Vital Statistics:
| Last | Change | |
| S&P futures | 4,621 | -222228.2 |
| Oil (WTI) | 67.68 | -2.48 |
| 10 year government bond yield | 1.43% | |
| 30 year fixed rate mortgage | 3.30% |
Stocks are lower this morning on COVID fears. Bonds and MBS are up.
Jerome Powell is scheduled to speak in front of the Senate Banking Committee this morning. Here are his prepared remarks. One sentence caught the market’s attention: “The recent rise in COVID-19 cases and the emergence of the Omicron variant pose downside risks to employment and economic activity and increased uncertainty for inflation. Greater concerns about the virus could reduce people’s willingness to work in person, which would slow progress in the labor market and intensify supply-chain disruptions.” The market took this as bullish for bonds, which is why rates fell late yesterday.
The Fed Funds futures are getting a little more dovish compared to a week ago. The central tendency is now looking at 50 bps in hikes next year versus 75 a week ago.
Home prices rose 18.5% in the third quarter, according to the FHFA. This number will supposedly determine the new conforming limits for next year. I am hearing conflicting interpretations however. If you divide the Q321 index level by the Q320 index level, you get a 18.05% increase. This would put the new conforming loan limits at $647,200. If they use the headline number, then it would come in at $649,700. We should get the official numbers in a day or two.
“House price appreciation reached its highest historical level in the quarterly series,” said William Doerner, Ph.D., Supervisory Economist in FHFA’s Division of Research and Statistics. “Compared to a year ago, annual gains have increased in every state and metro area. Real estate prices have risen exceptionally fast, but market momentum peaked in July as month-over month gains have moderated.”
Separately, the Case-Shiller Home Price Index rose 19.5%.
Consumer confidence slipped in November, according to the Conference Board. “Consumer confidence moderated in November, following a gain in October,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. “Expectations about short-term growth prospects ticked up, but job and income prospects ticked down. Concerns about rising prices—and, to a lesser degree, the Delta variant—were the primary drivers of the slight decline in confidence. Meanwhile, the proportion of consumers planning to purchase homes, automobiles, and major appliances over the next six months decreased. The Conference Board expects this to be a good holiday season for retailers and confidence levels suggest the economic expansion will continue into early 2022. However, both confidence and spending will likely face headwinds from rising prices and a potential resurgence of COVID-19 in the coming months.”
The pipeline for MSR sales is heavy, with a bunch of sellers trying to ring the register as servicing valuations improve ahead of an expected increase in rates. Both Rocket and United Wholesale made big bulk sales of servicing in the third quarter.
If the Omicron variant of COVID causes rates to fall, it will be good news for refis, but it will be awful for servicing valuations. We have seen this movie before: People pile into servicing ahead of an expected increase in rates, and then something like Brexit, COVID or Omicron causes rates to fall, not rise. Falling rates are bad for MSR valuations, it causes a double-whammy of lower modeled values and writedowns as MSRs are refinanced away.
The Daily Tearsheet 