Morning Report: Rates rise to begin the year

Vital Statistics:

S&P futures4,77617.2
Oil (WTI)74.67-0.58
10 year government bond yield 1.59%
30 year fixed rate mortgage 3.35%

Stocks are higher as we kick off the new year. Bonds and MBS are down.

Investors are returning to a market dominated by increasing COVID infections and the specter of inflation and a tightening cycle. For the mortgage business the focus will be on taking share in a shrinking market. Rate and term refis will fade into the background and purchase activity will be the focus. Cash-out refis will be another good source of business, along with investor activity.

The upcoming week will be dominated by the jobs report on Friday. We will also get the ISM surveys and the FOMC minutes. We are starting the new year with bonds getting slammed. It isn’t just in the US – German yields are up big as well.

73% of homebuyers and sellers say that inflation is influencing their buying and selling decisions, according to a survey from Redfin. “The way Americans interpret news about rising prices can have a variety of effects on their financial decisions, including homebuying,” said Redfin Chief Economist Daryl Fairweather. “Some people may delay buying because they’re worried that with prices rising on everything from food to fuel, now is not the right time to make a huge purchase. But others might move faster to find a house because they’re worried home prices and rent prices will increase even more, and they want to lock in a fixed payment.”

Construction spending rose 0.4% MOM and 9.3% YOY. Residential construction rose 0.9% MOM and 16.1% YOY. Housing start should, in theory, be a big driver of the economy in 2022. Lumber prices and skilled labor will be the big constraints.

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