Stocks are higher this morning after the Fed maintained rates at current levels. Bonds and MBS are down due to a lack of progress in the Persian Gulf.
As expected, the Fed maintained the Fed Funds rate at current levels. The language was pretty much the same language the Fed has been using. As expected Stephen Miran dissented, preferring to cut interest rates. There were three other dissenters: Hammack, Kashkari and Logan who objected to the inclusion of “easing bias” language in the statement. FWIW, the statement consistently refers to both sides of the mandate, so I am not sure what they are objecting to. Yes, there has been the perception that they are leaning towards easing (if only because monetary policy is tight in the first place) but the language in the FOMC statements for a long time has referred to both sides of the mandate.
Bonds, which had been weak all day sold off further. The December Fed Funds futures still forecast no further changes to monetary policy this year, but the chance of a hike is now larger than the chance of a cut.
Jerome Powell has stated that he won’t leave the Fed until the issue of the renovation is resolved. Trump suspended the DOJ’s investigation in order to get Kevin Warsh confirmed, but that apparently isn’t good enough. Powell will remain as a Governor and will let Warsh run the show.
March housing starts rose 11% MOM and YOY to a seasonally adjusted annual rate of 1.5 million units. Feb starts came in at 1.3 million. Building permits were down.
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Interest rate volatility can spike at any time. Think of the past catalysts: COVID, Brexit, 2008. When volatility spikes, MBS spreads widen and your gain on sale decrease. One way to hedge that risk is to use options, which increase in value when volatility spikes.
Many mortgage bankers have tried TBA options, but these require a dedicated counterparty and are illiquid. The Chicago Mercantile Exchange is now listing options on SOFR swapfutures, which correlate well with mortgages, especially non-QM. Talk to ERIS about using margin-friendly SOFR Swap futures and options to hedge tail risk in your portfolio.
The CME put out the following press release on April 14th.
CME Group, the world’s leading derivatives marketplace, today announced it will launch options on Eris SOFR Swap futures on June 16, 2026, pending regulatory review. SOFR futures are a liquid way to manage interest rate risk. “Eris SOFR Swap options will help institutional investors manage risk with greater precision as they navigate varying expectations on the direction of U.S. interest rates,” said Michael Riddle, CEO of Eris Innovations. “By mirroring the structure of forward-premium OTC swaptions, Eris SOFR Swap options can deliver cost optimization, margin efficiencies and trading simplicity amid shifting economic conditions.”
Eris SOFR Swap futures replicate interest rate swap cash flows, offering the standardization and capital savings of exchange-traded instruments. The addition of options on 2-year, 5-year and 10-year Eris SOFR Swap futures will support more sophisticated hedging strategies, such as managing non-linear risk in mortgage-backed portfolios.
Since launching in October 2020, more than 10 million Eris SOFR Swap futures contracts have traded at CME Group. In March 2026, Eris SOFR Swap futures reached an all-time open interest record of 707,000 contracts ($71B notional), including a single-day volume record of 299,513 contracts on March 10.
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Durable Goods orders rose 0.8% MOM, which was better than Street forecasts. This follows a 1.2% decrease in February. Much of the increase came from defense spending. Ex-defense durable goods orders rose 0.3%.
Stocks are flattish as we await the Fed’s decision. Bonds and MBS are down.
The Fed’s decision is due at 2:00 pm. No change in rates is expected, however the critical piece will be if the statement telegraphs that rate hikes are on the table. There will be a press conference afterward, though keep in mind that this will be Powell’s last, and a new Chairman will be running the show.
Home prices rose 0.7% YOY in February according to the Case-Shiller Home Price Index. On a monthly basis prices rose 0.1%. The hip-to-be-square trade continues, with strength in the Midwest and Northeast and weakness in the West and South. “Leadership remains concentrated in Midwest and Northeast markets. Chicago led all metros at 5.0% annual growth, followed by New York (4.7%) and Cleveland (4.2%) — the same trio that has anchored this cycle’s leadership. The 7.2 percentage point spread between Chicago and Denver illustrates how localized the housing story has become.”
