Vital Statistics:
| Last | Change | |
| S&P futures | 3,969 | -27.25 |
| Oil (WTI) | 103.81 | 4.19 |
| 10 year government bond yield | 3.03% | |
| 30 year fixed rate mortgage | 5.49% |
Stocks are lower this morning after inflation came in hotter than expected. Bonds and MBS are down.
Inflation rose 0.3% MOM and 8.3% YOY, according to BLS. This is a deceleration from the 1.2% MOM increase we saw in March. The core inflation rate (ex-food and energy) rose 0.6% MOM which was double March’s rate of increase. Since the Fed focuses more on core numbers, this stat is getting the market’s attention. The core rate rose 6.2% YOY.
Energy prices fell, although much of that was due to seasonal adjustments. We are heading into the summer driving season, where demand will spike.
Shelter rose 5.1% YOY, however this number is going up given how fast home price appreciation has been. It generally gets reflected with an 18 month lag, so the torrid price appreciation over the last two years will begin adding upward pressure to the index going forward.
Overall, this report changes nothing with respect to the Fed. It will probably hike another 50 basis points at the June meeting. Stocks and bonds were up prior to the report, so the market is taking it negatively.
Mortgage Applications rose by 2% last week as purchases increased 5% and refis fell 2%. “The increase in mortgage applications last week was driven by a strong gain in application activity for conventional and government purchase loans, even as mortgage rates rose to their highest level – 5.53 percent – since 2009,” said Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting. “Despite a slow start to this year’s spring home buying season, prospective buyers are showing some resiliency to higher rates. Purchase activity has now increased for two straight weeks.
Mortgage credit tightened in April, according to the MBA. Its Mortgage Credit Availability Index fell by 3.2%. The decrease was driven by government loans, specifically streamline refis. “Lenders reacted to the jump in mortgage rates over the past two months,” said Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting. “With the rate/term refinance business drying up, lenders have reduced the availability of government streamline refinancing programs, which are no longer as relevant an option for many borrowers.” Mortgage credit overall is about as tight as it was in the aftermath of the financial crisis. Note how much lower it is compared to the bubble years. This is one of the many reasons why the acceleration in home prices doesn’t portend the sort of bust we had in 2006.
Rocket reported that first quarter volumes fell 48% YOY to $54 billion while gain on sale margin contracted to 3.01% from 3.74%. The company is guiding for Q2 volumes to come in between $35 billion and $40 billion and for gain on sale margins to fall to 2.6% – 2.9%. Rocket said that bond market volatility contributed positively to its first quarter gain on sale, so this guidance is probably a reversal of that.
“Rocket delivered a solid performance in the first quarter and achieved our best Q1 volume in purchase and cash out refinances, even as rates rose rapidly. Now, as we move further into the year, we will successfully navigate the mortgage and real estate headwinds by protecting our margin and profitability while continuing to invest in strategic areas such as technology, partnerships and performance marketing to grow share and expand our business for the long term,” said Jay Farner, Vice Chairman and CEO of Rocket Companies.
Rocket’s comments about protecting margin and profitability are probably welcome news for independent mortgage bankers who are worried about a replay of the UWM / Rocket price war of 2018. Rocket’s stock is down 10% this morning.
The Daily Tearsheet 