Don't Sweat The Modest Weakness Bonds began the day roughly unchanged and very flat for most of the morning. MBS began falling as we moved into the PM hours, ultimately resulting in a handful of negative reprices, about a quarter point of weakness, and a 4+bp jump in Treasury yields. If the frame of reference is limited to the domestic session, this is a moderate sell-off at best, but in the bigger picture, it was not even worth mentioning, let alone considering as a cause of concern. Bonds are heading into the 3 day weekend at much less alarming levels than last week, and with the the same requirement to wait for clarity on fiscal policies before the next major movement is revealed. Econ Data / Events Jobless Claims 215k vs 225k f'cast, 224k prev Philly Fed -26.4 vs 2.0 f'cast, 12.5 prev Philly Fed Prices 51.0 vs 48.3 prev Philly Fed New Orders -34.2 vs 8.7 prev Market Movement Recap 08:43 AM Initially weaker overnight, then reversing into U.S. hours. Slightly stronger after data.  MBS down 1 tick (.03) and 10yr up 0.7bps at 4.285 12:37 PM Weakest levels now.  MBS down an eighth and 10yr up 5.1bps at 4.329

The National Association of Homebuilders (NAHB) and Wells Fargo publish the Housing Market Index (HMI) each month, otherwise known simply as "builder confidence."  This month's index came out at the 2nd lowest level since late 2023. While that might sound dramatic, it's very much in line with the prevailing trend for this report. And while the chart above may make it seem like confidence is in the gutter, it's really only about halfway in the gutter in the bigger picture. There were some interesting details inside the report. Specifically, 60% of builders said that tariffs were already impacting prices or leading to announcement of impending price increases from some suppliers.  The NAHB notes that tariff-related price increases currently average 6.3%, or $10,900 on an average home.

One would think that the pace of new residential construction largely mirrors the pace of filings for building permits. And while that is generally true in the bigger picture, there can be noticeable discrepancies month to month. This week's data from the Census Bureau is the latest example. Building permits were slightly higher at 1.482 million units (annual pace) versus 1.459 million previously. Contrast that to housing starts (the term for the ground-breaking phase of home construction) which fell to 1.342 million from 1.494 million previously. This excess volatility in housing starts can be seen in the following chart with the blue line whipping higher and lower many times over the past few years while the orange line remains relatively more steady. There was a heavy regional skew to the housing starts numbers with two regions moving higher and two moving lower as follows: Northeast +2k starts (+1.4%) Midwest +96k starts (+76.2%) South -139k starts (-17.1%) West -129k starts (-30.9%) Note: the count of housing starts account for a different percent change depending on the overall activity level in the region.  For example, starts declined more in the South than in the West, but the percent change was much lower because the South had a total level of 524k versus only 289k in the West. If you're thinking that all of the above sounds pretty boring and/or you're wondering why it even matters, you're right.  Home construction data is pretty boring--just a slow, steady grind until something big starts happening. 

Mortgage rates managed to make a nice amount of progress this week after hitting the highest levels in roughly 2 months last Friday. The first 2 days of the week brought the most meaningful improvement and it's been slow going since then. In fact, today ended up going slowly in the other direction with the average lender moving slightly higher in rate compared to yesterday. The pace of movement is nothing like we saw last week, thankfully. The financial markets that underlie rates are definitely taking a breather after the extreme volatility last week, but until fiscal policies are firmly decided and on cruise control, it's a good idea to remain vigilant against heighted volatility.

The Mortgage Bankers Association's (MBA) mortgage application survey was at the highest combined level since October in last week's data--a move largely driven by the a sharp drop in interest rates (incidentally, also to the best levels since October). The rate drop was part of the initial market reaction to the April 2nd tariff announcement, but it didn't last. Panic and uncertainty can be good for rates.  In fact, it usually is.  But when there's panic and uncertainty that involves the bond market itself, rates can move paradoxically higher, as they did last week.  In fact, the average 30yr fixed rate rose by half a percent from Friday to Friday. The MBA's rate tracking is weekly and survey-based, so it won't show as much volatility as daily numbers. Nonetheless, it was up 0.20%. “Mortgage rates moved 20 basis points higher last week, abruptly slowing the pace of mortgage application activity with refinance volume dropping 12 percent and purchase volume falling 5 percent for the week. Purchase volume remains almost 13 percent above last year’s level, but economic uncertainty and the volatility in rates is likely to make at least some prospective buyers more hesitant to move forward with a purchase,” said Mike Fratantoni, MBA’s SVP and Chief Economist. In the recent context, both refi and purchase demand remain much closer to the top of the range, despite this week's pull-back. Fratantoni also noted an uptick in the prevalence of ARMs (adjustable rate mortgages), "The ARM share at 9.6 percent was the highest since November 2023, and this reflects the share of units. On a dollar basis, almost a quarter of the application volume last week was for ARMs, as borrowers with larger loans are even more likely to opt for an ARM.”