“More than half of major U.S. metropolitan markets posted year-over-year price declines in February, signaling that the housing slowdown has broadened well beyond its Sun Belt origins,” said Nicholas Godec, CFA, CAIA, CIPM, Head of Fixed Income Tradables & Commodities at S&P Dow Jones Indices. “The S&P Cotality Case-Shiller National Home Price Index rose just 0.7% year over year in February, down from 0.8% in January. With consumer inflation at 2.4%, U.S. home values have lost ground in real terms for nine consecutive months.
HUD has rolled back some Biden-era regulatory provisions in order to make homebuying more affordable. The regulatory rule required new construction to be compliant with the 2021 International Energy Conservation Code (IECC), which HUD estimates adds up to $31,000 to the price of a new home. “By rescinding this mandate, we are removing a significant regulatory barrier that added tens of thousands of dollars to the cost of a new home,” said Secretary Turner. “The Trump Administration’s focus is to facilitate new housing supply and ensure that every American family has a path to homeownership without being sidelined by bureaucratic red tape.”
“Affordable rural housing is a top priority for the Trump Administration, and we are focused on removing all the unnecessary restrictions that artificially drive up new home prices,” said Secretary Rollins. “We launched the Rural Revival Agenda at USDA to bring rural communities to the forefront of our actions, and this joint determination restores common sense to our programs and ensures that we can continue bringing new affordable housing supply online for Americans.”
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Interest rate volatility can spike at any time. Think of the past catalysts: COVID, Brexit, 2008. When volatility spikes, MBS spreads widen and your gain on sale decrease. One way to hedge that risk is to use options, which increase in value when volatility spikes.
Many mortgage bankers have tried TBA options, but these require a dedicated counterparty and are illiquid. The Chicago Mercantile Exchange is now listing options on SOFR swapfutures, which correlate well with mortgages, especially non-QM. Talk to ERIS about using margin-friendly SOFR Swap futures and options to hedge tail risk in your portfolio.
The CME put out the following press release on April 14th.
CME Group, the world’s leading derivatives marketplace, today announced it will launch options on Eris SOFR Swap futures on June 16, 2026, pending regulatory review. SOFR futures are a liquid way to manage interest rate risk. “Eris SOFR Swap options will help institutional investors manage risk with greater precision as they navigate varying expectations on the direction of U.S. interest rates,” said Michael Riddle, CEO of Eris Innovations. “By mirroring the structure of forward-premium OTC swaptions, Eris SOFR Swap options can deliver cost optimization, margin efficiencies and trading simplicity amid shifting economic conditions.”
Eris SOFR Swap futures replicate interest rate swap cash flows, offering the standardization and capital savings of exchange-traded instruments. The addition of options on 2-year, 5-year and 10-year Eris SOFR Swap futures will support more sophisticated hedging strategies, such as managing non-linear risk in mortgage-backed portfolios.
Since launching in October 2020, more than 10 million Eris SOFR Swap futures contracts have traded at CME Group. In March 2026, Eris SOFR Swap futures reached an all-time open interest record of 707,000 contracts ($71B notional), including a single-day volume record of 299,513 contracts on March 10.
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Rithm Capital reported first quarter adjusted earnings of $0.51 per share, which came in slightly below expectations. NewRez origination volume rose 31% YOY and gain on sale margins hit 144 basis points, up 7 bp YOY.
On the conference call, CEO Michael Nierenberg said: Right now, when you look over the course of the past quarter, a number of companies reported earnings. So I think everybody is expecting higher earnings on a go-forward basis. The economy feels pretty good while saying that we do feel that we’re going to get 1 or 2 rate cuts this year. When you think about the tariff situation, obviously, the President and the administration, their deal guys, they continue to negotiate deals across the board, and we think that’s going to continue.
So while there could be blips where the market sell off due to some uncertainties, we feel like — especially in light of the European deal that got announced over the weekend and now the administration trying to extend deadlines around the China tariffs, we feel like the policy uncertainty is declining. Risk appetite across the board remains high. [indiscernible] should continue to remain on the lower side right here. And what does that mean? That means all the products that we typically invest in should do much better. And then when we think about the yield curve, we have — the way we have been hedging our book, we’ve had rate steepeners on for many, many months.
