Blog - Insignia Mortgage

Market Commentary 8/13/21

Posted on August 13, 2021 by Damon Germanides

Consumer Sentiment Dims As Rates Push Lower To End The Week

Interest rates dipped on a surprisingly negative consumer sentiment report which was the worst reading since 2011. The report was a surprise given the strength of the economy over the past many months and considering the positive trends in inflation, individual finances, and employment. Earlier this week, reports of tapering inflation were welcomed news to the stock and bond market. However, producer prices ran hotter than expected, so the direction for inflation remains a bit unknown.

Fed members have started talking about initiating bond tapering as we see improvements in employment, increased housing prices, and stronger personal finances. Some voting Fed members are pushing for a tightening of asset purchases in September. However, Fed Chair Powell has been adamant that he wants to run the economy hot for longer even with robust GDP growth and the highest inflation readings in years. A cross-current of thinking abounds on where we go from here, but a careful eye must be kept on the bond market in the coming weeks for signals on the overall health of the consumer and potential supply chain disruptions due to the Delta variant and impacts on retail in the US and globally.

Market Commentary 8/6/21

Posted on August 6, 2021 by Damon Germanides

Rates Rise on Strong June Employment Report

Interest rates moved higher on a strong June jobs report. The report caught some on Wall Street off-guard as the U.S. economy continues to improve in the face of the covid pandemic. However, the rising cases due to the Delta variant do present some challenges in the coming months. While mass shutdowns seem unlikely, anything can happen as the world struggles with this new more contagious variant. For the moment, Mr. Market appears to believe that the virus will not cause major economic harm (we sure hope so) and that the road to normalcy remains on track.

Hedge funds have gotten creamed trying to short the bond market. The dip in bonds last week is partially attributable to a large hedge fund covering a major short position. This depressed rates even further momentarily which made prompted concerns of something more ominous afoot. Rates have since risen from those low levels of last week and increased this week. We’re still a ways off from a 2.00% 10-year Treasury, but bonds seem to be headed modestly higher. Inflation readings in the U.S. and there is support abroad for the idea of some structural inflation, especially with wages. Persistent supply chain issues continue to push up delivery and logistic costs.

Housing seems to be slowing a bit as the end of summer approaches and the new school session approaches. Given the torrid pace of purchases over the last year and the prices increases, this comes as no surprise. Lenders remain eager and willing to lend. There are now a myriad of ways to qualify borrowers beyond traditional banks. This bodes well for the broker business, especially in California, where we have a large group of borrowers who don’t fit into traditional lending products.

Market Commentary 7/30/21

Posted on July 30, 2021 by Damon Germanides

Rates Lower On Covid Delta Fears

It was a big week for the markets. Big tech reported mixed results. While the earnings were strong overall, Facebook and Amazon warned of slowing growth. Bonds fell on Friday due to fears of economic slowdowns that may result from the rapidly spreading Delta variant. Also helping push yields lower was a better than expected inflation reading on the Fed’s favorite inflation gauge, the PCE (personal consumption expenditures). GDP grew at a strong clip, but below expectations. The combination of a lower than expected inflation reading and a slowing economy will provide some cover for the Fed to keep rates lower for longer although Fed officials are slowly warming up the markets for an eventual reduction in the ultra-accommodative monetary policies.

A bipartisan infrastructure plan will help spur more growth in the U.S. economy. It is a welcome upgrade to our infrastructure and will provide high-paying jobs throughout the country while not raising taxes.

Should the Delta variant prove to be a temporary setback, bond yields should drift higher over the coming months and therefore it remains prudent for clients to look to lock-in mortgage rates now versus waiting for lower rates in the future. The UK data is encouraging as new Covid infections are falling sooner than expected. While the virus remains an enigma, similar vaccination rates suggest that the course of the virus may follow the UK path. We sure hope so.

Market Commentary 7/23/21

Posted on July 23, 2021 by Damon Germanides

Bond Markets Await Big Inflation Reading Next Week

Equity markets started the week with a big downdraft but have rebounded to new highs. Bonds dipped and then rebounded. This all supports the notion that we should expect to see more volatility in the coming months. While equity markets appear fully priced, the bond market’s paltry yields will continue to support riskier behavior. This will bode well for equities and alternative assets including real estate and private equity.

