In the latest mortgage market update, UMBS opened lower by 13 bps but improved by 10 bps during the report’s preparation. Overnight, bond markets remained stable within a narrow range, with initial losses during European trading hours offset by gains. U.S. traders later pushed back, resulting in a 20-point drop in S&P futures.

Housing data showed Housing Starts at 1.358 million (7% lower YoY) and Building Permits at 1.473 million, slightly exceeding expectations. Completions rose nearly 7% last month, with single-family residences up 5%. Five Fed speakers are scheduled for today, and Philly Fed President Patrick Harker hints at pausing interest rate hikes.

Housing affordability remains a challenge, with the median home now requiring an income of at least $115,000, a 15% YoY increase. Wage growth has lagged at 5%, leading to an all-time high mortgage payment of $2,866.

Market sentiment indicates a 30-40% chance of a December rate hike, and expectations that the Fed rate will stay at 5.25% until at least July. The NAHB Housing Market Index fell 4 points to 40, with 32% of builders reducing prices and 61% offering incentives.

In this rising rate environment, the bond market remains sensitive, with UMBS closing down 41 bps on the 6.0%. Today’s housing data is not seen as a major market mover, and any impact on bonds may have come from President Biden’s call for increased overseas military spending.

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