The rate steepener bet means that Rithm thinks if the Fed cuts rates, the 10 year might not move all that much. That said, MBS spreads have a role to play here and they have been moving tighter as volatility exits the market.
Consumer Confidence improved in April according to the Conference Board. “Consumer confidence edged up in April but was overall little changed, despite material concern about rising gasoline prices as the war in the Middle East prompted a surge in Brent crude oil prices,” said Dana M Peterson, Chief Economist, The Conference Board. “Consumer appraisals of current and expected business conditions declined moderately compared to last month. This was offset by modest improvements in consumers’ perceptions of the labor market, both current and expected, as well as income expectations, which were slightly more optimistic in April.”
The survey period included the cease-fire and a rebound in the stock market.
Mortgage applications fell 1.6% last week as purchases rose 1% and refis fell 4%. “Mortgage rates increased slightly last week, with the 30-year fixed rate rising to 6.37 percent. The increase in rates led to a 4 percent decline in refinance application volume. However, purchase activity for conventional loans picked up almost 2 percent for the week,” said Mike Fratantoni, MBA’s SVP and Chief Economist. “More notably, purchase application was more than 20 percent above last year’s pace. After a brief pause, in part because of the elevated geopolitical uncertainties, potential homebuyers certainly appear to be moving forward this spring and taking advantage of the more favorable inventory conditions in most parts of the country.”
Redwood Trust has entered into an agreement with Castlelake, an alternative investment firm, to purchase $8 billion worth of jumbo production. This is indicative of the value institutional investors see in mortgage backed assets.
Stocks are lower this morning after bad revenue numbers out of Open AI. Bonds and MBS are down as oil surges.
Iran has offered to re-open the Strait of Hormuz if the US lifts its blockade and agrees to postpone talks about Iran’s nuclear program. Needless to say, the Trump Admin is not too keen on this offer. “That’s not opening the straits. Those are international waterways. They cannot normalize, nor can we tolerate them trying to normalize, a system in which the Iranians decide who gets to use an international waterway and how much you have to pay them to use it,” Rubio said.
Meanwhile, the fighting between Israel and Hezbollah in Southern Lebanon continue. Oil continues to work its way higher on the impasse.
The Fed begins its meeting today. The Fed Funds futures are predicting no move, and the December futures now see only a 20% chance of a rate cut this year. Thursday’s PCE report will carry a lot of weight for markets in general.
The bill that boots institutional investors from the build-for-rent business is causing financing to dry up for that sector. The issue is a provision which requires the builder to sell the properties within 7 years. Given that cap rates are already not so great in resi, limiting the income stream to 7 years makes many of these projects marginally profitable, and lenders are becoming reluctant to lend capital.
About $3.4 billion in investment is currently suspended as investors / builders analyze their options. Invitation Homes is scheduled to release earnings tomorrow and that should be an interesting conference call to listen in on.
Stocks are flattish after another Trump assassination attempt and the suspension of talks with Iran. Bonds and MBS are up small.
The week ahead will be dominated by the FOMC meeting. The Fed Funds futures are forecasting no change in interest rates, but the markets will be looking for clues about potential rate increases. In addition to the Fed decision we will get housing data with prices and housing starts, the first estimate of Q1 GDP and personal income / outlays which contain the PCE Price Index.
Earnings season continues with numbers expected from market bellwethers such as Google, Amazon, Apple and Meta. In resi names, we will get earnings from Rithm, Equity Residential, Invitation Homes, Redwood Trust, Tri Pointe Homes and Adamas (ex NYMT).
The Department of Justice is dropping its investigation of Jerome Powell over the Fed’s remodeling project. This investigation was ill-advised at best, and really had zero positive effects. In response, Senator Thom Tillis refused to vote to confirm Kevin Warsh until the investigation was dropped. The DOJ’s retreat should clear the decks to confirm Warsh and a new era will begin at the Fed.