Central banks continue to reinforce low rates for longer as the Delta variant spreads and creates more uncertainty about the pandemic and how it will affect the reopening of the world’s economy.

Next week will be an important one as the Fed’s favorite inflation indicator, the core PCE, reports for June. Inflation is front-page news and the debates are ongoing about whether inflation is transitory or sticky. It will be interesting to see the responses from both sides on the current state of inflation. Bond yields will be on edge as it awaits this critical report.

Mortgage rates have held up well during this time. While it is hard to argue for lower interest rates as the economy improves, the Delta variant has increased the risk of a market setback which has helped keep interest rates low.

Market Commentary 7/16/21

Posted on July 16, 2021 by Admin

Refinances Surge As Bond Yields Drop

Bond rates continue to dip even as inflation readings run hotter than expected. It is true that some inflation appears to be transitory as evidenced by the expected drop in used car prices and the dramatic fall in lumber costs. However, other costs such as wage inflation are stickier and probably here to stay. Finally, housing costs, which have yet to fully appear in inflation readings yet, will begin to affect the report in a bigger way and should keep inflation readings elevated.

Another factor to consider is that the global central banks have pumped unprecedented amounts of liquidity into the market which has distorted all price discovery, including bond prices. Also, the U.S. interest rates remain some of the highest in the developed world. It is ironic that a country such as Greece has lower bond yields than the U.S. while being a much worse credit risk. Should the markets become untethered from the Fed’s belief in inflation being transitory, rates will move up quickly. The next couple of months will be very interesting and could lead to much more volatile markets. Potential borrowers who have not taken advantage of these ultra-low interest rates should do so while the window is still open. It is hard to imagine with such strong economic growth that the Fed keeps short-term rates pegged at zero for as long as originally projected.

As we move into the middle of summer, purchase and refinance applications remain robust. Low-interest rates continue to drive purchase-money business, but there appears to be a pause in-home price increases as we have seen a very healthy increase over the past year that is not sustainable. Lenders remain eager to lend and non-QM programs are helping borrowers who do not fit inside traditional banks.

Market Commentary 7/9/21

Posted on July 9, 2021 by Damon Germanides

Rates Fall Then Rise As Markets Await Key Inflation Data

Bond yields fell mid-week and then recovered Friday. The drop in bond yields appears to be due to technical moves more than concerns about a slowing economy. The more virulent Delta variant of Covid is spreading widely and swiftly, potentially threatening to dampen the global economy.

Some economists are concerned about “stagflation” as a result of falling yields while inflation is rising. For the moment, the economy remains strong and those fears are not justified. Yet with central banks pumping trillions of dollars into the financial system, true price discovery and market independence have been lost. Therefore, we should be cautious about the unknowns of these never-before-seen policies. With equities and housing at record levels, volatility could pick up in the back half of the year. Next week, all eyes will be on key inflation data. Should the print be hotter than expected, the Fed will be under pressure to do more sooner. This could have a big impact on all markets.

Mortgage volume in the jumbo sector remains robust. Borrowers are eager to close on either refinances or new purchases, as evidenced by the high volume of SBA loans, commercial building purchases, and high-end residential purchases. Low interest rates locked-in long-term are helping buyers justify the high cost of homeownership.

Market Commentary 7/2/21

Posted on July 2, 2021 by Damon Germanides

Bond Yields Dip On June’s Jobs Report

A better than expected June jobs report was met with a small bond rally. While the headline numbers were good, the bond market response to the report suggests bond traders may be expecting a slowing economy in the months ahead. However, given the Fed’s involvement in the markets, true price discovery has been subdued as the Fed gobbles up over $120 billion of dollars of bonds each month. Also helping to push bond yields lower was a bond-friendly print on hourly wage increases which increased less than expected. Inflation is the arch-enemy of bonds and if wage inflation proves to be transitory that would be good for keeping bond yields lower for longer.

This Fed-friendly jobs report may allow the Fed to keep ultra-accommodative monetary policies in place longer. The equities market will respond favorably, especially high-beta long-duration tech stocks. There is some concern that the Fed has hurt homeownership as ultra-low rates have pushed many housing markets up to record levels, making it very difficult for first-time home buyers and lower-income buyers to gain access to the housing market.

With rates under 1.500% on the 10-year Treasury, we continue to recommend taking advantage of this. We’re in a uniquely fortunate period where you can lock in an interest rate lower than printed inflation. Times like this don’t last forever.

