index posted a 1.9% annual gain, up from 1.6% in June. During the same period, consumer prices posted a 3.4% annual gain, down slightly from 3.5% in June.

“Although inflation remained elevated at 3.4%, much of the increase was concentrated in energy, with energy and gasoline prices rising 14.7% and 24.6%, respectively,” Kaufman concluded. “By contrast, core inflation, which excludes food and energy, rose only 2.5% year over year. This distinction is important because persistent inflation in shelter and other core categories tends to have a more direct impact on housing affordability than energy-driven price fluctuations.”

It is interesting that home price appreciation is lagging inflation but shelter inflation remains a big driver of overall inflation.

__________________________

The MBA Annual conference in Chicago is rapidly approaching. Are you looking to hedge a pipeline of non-QM loans or your servicing portfolio? CME Group lists SOFR futures including Eris SOFR Swap futures and are an excellent way to manage this risk. Plus, with the rollout of Eris Options this past summer, you have even more tools to tailor your strategy. Talk to John Douglas at john.douglas@erisfutures.com to book a meeting.

In addition, Eris Innovations will also have a cocktail hour on Monday afternoon. Space is limited. Please reach out to john.douglas@erisfutures be placed on the guest list.

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Consumer confidence declined in September according to the Conference Board Consumer Confidence Index. “The Consumer Confidence Index deteriorated notably in September, following two prior months of softening,” said Dana M Peterson, Chief Economist, The Conference Board. “The Present Situation Index fell sharply, while the Expectations Index slipped further into negative territory. Consumer appraisals of current business conditions became negative for the first time since September 2024. Perceptions of the current labor market also worsened, though remained within positive territory. Over the next six months, consumers expected both business conditions and the labor market to weaken. Consumers still anticipated their household incomes to rise, but less so compared to previous months.”

As usual, higher gasoline prices are driving the decline. “Consumers’ write-in responses regarding factors affecting the economy were mostly pessimistic in September. References to prices, the high cost of goods and services, and oil and gas prices in particular, rose to new heights, reflecting September’s surge in fuel costs. Comments about war/conflict eased this month but remained elevated. Consumers also frequently cited politics, trade, and employment in their write-in responses, though to a lesser extent.”

Year-ahead inflation expectations increased to 6.1%. This is definitely out of step with UMich expectations and market-based indicators like Treasury Inflation Protected Securities (TIPS). The 5-year breakeven inflation rate for TIPS has been in a narrow range of 2.2% to 2.6% for the past several years. Unfortunately, 5-year is the shortest maturity for TIPs.

Mortgage applications fell 6% last week as purchases fell 4% and refis fell 9%. Rising rates drove the decrease. “Mortgage rates jumped to their highest level in almost three years, pushing borrowers to the sidelines. The 30-year fixed rate increased for the sixth consecutive week to 7.3%, the highest rate since November 2023,” said Joel Kan, CMB, MBA’s Vice President and Deputy Chief Economist. “Mortgage applications fell by 6% due to the recent surge in rates, with purchase and refinance applications both declining to their slowest weekly pace since 2025. Government refinances declined 13%, with both FHA and VA applications experiencing double digit decreases over the week.

Stocks are higher this morning as oil prices stabilize and bonds find a level. Bonds and MBS are up small.

We are coming up on the end of the quarter, where asset allocators begin to make adjustments for the upcoming quarter. We could see some swings in the bond market over the next couple of days which will be exacerbated by the PCE report tomorrow.

Mideast oil exports are picking up as shippers become better at avoiding Iranian drones and other pipelines pick up the slack. Current Middle Eastern oil shipments are running around 80% of pre-war levels. Daily volume was 13MM barrels per day, which is much higher than the roughly 7.5MM / day we saw during the summer. So things are improving despite a stalemate on the hostilities side.

Delinquencies ticked up 14 basis points last month to 3.53% according to the ICE First Look. This is up 10 basis points on a YOY basis, but is still well below pre-pandemic levels. The seriously delinquent rate remained at 1.04% or about 574,000 homes.

Foreclosure starts ticked down 6%, but are up 29% YOY. Foreclosure inventory build was only 2,000 units to 89,000 units which is still up 41% YOY. Foreclosure volumes were depressed due to COVID-era restrictions, but are returning to more normal levels. The current foreclosure percent (0.54%) is more or less where we were in February 2020.

