UMBS opened down 3 bps on the morning.

Equity futures fluctuated after the S&P 500 hit at another all-time high.

New home purchase applications rose 15.7% year-over-year in February, according to the MBA.   The average loan size increased to its highest level since March 2023 at almost $406,000, but it was still below the record high in MBA’s survey of more than $436,000 in April 2022. The FHA share of purchase applications, which provides a read on first-time homebuyer activity, increased to 25.7 percent, indicating that first-time buyers continue to turn to new homes due to the lack of affordable existing home options. The estimated sales pace of new home sales was 689,000 units, a slight decline from the previous month.

Fannie Mae has bumped up its end of year mortgage rate forecast from 5.9% to 6.4%. “The housing market is likely to continue to face the dual affordability constraints of high home prices and elevated interest rates in 2024,” said Doug Duncan, Fannie Mae Senior Vice President and Chief Economist. “Hotter-than-expected inflation data and strong payroll numbers are likely to apply more upward pressure to mortgage rates this year

Despite the strength of the economy, we are seeing problems with consumers. Auto loan delinquencies hit a decade-high in 2023. The pandemic created issues here when car prices skyrocketed due to supply chain constraints, which set the stage for delinquencies later.


* “Dot plot” of Federal Open Market Committee rate projections shows the median official expects three quarter-point cuts in 2024, similar to previous round of quarterly forecasts in December; however, median forecast for 2025 rises to 3.9% from 3.6%

* FOMC votes unanimously to leave benchmark rate unchanged in target range of 5.25%-5.5%, a two-decade high, for fifth straight meeting; near-identical statement repeats prior language saying the FOMC doesn’t expect to cut rates “until it has gained greater confidence that inflation is moving sustainably toward 2%”

* Median forecast for PCE inflation, the Fed’s preferred gauge, is unchanged at 2.4% for 2024 while core PCE projection rises 0.2 percentage point to 2.6%; economic-growth estimate for 2024 jumps to 2.1% from 1.4%.

* Officials also lifted forecasts for where they see rates settling over the long term, boosting their median estimate to 2.6% from 2.5%; the change implies rates will need to stay higher for longer in the future.

* Fed maintains its pace of quantitative tightening, with a maximum of $60 billion of Treasuries and $35 billion of

mortgage-backed securities rolling off the balance sheet each month; central bank doesn’t give any immediate hint of change to the program, after policymakers were scheduled to hold an in-depth discussion at the meeting

With so much apparently at stake heading into today’s Fed events, the reality ended up being somewhat underwhelming.  At least it was underwhelming in a good way for the bond market and rates.  The key revelation was a Fed dot plot (individual projections for the Fed Funds Rate) that showed the exact same median rate at the end of 2024 as seen in the last dot plot (3 rate cuts still penciled in this year).

Bonds cheered the news at first, but then got defensive ahead of Powell’s press conference.  Powell navigated questions without prompting any more panic–essentially convincing investors that the Fed was approaching incoming data with a certain level of optimism regarding inflation returning to the late 2023 trend (as opposed to the early 2024 trend of higher readings). Bonds ended up basically threading the needle with modest gains by the end of the day.

UMBS ended the day up 19 bps at 100.75

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