The market is heading deeper into Q2 with mixed signals. Inflation readings are firmer, geopolitical risk is back in focus, and April activity shows borrowers are still engaging, just with more selectivity.
On this week’s episode of Optimal Insights, Jim Glennon and James Cahill broke down what is driving rates and where policy expectations could be headed. Mike Vough and Brennan O’Connell then walked through an early look at April Market Advantage data, including what changed in locks, product mix, and execution.
Here’s what you need to know this week.
The big takeaways:
Energy risk could add to inflation pressure and keep it in focus
The Fed paused, but higher PCE and internal debate keep the outlook uncertain
April mortgage data points to steady demand, plus quieter shifts in mix and execution
Bottom line: the market is still moving, but friction is building.
Key market insights and trends
Energy and inflation are getting harder to separate.
Instability in the Middle East and constraints on global energy flows, especially through the Strait of Hormuz, are back in focus. The U.S. may be partially insulated, but higher fuel and transportation costs can still work through supply chains. As James Cahill put it, if energy stays elevated, inflation could prove stickier than the headline data shows today.
Inflation moved higher, and markets reacted.
April PCE inflation came in around 3.5% year-over-year, with core inflation also elevated. That makes near-term rate relief harder to pencil in and keeps the Fed in a tight spot as growth shows signs of cooling.
The Fed paused, but the signal was not clean.
The FOMC held rates steady, but dissents and debated language stood out. One read is that policy expectations may be less settled than market pricing suggests, especially if inflation stays firm and labor data comes in mixed.
Labor data is the next swing point.
ADP, jobless claims, and the monthly employment report will shape the next move in rate expectations. Labor remains the other half of the Fed’s mandate, and it could play an outsized role in what happens next.
What April Market Advantage Data Suggests
April Market Advantage data offers an early look at how those macro forces may be showing up in day-to-day activity.
Locks cooled from March, but demand stayed in the mix.
Total lock volume declined from March to April after a strong first quarter. Even so, activity remained higher than the same period last year. Purchase held up better than refinance, which pulled back as rates stayed elevated. Brennan O’Connell described a market “impacted by a tougher rate environment,” not one that is breaking down.
Rates were higher, and execution looked relatively steady.
The OBMI 30-year conforming rate ended April near 6.31%. Mortgage spreads narrowed versus Treasuries, which may have helped keep execution relatively stable despite volatility.
Product mix is shifting in the background.
Conforming production dipped below 50% of total volume for the first time in the dataset. Government and non-QM continued to gain share, even as loan limits increased. DTIs were largely unchanged, which suggests some borrowers stepped back instead of stretching to qualify.
Secondary execution improved slightly.
Execution improved modestly, MSR values increased, and investor participation ticked higher. Mike Vough noted that volatility can create opportunity for lenders who stay active on execution and servicing strategy, depending on timing and positioning.
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Practical actions to consider this week
Practical actions to consider:
Recheck inflation assumptions, especially energy and transportation inputs
Pressure test pipeline and hedge plans under continued volatility
Track product mix shifts, including conforming share, government share, and non-QM
Keep an eye on MSR valuations and secondary execution trends
April data reinforces what many lenders are feeling. The market is active, but macro risk appears to be playing a bigger role again. Inflation, energy, and labor will likely keep influencing rate expectations and borrower behavior as Q2 unfolds.
For a deeper dive into the discussion, listen to the full episode of Optimal Insights. Available on all major podcast platforms: https://optimal-insights.captivate.fm/listen
The views and opinions expressed in this program are those of the speakers and do not necessarily reflect the views or positions of Optimal Blue, LLC.