__________________________

The MBA Annual conference in Chicago is rapidly approaching. Are you looking to hedge a pipeline of non-QM loans or your servicing portfolio? CME Group lists SOFR futures including Eris SOFR Swap futures and are an excellent way to manage this risk. Plus, with the rollout of Eris Options this past summer, you have even more tools to tailor your strategy. Talk to John Douglas at john.douglas@erisfutures.com to book a meeting.

In addition, Eris Innovations will also have a cocktail hour on Monday afternoon. Space is limited. Please reach out to john.douglas@erisfutures be placed on the guest list.

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MBA CEO Bob Broeksmit laid out three ways the government could improve housing affordability. First, he says that FHFA could direct Fan and Fred to lower their LLPAs overall or do something for first time homebuyers. Note I wrote an article advocating just that earlier this year. He argued that the GSEs are charging too much in g-fees for the amount of risk they are taking.

“Housing is too big a part of the economy for it to flounder, and there are things we can do immediately to rejuvenate it,” Broeksmit stated.

He started with the guarantee fees and the loan-level price adjustments from the GSEs, both of which he categorized as “too high.”

“If you look at their quarterly profits and you look at the credit quality of the loans they close, there’s a big mismatch between the price they’re exacting and the risk they’re taking,” Broeksmit said.

“You could do that with an across-the-board change to LLPAs,” Broeksmit noted. “You could do it targeted to first-time home buyers, you could do it to certain loan amounts. You could turn it into a closing cost credit. There are myriad ways to do this.”

I like the idea of a LLPA adjustment targeted to first time homebuyers because it won’t just push up prices across the board which defeats the purpose.

He also said that FHA could lower its insurance premium as well and there could be something done on credit scores.

Stocks are lower as we head into the final week of the third quarter. Bonds and MBS are down. Again, this is not a US-centric phenomenon – global sovereign yields are up across the board.

The week ahead will contain a couple big reports, with the personal incomes and outlays report on the 30th which will contain the all-important PCE Price Index. The jobs report will come out on Friday. We will also get ISM data and home prices, the final estimate for Q2 GDP and consumer confidence.

The street is looking for a 0.2% MOM increase in the headline PCE Price Index and the core. The headline YOY PCE Price Index is expected to rise 3.7% while the core is expected to increase 3.3%.

For the jobs report, the street expects 162k jobs with the unemployment rate to remain unchanged at 4.1%.

Consumer sentiment fell in September according to the University of Michigan Consumer Sentiment Survey. This is the lowest reading in 4 months and is 15% lower than January. Deteriorating expectations for the future drove the decrease. Year-ahead inflation expectations increased from 4.0% to 4.6% while longer-term expectations rose from 3.3% to 3.4%.

Given that unemployment is sitting at 4.1% (a level that would have been unheard of in the 70s, 80s and most of the 1990s) consumers shouldn’t be so dour. What is the driver? Gasoline prices. Below I charted UMich sentiment versus gas prices. The blue line is sentiment while the green line (right axis) is gasoline. This is a very strong negative correlation. In other words, gas prices rise and consumers get surly.

Cleveland Fed President Beth Hammack said that inflation risks are tilted to the upside at an event on Friday. “Current ​conditions in the United States ​indicate that output is growing at a solid pace and the ​labor market remains close ​to my definition of maximum employment, but ‌inflation ⁠remains elevated,” Hammack said in comments opening a conference at her bank. “The inflation outlook ​continues ​to be ⁠highly uncertain, with risks tilted to the ​upside” and “the longer that ​high ⁠inflation persists, the more challenging and costly it can ⁠be ​to bring it ​back down,” she said.

“The longer that high inflation persists, the more challenging and costly it can be to bring it back down,” said the Federal Open Market Committee voting member. “Because monetary policy affects the economy with long and variable lags, we need a reliable way to separate temporary moves in inflation from changes that are more persistent.”

She also said that the recent sell-off in the bond market does not reflect a loss of confidence in the Fed.

China and the US agreed to cut tariffs on some $30 billion of goods. China gets relief on toys and Christmas decorations (good timing) while the US gets relief on agricultural goods.