Thursday – January 5, 2023

UMBS down .41 on the open. The big bad actor this morning is the stronger ADP employment report. Traders continue to wait for evidence of increased slack in labor markets and the data continues pointing in the opposite direction.

ADP Employment= 235k vs 150k f’cast [127k prev]

Small – Medium businesses added 200k jobs, while large ones shed 150k. Also showed that wage gains were +7.3% for job stayers and 15.2% for job changers. Both up slightly.

Jobless Claims= 204k vs 224k f’cast [223k prev]

Trade Gap= -61.5bln vs -73.0 bln f’cast [-77.85bln prev]

Pricing in the market still shows that investors continue to bet that the Fed will start cutting rates before the end of this year. Yes, there is some data pointing at slowing economic activity in the US, but the jobs market – which is closely watched by the Fed – remains surprisingly tight.

Market still digesting Fed minutes from yesterday. They showed the Fed is focused on wage growth. They need it to go down, even though they previously did everything to strengthen them. And Fed members are making things worse by saying dumb things. Apartment list reported that rents fell .8% in December, and now up only 3.8% YoY. Significant deceleration

Fed futures now reflecting a much stronger belief that the Fed will keep raising rates until hitting 5.0% in May rather than stopping at 4.75% in March that was expected yesterday and earlier. This shift will put some pressure on mortgage rates, not necessarily driving them up much higher from here but reducing the chances of seeing rates drop back down to the lows of the middle of December.

We began 2023 with some huge news from one of the largest mortgage lenders working with mortgage brokers. Rocket Pro TPO Executive Vice President Austin Niemiec has been promoted to Chief Revenue Officer of Rocket Mortgage. Mike Fawaz is stepping in to lead Rocket Pro TPO as Executive Vice President.

Rocket Pro TPO released “Purchase Plus,” a credit program that offers up to $7,500 in lender credits for first-time buyers in underserved communities to eliminate a significant hurdle to homeownership. Click here and/or reach out to your AE for more details! Rocket is also giving brokers a 37.5 bps credit on 30-year conventional purchase loans $200K or less – now through Sunday, February 5!

UWM has notified brokers about its credit reports being $37.35.

Housing inventory is rising more rapidly the costlier the home. For high end housing, inventory is up from 2 months 2/22 to 6 months in 11/22. For median priced homes, inventory is up from 1 month to 4, for affordable housing it’s risen from 1 to 2.5, and for very low-priced housing it’s increased from 1 to almost 2. It may be a buyer’s market for high priced housing soon.   Via

Friday – January 6, 2023

UMBS up .25 early. There are definitely “offsetting penalties” on this play with job creation and the unemployment rate continuing to make a case for a tight labor market. Fighting for the side of good, we have slower wage growth–something the Fed has called out as specifically necessary in order to “believe” in the potential for a true inflation correction.

Nonfarm Payrolls= 223k vs 200k f’cast [256k prev]

o Oct and Nov revised down 28k

o Of the 717k jobs created in the household survey, 679k were part-time.  Which lead to wage growth shrinkage

Unemployment Rate = 3.5 vs 3.7 f’cast [3.6 prev]

Wage growth 0.3 vs 0.4 f’cast

o last month revised down to 0.4 from 0.6

The part that caught the market’s attention was the change in average hourly earnings, which came in lower than expected. The Street was looking for a 0.4% MOM increase and got 0.3%. The YOY increase came in at 4.6% versus the 5.1% forecast.

Rising wages is the biggest concern of the Fed as it is trying to avoid the wage-price spiral which was a big contributor to 1970s inflation (amongst other things). Where would the Fed like to see wage growth? That is a harder guess. If wage growth falls to 2%, where the Fed would like to see inflation, there is no real wage growth and that is probably too low. My guess is that the 3.5% or so would be the Goldilocks scenario, provided that inflation falls back to the 2% target. A big component of this will be productivity growth, which has been muted.  Via Brett Nyitray

We had some Fed “speak” yesterday. Kansas City Fed President George says she sees rates reaching 5.0 percent and staying there “well into 2024.” St. Louis Fed President Bullard suggested 2023 might be a disinflationary year. He added that “While the policy rate is not yet in a zone that may be considered sufficiently restrictive, it is getting closer.”Fed’s Bostic tried to tell markets that more hikes were coming and no cuts until “well into 2024,” but markets weren’t having any of that.

ISM Services = 49.6 vs 55.0 f’cast  [56.5 prev]

ISM new orders = 45.2 vs 56.0 prev

This is a stunningly huge miss for this data series.  ISM Services is a highly regarded report and centered on a sector that has been the focus of most of the Fed’s attention when it comes to inflation and economic growth

Home sellers gave concessions to buyers in 41.9% of home sales in the fourth quarter, the highest share of any three-month period in Redfin‘s records, according to a report from the technology-powered real estate brokerage.  A record 22% of home sales in the fourth quarter included both a concession and a final sale price below the listing price.

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