Consumer sentiment fell in April according to the University of Michigan Consumer Sentiment Survey. “Consumer sentiment ticked down 3.5 index points this month, now comparable to the trough seen in June 2022. Decreases in sentiment were seen across political party, income, age, and education. Expected business conditions declined for both short and long time horizons, nearly matching year-ago readings when the reciprocal tariff regime was implemented. After the two-week cease-fire was announced and gas prices softened a touch, sentiment recovered a modest portion of its early-month losses. The Iran conflict appears to influence consumer views primarily through shocks to gasoline and potentially other prices. In contrast, military and diplomatic developments that do not lift supply constraints or lower energy prices are unlikely to buoy consumers.”
Year-ahead inflation expectations surged again, from 3.8% to 4.7%. This mirrors the jump seen last year at this time which was driven by tariffs.
The Spring Selling Season is inching towards buyers having the upper hand, as new listings increase. Sales jumped last week, although the the rise was impacted by the placement of Easter last year. “Looking through the holiday noise, the underlying trend points to a market where sellers are gradually reengaging, a welcome sign for buyers and a good omen for market liquidity moving forward this spring,” says Realtor.com senior economist Jake Krimmel. The median listing price fell 1.7%.
Re/Max is being sold to The Real Brokerage in a $550MM deal. This is a “tech meets “boots on the ground” deal which pairs AI with brokers.
Stocks are higher this morning after good numbers out of Intel. Bonds and MBS are down.
US economic growth rebounded in April after the war-related slowdown in March. Output rose to a 3-month high, although we are still at relatively depressed levels. The service sector remained under pressure, while manufacturing rose at the fastest pace in 4 years driven by new orders. That said, some of the new orders appears to be companies building a safety margin of inventory in anticipation of potential supply shocks or price increases. Prices increased at the fastest rate since July 2022, driven by higher fuel prices.
“A rebound in business output growth in April is good news after the near stagnation seen in March, but over the past three months we have seen the weakest expansion of output recorded since the start of 2024 with the war in the Middle East squarely to blame.
The April PMI is broadly consistent with the economy struggling to manage annualized growth in excess of 1%, with the vast service sector acting as the principal drag … There was better news from manufacturing, but here an expansion of output and orders could be partly traced to the building of safety stocks, with survey respondents reporting “panic” and “emergency” buying ahead of price hikes and supply shortages in echoes of the problems seen during the pandemic. Not surprisingly, prices are already spiking higher in this environment, and not just for energy but for a wide variety of goods and services. The overall inflation picture is now the most worrying for almost four years.”
PulteGroup reported decreased net income in the first quarter, which is par for the course for the whole sector. “Within a demand environment impacted by domestic and global dynamics, we see a consumer with concerns about affordability and the economy, but still desirous of homeownership as demonstrated by the 3% growth in our first quarter net new orders,” added Marshall. “Given these dynamics, we continue to intelligently manage sales, incentives and production to best position the Company for near- and long-term success.”
Like most builders, gross margins contracted substantially, falling 300 basis points. On the earnings conference call, CEO Ryan Marshall said:
Overall, I would say that the first quarter developed as a typical spring selling season with orders increasing sequentially as we move through the months. It is difficult to determine what impact global events may have had, but appreciate consumers were facing higher rates and costs in March. During the first few weeks of April, demand conditions have remained on track with typical seasonal trends. Still in the quarter, we experienced strong buyer traffic to our communities and sold more than 8,000 homes, which says consumers remain actively engaged in homebuying. And once again, our diversified business platform allowed us to capture the strongest segments of the business, namely the move-up and active-adult buyers.
Economic reports talk to the K-shaped economy and how lower and middle-income families are struggling much more than those in upper incomes. Housing demand over the past 2 years has been consistent with these dynamics. We saw this play out again in our first quarter results with both relative demand strength in our move-up and active-adult businesses, and option and lot premium spend that continues to average over $100,000 per home.
However, on the lower leg of the K, first-time buyers continue to struggle with the challenges of stretched affordability and fear of job loss. Our ability to offer low fixed rate mortgages and other incentives is certainly helping solve the affordability riddle for some. But this comes at a price as incentives in the quarter reached 10.9% of gross sales price. Even at this level, I think, we have done an excellent job of balancing the need to sell homes, particularly finished spec homes and turn our inventory, while maintaining higher margins in support of delivering strong returns on invested capital.
