Morning! This is MF Lending - the fool-proof way to serve up mortgage and real estate market knowledge without any of the guesswork. So you’ll look like the smartest agent in the room (and you are!)

Here’s what we’ve got for you today:

1. GDP comes in hot…but the bond market improves 🔥

2. New Home Sales Jump month-over-month…what is causing this?🏘️

3. A quick lesson on candlesticks 🕯️

By the way, this article on OER driving inflation is the most clicked link in this newsletter, you should check it out if you are interested.

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Rates Today 📉

GDP comes in hot…but the bond market improves 🔥

GDP rose at a 4.9% annualized pace in Q3.

This is above the 4.3% forecast and well above the Q2 GDP of 2.1%.

CNBC reports, “At a time when many economists had thought the U.S. would be in the midst of at least a shallow recession, growth has kept pace due to consumer spending that has exceeded all expectations. The consumer was responsible for about 68% of GDP in Q3.”

Even with hotter-than-expected GDP numbers, the 10yr Treasury yields fell this morning (improving bond market by about 30-40bps).

One canary in the coal mine could be the “final sales” numbers in the GDP data. This is the consumption portion of GDP - it tracks household purchases of durable goods and nondurable goods & services.

This came in at 3.5 when the forecast was 4.5 - indicating that consumer spend is falling, consistent with the “shift in demand” the Fed discussed last week.

So - even with stronger GDP data, we are seeing an improvement in the bond market today. Tomorrow - we get CORE PCE, one of the favorite measures of inflation. We will see how it shakes out for clients moving into the weekend.

New Home Sales Jump month-over-month…what is causing this?🏘️

New home sales up 12% month-over-month according to this CNBC report.

Personally, I think this is extremely misleading. The report is including all signed contracts on new builds, even if they are expected to be delivered much later into next year.

One interesting piece of data from the Pulte Group stated that many of those contracts had the rate “bought down” to 5.5%.

Again - this is extremely misleading for consumers. They are not getting a 5.5% fixed 30yr interest rate. The group is using a 2-1 buydown - something you have probably seen all over social media for over a year.

The buyers of these homes are actually getting a 7.5% interest rate fixed, but in year 1 they make payments as though it is 5.5%, in yr 2 the payment is at 6.5%.

Lastly, CNBC reports that to move this inventory, the sellers have cut prices significantly. These builders are clearly having trouble moving their inventory and they are throwing the kitchen sink at any buyer who may be in the market.

What are your thoughts on these numbers? Have you been seeing sales pick up in your market? Let me know in the comments! 🪩

A quick lesson on candlesticks 🕯️

If you watch my Instagram stories, (@mf.lending if you are missing out) - I do a daily update on the bond market and where interest rates stand for the day.

Frequently, I will show the market on a screen…and I realized I haven’t really explained how to read it. So - here is a quick crash course on reading a Candlestick Chart.

Here is the bond market as it sits this morning (10/26) for reference:

Before your eyes glaze over - let me give you background:

Candlestick charts originated in Japan over 100 years before the West developed the bar and point-and-figure charts.

In the 1700s, a Japanese man named Homma discovered that, while there was a link between price and the supply and demand of rice, the markets were strongly influenced by the emotions of traders.

Candlestick charts show that emotion by visually representing the size of price moves with different colors.

So how do you read this?

The “body” of the candlestick is the market Open Price and Close Price for the day.

In our chart, if the body is Red, that means the Close Price is lower than the Open Price (meaning rates rose throughout the day).

If the body is Green, that means the Close Price was higher than the Open Price (meaning rates fell throughout the day).

The “wicks” of the candlestick show the daily High Price and Low Price. So prices could peak throughout the day, and then fall back to a close price.

When I look at the charts, I take note of the size of the “body” is each day. The larger the body, the more volatile rates were that day - this could mean there were mid-day price adjustments for many mortgage companies. If the body is small, it means there was little to no movement in rates that day.

Hope this helps 😎

The Cul-de-Sac

Thanks for reading - that is all we have for today 😎

Please forward this to your friends and colleagues if you found it valuable.

— Michael F DiLucchio