The latest episode of Optimal Insights centers on a familiar but still evolving question for the mortgage industry: how persistent inflation, labor market resilience, and rate volatility could shape the months ahead.
In this week’s discussion, Jim Glennon and James Cahill unpack the latest jobs and inflation data, while Mike Vough and Brennan O’Connell review May Market Advantage trends across origination and secondary markets.
Here’s what you need to know this week.
Markets reacted sharply to stronger-than-expected employment data, even though the headline figures were not historically extreme. As James Cahill noted, expectations appeared to matter as much as the data itself:
“When you were looking at the expectation of 80K, it’s more than double. So that’s a great number compared to what we were expecting.”
That reaction appeared to reinforce a growing view that rate cuts may remain unlikely in the near term, and that some market participants are increasingly pricing in the possibility of a hike later this year.
Key Market Insights and Trends
Jobs data surprised to the upside
Payroll growth came in at 172,000 versus expectations closer to 80,000, reinforcing the idea of labor market stability rather than weakness.
Inflation remains the central concern
Wage growth was reported around 3.4%, while inflation continues to run higher. As James noted,
“If inflation comes in right now at 3.8%, you actually make less money… it’s a negative raise for the American economy.”
Gas prices may offer limited relief
While energy costs have pulled back modestly, the team suggested this may reflect a “new normal” rather than a clear turning point.
Fed expectations continue to shift
Jim observed that recent market volatility appears tied to the realization that a rate hike later in the year is becoming more likely, even if near-term meetings remain on hold.
What May Market Advantage Data Reveals
Despite broader macro headwinds, May data suggests a mortgage market that may be adapting rather than retreating.
Rates Moved Higher, but Context Matters
Brennan O’Connell reported that the OBMMI 30-year conforming rate finished May at 6.44%, up 13 basis points month over month and more than 50 basis points over three months. Still, he noted rates remain roughly 40 basis points lower than the same time last year.
Volume Pulled Back, but Year-Over-Year Trends Remain Constructive
Total lock volume declined 9% month over month, yet remained up 7% year over year, suggesting activity may have cooled without materially breaking trend. Purchase loans accounted for 81% of total volume as refinance demand pulled back.
Product Mix Continues to Evolve
Higher rates appear to be nudging some borrowers and lenders toward alternatives. ARM utilization rose to just under 11% of volume, while non-QM exceeded 9%, the highest share on record. O’Connell noted the shift may reflect some traditional borrowers stepping back while other segments help fill the gap.
Secondary Market Dynamics Show Selective Shifts
Mike Vough highlighted a notable swing toward the agency cash window, alongside a material increase in MSR valuations. As he explained:
“Rates go up, the value of servicing should go up because the prepayment incentive goes down.”
The team noted that this dynamic could help offset some of the pressure lenders may be feeling from higher rates.
Practical Considerations for the Week Ahead
Revisit pipeline and pull-through assumptions in light of renewed rate volatility
Monitor CPI and PPI releases closely for signals on inflation direction
Evaluate product mix strategy as ARM and non-QM utilization continues to rise
Consider how MSR valuation changes may influence execution decisions
This week’s episode suggests the mortgage market remains in a period of adjustment rather than disruption. Labor data continues to show resilience, inflation remains in focus, and May data indicates lenders may be responding through product mix, execution strategy, and servicing value.
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.