The Trump Administration is considering buying Spirit Airlines to rescue it out of bankruptcy. I am not sure what is so special about this particular bankruptcy – airline bankruptcies are common, and Spirit has a debtor-in-possession credit line that will allow it to operate as normal. I find it ironic that the government blocked the merger with Jetblue which pushed Spirit into bankruptcy and is now talking about bailing it out. Spirit clearly fit the “failing firm” antitrust exemption, so why did they block the merger?
The Chicago Fed National Activity Index decreased to -0.20 in March from 0.03 in February. The CFNAI is sort of a meta-index of some 85 economic indicators and is meant to be a 10,000 foot view of the economy. Production and income indicators drove the decline.
Stocks are flattish this morning as earnings continue to come in. Bonds and MBS are down. There are rumors that talks between Iran and the US could restart tomorrow, but confidence in that is limited.
Pending home sales rose 1.5% in March, according to NAR. “Contract signings rose in March despite higher mortgage rates, pointing to pent-up housing demand,” said NAR Chief Economist Dr. Lawrence Yun. “A greater supply of inventory will help translate that demand into more home sales.”
“Demand sensitivity to mortgage rates is greatest among first-time buyers, particularly younger buyers,” Yun said. “As a result, boosting supply and new-home construction should focus on smaller, more affordable homes.”
“A good number of markets in the South experienced price cuts over the past year but recorded the strongest job growth,” Yun added. “That combination should lead to stronger housing market activity in the South this year.”
Fannie and Freddie are going to consider rent payment history in determining a borrower’s creditworthiness. “If you pay your rent on time, you are more likely to pay your mortgage on time,” Pulte said. “For decades, our housing system ignored that simple fact, because your credit score would never count it. That’s nonsense, because credit history should include rental history.”
Fan and Fred are allowing Vantage scores as well to help reduce costs. “This will benefit only applicants that are creditworthy and trustworthy,” [Department of Housing and Urban Development Secretary] Turner said. “We’ve been through the financial crisis, we understand that. The rigor will stay in place, but we want to make it more available and more affordable.”
I wonder how much this will affect Fan and Fred since borrowers who are most likely to need to use rent to qualify are FHA borrowers anyway.
Yesterday was a big day for homebuilder earnings. NVR missed quarterly estimates as net income fell by 34%. NVR is a luxury homebuilder so this means the appetite for McMansions is on the slow side.
Meritage reported a 55% decrease in earnings as revenues and gross margins fell: “With the spring selling season commencing this quarter, we experienced some improved demand, achieving an absorption rate of 3.6 net sales per month and sales orders of 3,664 homes. However, these results were below our expectations as 2026 began with a severe winter storm in January and then transitioned into military operations in Iran midway through the quarter, which negatively impacted consumer sentiment and mortgage rates,” said Steven J. Hilton, executive chairman of Meritage Homes. “In this environment, we acknowledge that capturing demand requires higher than anticipated incentive utilization, even as we look to optimize every asset while balancing pace and margin.”
M/I homes reported a decline in revenues and margins, leading to 36% decline in earnings per share. M/I has high average selling prices so it is more of a barometer of the high end of the housing market. The move-up buyer is staying in place with a mortgage in the 3% range, which is partially why starter homes are hard to get.
Stocks are higher this morning as earnings continue to come in and the situation in Iran remains uncertain. Bonds and MBS are down small.
Kevin Warsh appeared in the Senate for his confirmation hearing and stressed that he will lead an independent Fed. Senator Elizabeth Warren tore into him over financial disclosures and tried to goad him into criticizing Trump. She demanded that Warsh discuss some area where he differed with Trump and Warsh replied with some anecdote about his looks, batting the question harmlessly away. Warsh has a high net worth, with a sizeable investment portfolio in hedge funds etc and has promised to divest it all if he gets the job.
When asked about the president wanting to see interest rate cuts, Warsh said that every President wants interest rate cuts. Trump is more vocal about it, which is the only difference. That is a fair point. It is kind of surreal seeing Democrats pretending to be inflationary hawks advocating for higher rates. When asked if rate cuts were a litmus test for his nomination he said “the president never asked me to commit to interest rate cuts at any particular meeting over the period of my tenure at the Fed. He didn’t ask for it. He didn’t demand it. He didn’t require it, and nor would I have ever done so.”