Market Commentary 6/25/21

Posted on June 25, 2021 by Damon Germanides

Core Inflation Readings Push Yields Up
Core inflation came in hot, but not hotter than expected. Bonds reacted by pushing yields above up. However, within the report, spending slowed a bit in May and incomes flattened. A slowing in spending is good for the Fed. It will also allow them to continue to print money and prevent them from lifting rates quickly. However, assuming that pandemic-related illness rates in the U.S. continue to decline, the Fed will need to pull back on some of the extraordinary policies that were enacted to combat Covid’s impact on the economy.

Equities have responded well to the Fed’s messaging. A new infrastructure plan will create another boost to the economy and will create good new job opportunities.

Rising housing prices are beginning to create issues for borrowers, especially in the lower-income tiers, as the combination of rising prices and higher interest rates affect home affordability. If rates do move higher, housing prices will need to adjust.

Interest rates remain low but could move up sooner than expected if inflation is deemed more structural and less transitory by investors and economists. We continue to advise clients to take advantage of these ultra-accommodative interest rates and to lock in long-term financing as a hedge against inflation.

Market Commentary 6/18/21

Posted on June 18, 2021 by Damon Germanides

Fed Talks Of Tapering Drives Rates Lower – Go Figure

The Fed’s shift in policy acknowledged inflation is running hotter than expected. They also confirmed that the tapering of the Covid emergency policy responses was met with big inter-week swings in interest rates and increased volatility in equities. We will see if this change in Fed policy will create the so-called “Taper Tantrum” that we witnessed the last time the Fed tried to unwind its ultra-easy fiscal policies. However, with the 10-year Treasury around 1.500%, interest rates are still very attractive. This ultra-low interest rate environment has encouraged prospective buyers of all assets (stocks, real estate, crypto) to take on more risk either by buying real estate at elevated prices, purchasing stocks over bonds, or hedging dollar depreciation by buying alternative assets.

A lack of housing supply continues to nudge prices higher. However, affordability is becoming a big problem. If interest rates move up, there will need to be an adjustment in the supply and demand equation, and home prices will be under pressure. We are starting to see appraisals unable to come in at value on certain purchases. With the pandemic waning, perhaps buyers will not be so eager to stay in escrow, especially if the home does not appraise.

Non-QM or alternative lending is really picking up steam. Lenders are pushing products out to the non-traditional borrower in a manner I have not seen in many years. Thankfully, lenders are keeping the loan to values reasonable so borrowers still have real skin in the game. Loans to foreign nationals, no income verification loans, and asset-based loans are all back with a vengeance. Insignia is placing loans with many lenders and are closing transaction up to $15 MM with very low-interest rates and interest only. The search for yield is driving the products and it will be interesting to see what happens if interest rates rise.

Market Commentary 6/11/21

Posted on June 11, 2021 by Damon Germanides

Mortgage Rates Lower Surprisingly As Inflation Picks Up

It’s hard to make heads or tails as to why bond rates have fallen as of late in response to very hot inflation readings. Bond yields have been driven lower, helped in part by central bankers championing ultra-easy monetary policy and longer QE. The old adage that the cure for inflating input costs and consumer goods is even higher costs, which may have peaked in May. This idea has considerable support and it has become part of the Fed’s transitory inflation thesis. However, the Fed is seeing its desired response on wage inflation take hold (higher wages), but higher wages are not transitory. Once an employer raises wages, it is nearly impossible to reduce them later. The hope is that wage inflation sticks around and goods inflation recedes. The risk is a return to an inflationary world or even worse, stagflation. We are watching unprecedented fiscal and monetary intervention in real-time on a global scale which could have unintended consequences.

Given the dip in interest rates, there seems to be little room for rates to move lower. With CPI data running at 5.00% year over year, real interest rates are running negative. At the important Fed meeting next week, Fed Chairman Powell will need to provide clarity as to why an improving economy with over 9 million available jobs, needs more stimulus and why interest rates should be prevented from normalizing. We are certainly in crazy times.

With the 10-year Treasury note near 1.500%, many strategists are firming up their belief that now is the time to refinance your mortgage. If prices in your zip code have risen, low rates may still make it worthwhile to buy a new home. We recommend locking in longer-duration mortgages because if trends shift direction, then higher mortgage rates could be here for quite a while.