Stocks are lower this morning after a disappointing CPI report. Bonds and MBS are down.
Chatter from the MBA is how to handle Vantage versus FICO, UAD 3.6 implementation and Bill Pulte’s disappearance. Generally speaking people are hoping that the 10 year settles in and as volatility decreases, MBS spreads will compress again to bring rates closer to 7%.
JP Morgan didn’t discuss the $688MM pretax loss on investments in Corporate on the conference call yesterday. That sector is generally where the bank holds investments in Treasuries, RMBS and other assets. Widening spreads at the end of the month (they really blew out late) could explain it. I wonder if the widening on RMBS and the increase in the basis on DSCR was people tossing underperforming stuff overboard to get it off their balance sheets for the 9/30 closing.
For the DSCR space, investors are turning up their noses at 7% WACs and below. Liquidity is terrible in those rates. Even with a heavy percentage of loans with prepay penalties, negative convexity is still prevalent in this paper.
Consumer inflation rose 0.6% MOM and 3.7% YOY in September according to the Consumer Price Index. The headline numbers were in line with Street expectations, however the core rate was a touch higher than expected at 0.3% MOM and 2.6% YOY. Gasoline prices were the main driver of the headline index.
Shelter inflation rose 0.4% MOM and 3.2% YOY. Again, given home price appreciation is around 2% and average asking rents have flat YOY, something seems to be off in BLS’s owner’s equivalent rent calculations. This has been an issue since home price appreciation leveled off in 2022.
The Fed Funds futures now see 47% chance for a rate hike at the end of the month compared to 18% yesterday. Bond yields are up markedly this morning as well.
Existing home sales rose 1.5% MOM and declined 2.2% YOY according to the National Association of Realtors. “Despite the small monthly gain on a seasonally adjusted basis, August and September marked the two slowest months for home sales this year,” said NAR Chief Economist Lawrence Yun. “Further increases in mortgage rates in recent weeks mean fewer buyers can qualify to purchase a home.”
“Higher inventory and lengthening days on market give buyers improved negotiating power. Home sellers need to be realistic about local market conditions, which could require price discounts and other incentives to attract buyers,” Yun said.
The median home price rose 1.3% from a year ago to $412,300. Affordability decreased in 3 out of 4 regions, rising only in the West (which is puzzling). Days on market rose to 33 days from 31 and mortgage rates were up about 35 basis points.
Mortgage applications fell 2.7% last week as purchases fell 4% and refis decline 0.4%. “Mortgage applications decreased as rates moved higher last week. The 30-year fixed rate was 7.5%, the highest rate since November 2023 and more than a percentage point higher than a year ago,” said Joel Kan, CMB, MBA’s Vice President and Deputy Chief Economist. “As a result, borrowers continue to rely more on ARM loans to help lower their monthly payments. The ARM share at 10.5% was at its highest level since October 2025. Last week’s decrease in refinances was mainly driven by a 5% drop in FHA refinance applications.”
ARMs accounted for 10.5% of loans, the highest in a year.