The markets didn’t have much reaction to the hearing, with the 10 year going nowhere and the Fed Funds futures still seeing a roughly 2/3 chance of no change in interest rates for the remainder of the year.
Homebuilder D.R. Horton reported better-than-expected earnings yesterday sending the stock up 6% in the aftermarket. That said, earnings per share did decline about 13% to $2.24. The company is sitting on inventory and plans to continue to work it down.
“Affordability constraints and cautious consumer sentiment continue to impact new home demand; however, our tenured operators executed with discipline, driving an 11% year‑over‑year increase in net sales orders, while reducing unsold completed homes by 35% from a year ago. We expect our sales incentives to remain elevated in fiscal 2026, with incentive levels dependent on demand, mortgage interest rates and other market conditions.” In other words, D.R. Horton will continue to use price cuts to move the merchandise. The company said on the call that roughly 10% of revenues were incentives, and they are using mortgage rate buydowns to improve affordability.
Gross margins came in at 20.1% which is on the low side. Margins benefited from a 50 basis point litigation gain, which means they were even worse. The company generated $3.7 billion in cash from operations and used $4 billion in dividends and buybacks. The company cited that construction costs are falling, driven by lower materials prices. So whatever tariff effects that may have been feared are not evident. Q1 last year was pre-tariff, so this is an honest comparison. Lower margins are being driven by price cuts, not costs. Lot price appreciation is moderating as well. Finally, labor tightness is improving, and the company said on the call that it is “consistent and plentiful.”
On the build-for-rent business, which is being targeted by the housing bill, the company continues to sell properties and the business is more or less on hold for the time being. On the market overall: “I think we’re seeing good demand in Texas, consistent as well in Florida. The markets feel pretty good to us. Generally, across the country, I would say that most of our markets are performing well in line with expectations, perhaps a little bit of softness in a few of our markets that have a kind of a traditionally heavy exposure to the software industry. That buyer sentiment may be off a bit. Other than that, just kind of a good start to spring, pretty encouraged.”
Interesting about Texas and Florida which suffered the most from overbuilding during the pandemic era. The worst may be over there.
Western Alliance reported better-than-expected numbers yesterday with a 7.9% decrease in earnings per share driven by the final write-down for the Leucadia Asset Management loan. Net interest margin increased, driven by lower deposit costs.
On the conference call, the company discussed the mortgage business:
The combination of these emerging tailwinds favor a more robust revenue environment for mortgage and MSR-related income even as we continue to operate with a conservative forecast…We are constructive on the mortgage business, as I said, as we begin 2026. And we see several tailwinds that could provide additional alpha earnings to our 2026 projections. As a starting point, we are assuming a 10% year-over-year increase in total mortgage fee-related revenues. However, if several of the administrations make housing affordable programs take hold, combined with favorable regulatory changes and a lower interest rate environment, we think AmeriHome could outperform these projections. As a data point and it’s an early data point, so I caution everyone on this.
But as a data point, entering the year here, we expect Q1 total mortgage revenues to be nearly equal Q4 results, but I’ll tell you that January’s volumes and margins as of close of business last night, we’re presently trending above our planning assumptions. So a little conservative on the mortgage income. It’s based on some tailwinds, which we think are going to come. We’ll wait. Those happen to be whether or not there’s access to 401(k) funds or the GSEs buying $200 billion more of mortgage bonds. We also see certain areas of the United States seeing supply exceed demand.
So we think some housing pricing may come down and certainly in the Southeast and we expect a couple of rate cuts certainly with potentially a more sympathetic Fed chair in May. So with all that going on, I think that’s the economic and administration tailwinds that we have. There’s also a couple of regulatory tailwinds and we’re going to wait to see what happens here but it’s our understanding coming out of Q1 that the FRB may give us additional guidance on MSRs. And the two things that we’re looking at is, one, will the FRB reexamine the MSR 25% cap to CET1 capital?
