Market Insights Recap — Week of June 9, 2025

Hi, I'm Jerry Levy, Texas Capital's Managing Director of Mortgage Securities Sales & Trading. Friday, we had the jobs report, which failed the Charmin test for those looking for signs of an economic slowing. It was soft, but at a headline of 139,000 job ads, not soft enough.

The unemployment rate remained unchanged at 4.2% as the labor participation rate declined. If it were unchanged, it would have ticked up to 4.3%. Even the two-month revision of 95,000 job losses could not convince the markets that a slowdown is imminent, and forecasters have now pushed out their timing for the first Fed cut to September, with actually consensus being October of this year.

So, where are we? We go back to a market defined by the numbers: 4% two-year, 4.5%, 10-year, 5% 30-year, which means we stay here at a 7% mortgage rate. These numbers have 2025 shaping up to be a bust in terms of home sales, with the increased probability that 2025 will be worse than 2024, and as we remember, last year was, well, it was the worst year for housing in a generation. Redfin's market analysis shows that there are now 500,000 more home sellers than home buyers.

500,000.

That's the largest difference since they began tracking that metric. Combine that with 7% mortgage rates, the economic uncertainty of changing jobs, we saw that in the jobs reports last week that the ability to change jobs, or people's confidence in changing jobs, that dropped to the lowest in recent memory here, with the effects of tariff, the cost of insurance, increasing cost of both insurance and property taxes now putting a damper on the ability of people to make that purchase. What has this dunk combined to do?

There is a reason why home price appreciation, which was 4% for the year Q1 2025 from Q1 2024, is now closer to flat for the second quarter of 2025. Home prices are not increasing at the rate they have been for the last few years.

Let's move to the Fed. Fed speak last week before the Friday blackout period started was centered on wait and see. Each Fed member is saying that they are signaling to us that they would rather be late than wrong. Yes, the markets say probably two cuts are priced in, but the way I look at this, two is an average. It's either going to be zero or it's going to be four. Why? It's about complacency and that a crack in the bond market is inevitable. It's about complacency and that a crack in the bond market is inevitable.

Everyone is focused now on the arcane metrics to see what is the next sign that shows us that there's a crack. This week we have refunding for example; there's a three-year, the 10-year and 30-year U.S. Treasury auctions.

What are we focused on? Bid cover ratio and non-comp bid. We're trying to gauge the demand. Do international investors want to buy treasuries, and what's the health of that bid coming from domestic market?  This combined with the inflation numbers that we're going to see this week, CPI and PPI, will give us some more information and hopefully get us through this uncertainty, which has been with us for the entirety of 2025.

Until next time.