And if they do that, that will allow us to either hold on to — that will allow us to hold on to more MSR receivables and those have a double-digit yield to them. And so we like that. On the other hand, there’s another consideration, which is the change the risk weighting of the asset — of the MSR asset, which you know is 2.5x to 1.
If that comes down, that will either free us up to hold on to more MSRs or it could allow us to buy back more stock or support more growth to the first question today that we received or we just want to go to capital and we build a higher capital base. So we have some things going on here that potentially could be very strong as it relates to the mortgage business. So a little wait and see, but we have some optimism and trying to restrain it, but I’m hoping that it does come to fruition.
Those comments should put some spring in the step of mortgage bankers after a dour few years.
Mortgage applications rose 7.9% last week as purchases increased 10% and refis rose 6%. “Mortgage rates declined last week as financial markets responded positively to the Middle East ceasefire and the lower trend in oil prices, with the 30-year fixed rate decreasing to 6.35%,” said Mike Fratantoni, MBA’s SVP and Chief Economist. “Refinance application volume increased by 6%, while purchase application volume increased an even stronger 10%and was up 14% compared to last year’s pace. This increase was led by conventional purchase loans up 11% over the week. Despite the geopolitical uncertainty, housing demand is being supported by a still resilient job market, and homebuyers are experiencing a buyer’s market in most of the country given the higher levels of inventory relative to last year.”
Stocks are higher as Tehran agrees to send someone to talks in Pakistan. Bonds and MBS are flat.
Fed nominee Kevin Warsh will have a confirmation hearing in the Senate today. This is his chance to demonstrate central bank independence to the markets and reassure investors that he won’t be a rubber stamp for Trump. Warsh got the nomination partially because he was willing to buck the conventional wisdom at the Fed that rates should be coming down. Since then, circumstances have changed and the situation in Iran makes rate cuts almost impossible.
Warsh will probably take a wider view of his role and want to maintain central bank independence and avoid repeating the mistakes of the 1970s.
Retail sales rose 1.7% in March, according to the Census Bureau. This is a 4.0% increase from a year ago. Since these numbers are not adjusted for inflation, on a real basis sales rose modestly. Given the turmoil in the Gulf, the Street was looking for a much more modest increase. Even if you strip out gasoline and motor vehicles, sales rose 4.2%. February’s numbers were revised up.
Mortgage REIT AGNC Investment reported earnings yesterday. AGNC Investment buys mortgage backed securities backed by the US Government and is therefore the buyer of the mortgages the industry originates. Earnings rose and the company maintained its dividend, but it was hit by wider MBS spreads driven by higher interest rate volatility. MBS spreads represent the increased yield investors demand to hold mortgages versus Treasuries. As spreads increase (or “widen”) mortgage rates rise relative to Treasuries. In other words, the 10 year yield might increase by 10 basis points and mortgage rates might increase by 12 basis points. Or conversely the 10 year yield could fall and mortgage rates do nothing. You can see what happened below: MBS spreads increased 14 basis points relative to Treasuries in Q1.
What causes mortgage rates to do that? Interest rate volatility. Mortgage backed securities behave differently than Treasuries because the borrower always has the option to refinance. When rates become more volatile the value of that refinance option increases which makes MBS less attractive to investors relative to Treasuries. Volatility is measured by the MOVE Index, which is sort of like the VIX for bonds:
I like to talk about mortgage REITs when they report because it gives people in the industry insight into why rates do what they do. Mortgage professionals are very in touch with how borrowers think, but often are in the dark about “the other side of the trade” i.e. the investors who buy our loans.
Stocks are lower this morning as the Iran situation drags on. Bonds and MBS are down small. The Iranian announcement on Friday that the Strait of Hormuz was open was rescinded and hostilities continue. The US seized an Iranian ship over the weekend and continued peace talks in Pakistan appear to be up in the air.
One thing to keep in mind is that time is on the US’s side here. Iran’s currency is worthless and it needs to export oil to survive. China relies heavily on Iranian oil and has to be getting sick of the situation. The US can endure high energy prices longer than the Iranians can endure the status quo of having their ports blockaded. Not only that, but there were all sorts of wells drilled 20 years ago when oil was $140 a barrel that become economic to operate if oil stays elevated. That increased supply will push prices down. As they say in the commodity markets: “the cure for high prices is high prices.”
The week ahead will be relatively data-light with retail sales and consumer sentiment. We are in the quiet period ahead of next week’s FOMC meeting, so we won’t have any Fed speakers. Earnings season continues, with numbers expected from AGNC Investment, Tesla, and PennyMac. The homebuilders will also report with D.R. Horton, Pulte, NVR, Tri-Pointe, and Meritage. The builders will be interesting to get a read on the Spring Selling Season.
Fed Governor Christopher Waller says that the Iran War is keeping the Fed on hold. He is worried about both sides of the dual mandate, with persistent inflation and a “slow growth” labor market. “High inflation and a weak labor market would be very complicated for a policymaker,” the central banker said for a speech in Alabama. “If I face this situation, I’ll have to balance the risks to the two sides of the Fed’s dual mandate to determine the appropriate path of policy, and that may mean maintaining the policy rate at the current target range if the risks to inflation outweigh those to the labor market.”
“My sense is that employers are walking a tightrope between their earlier challenges in finding qualified workers and where they think the economy is going, leaving them vulnerable to some economic shock that could tip them over and lead to significant job reductions,” he said.
“Beyond the length of these disruptions, with this economic shock coming on the heels of the boost to prices from import tariffs, I believe there is the possibility that this series of price shocks may lead to a more lasting increase in inflation, as we saw with the series of shocks during the pandemic,” he said.
The Atlanta Fed GDP Now model sees Q1 GDP at 1.3%. The estimate has been working its way lower.
Single-family rents increased 1.1% in February according to Cotality. This is about 1/3 of the pre-pandemic level.“While it looks like rent increases have slowed significantly more for lower-income renters, when you look back at the last five years, rent growth is similar across all price tiers, highlighting how broadly gains were distributed earlier in the cycle. Higher-end rentals continue to show comparatively more stability, with prices rising 2.0% year-over-year despite ongoing deceleration,” said Molly Boesel, senior principal economist at Cotality. “Geographic differences remain substantial, but deceleration is becoming less widespread, with fewer metros seeing annual declines and slowdowns than last month. Los Angeles posted its first annual decline since the 2025 wildfires, signaling rents are beginning to trend back toward pre‑wildfire levels.”
This really makes the push to get institutional investors out of single family properties look like a solution in search of a problem. Which is why you don’t see them grumbling about it too much. They are looking at the potential returns and seeing better alternatives in other asset classes.
Stocks are higher this morning on no real news. Bonds and MBS are flat.
Industrial production fell 0.5% MOM in March according to the Federal Reserve. Manufacturing production declined 0.1%. Capacity utilization declined to 75.7%. The declines were driven by falling consumer goods production.
Independent mortgage banks saw an increase in profit in 2025 according to the MBA. “The average net production profit for IMBs in 2025 reached its highest level in four years at 21 basis points,” said Marina Walsh, CMB, MBA’s Vice President of Industry Analysis. “While profits have improved slightly in recent years, they are still less than half the historical average going back to 2008. There was also wide variability between top and bottom performers due to differences in product mix, volume levels, geography and cost efficiencies, among other factors.”
Profits rose to an average of $785 per loan compared to $443 a year ago. “Overall annual production volume was up in 2025, while loan balances rose to new study-highs. Despite the increase in volume, per-loan production costs were slightly higher than in 2024. Historically, when volume picks up, fixed costs are spread over more loans, resulting in a reduction in per-loan costs. However, that was not the case in 2025 as rising wage growth, increases in third-party charges, and reduced application pull-through negatively impacted origination costs. Containing origination costs and increasing efficiencies will remain a differentiator between profitable and unprofitable companies in 2026.”
NY Fed President John Williams worries the war will have a negative effect on inflation. “Assuming energy supply disruptions ease reasonably soon, energy prices should come down, and these effects should partially reverse later this year,” Williams said. “However, the conflict could also result in a large supply shock with pronounced effects that simultaneously raises inflation — through a surge in intermediate costs and commodity prices — and dampens economic activity. This has begun to play out already.”
