A lackluster November jobs report sent both equities and bond yields higher. Why? With the economy losing steam due to a surge in Covid-19 cases, the markets are betting on more stimulus. Of particular concern is the Labor Force Participation Rate (LFPR), which dropped precipitously as people stopped looking for work. Therefore, the unemployment rate which clocked in at 6.7% is a bit misleading as more people give up looking for work. There is a growing concern for small business owners, especially those in retail, beauty, hotel, and hospitality in some areas which have been forced to shut their doors as Covid cases spike. The hope remains that Congress can work together to provide a lifeline to those hard-working business owners until vaccinations can be delivered.  

With still so much that can go wrong, why is the 10-year Treasury bond yields near 1% inflation? Unprecedented monetary and fiscal stimuli are starting to make some of our brightest financial experts worry about inflation. There are some signs that inflation is on the way. Wage inflation is moving higher. Groceries are more expensive. Housing prices have risen. These are all inflationary indicators. Whether or not inflation really breaks out is anyone’s guess. However, with interest rates still at historical lows, we are encouraging our clients to take advantage of the current rate environment as the odds of lower interest rates seems unlikely. Even if there is a major setback, there are no guarantee interest rates will move lower on bad economic or pandemic-related news. Central banks all over the world have printed money at unprecedented levels and by doing so have created tremendous levels of national debt. A small change in sentiment about the U.S. debt levels would lead to a move higher in interest rates quickly. Therefore, there is no time like the present to take advantage of lowering debt repayments by refinancing or locking in an ultra-low rate on a new home purchase. 

The Dow hit 30,000 – Wow! Downside volatility continues to seep out of the market in response to ongoing positive vaccine news, cooling political concerns over a peaceful transfer of power, and strong consumer spending. Disruptive technology stocks also have been on a tear, however with nose bleed valuations. The meteoritic rise in U.S. equities should be taken with a grain of salt as the combination of QE forever, and zero interest rates have made equities the only game in town for the moment. Housing has benefited from this surge in the stock market as prospective buyers of homes have seen their 401ks and other accounts increase in value. People buy goods and services when they feel flush. 

Let us not forget the economy was humming along prior to this pandemic induced shutdown. The pandemic to date has seen some businesses do much better or think about how their operations could be streamlined (think work from home, less physical office space, new collaborative technologies), while customer-facing businesses have been hit hard. Our lowest-paid employees have seen the biggest loss. Thus, we have the need to provide transfer payments to these employees who want to work but are being told that they are not allowed.  

Not too much to say about interest rates, as they very appealing and many borrowers who can qualify for loans are taking advantage of historically low-interest rates.  Low-interest rates have fueled a major but unexpected surge in housing. However, there are signs that the market may be cooling off, especially in high-end markets. With such low housing inventory available in desirable markets, there also appears to be a floor under housing price action. 

Insigna’s suite of lenders has a deep understanding of borrowers who are either self-employed, wealthy foreign buyers, or real estate investors, and they continue to make common-sense lending decisions on transactions.  This is encouraging news given how difficult the lending market was back in March and April of this year.

Covid case counts and looming shutdowns continue to drag down the markets. Thankfully, positive vaccine news from Pfizer and Moderna has limited downside volatility. Interest rates continue to trade in a tight range. The Fed has made it clear that interest rates will remain low for the near future to combat the pandemic and to help grease the markets. Some might say in the face of so much uncertainty that the markets are fairly complacent. For example, take a peek at the VIX index, which measures expected near-term volatility. It’s trading in the low 20’s, indicating that for the moment, there’s little risk of a market blow-up. All of that could change in the blink of an eye. We hope the VIX is right and that it’s forecasting better days ahead.

Home sales, both new and existing, remain on a tear. Who would have thought that a pandemic would drive home sales to levels not seen since 2005? Surging sales have been catalyzed by low interest rates, a demand for larger living spaces, and the growth of working from home for many professionals, freeing them up to move further from urban centers. With limited inventory, prices should remain intact even if the pandemic lingers for longer than anticipated. 

Fiscal stimulus is needed to bridge the gap to recovery. With businesses being shut down by the government again, there is only so much pain that they can endure before throwing in the towel. We hope Congress can work this out before the end of the year.  

Insignia’s suite of lenders continues to actively lend and make common-sense decisions. All types of loans remain available, including interest-only loans, loans with co-signors, investment property cash-out refinances, and jumbo loans for foreign nationals. Construction lending has rebounded, as well as bank bridge loans and an assortment of loan types for commercial properties.

The equity markets surged this week after Pfizer announced a high efficacy rate for its Covid-19 vaccine. Bond yields steepened in what some are saying is a welcomed sign of an improving world. However, the virus is surging and while there are long-term solutions coming into focus on how to treat this virus, the developed nations could be in for a very tough winter. These beliefs were echoed by the Fed as well. With the presidential race looking settled, the focus should resume on how to help mainstream. Business owners in certain segments need the financial help to bridge the gap from shutdown to full re-opening and that help can only come from fiscal stimulus. We hope it does as the country has so many wonderful entrepreneurs that are taking the brunt of this pandemic induced recession. 

Some positives for the economy include a slowdown in unemployment claims, albeit at a slower pace, some improvements in manufacturing data, and an unbelievability strong housing market. However, consumer sentiment fell, probably due to the combination of a very tense political environment during the pandemic. Also, creating some concerns are threats of statewide or national shutdowns. There are varying opinions on whether a full shutdown is advisable. We think that full lockdowns create more harm than good. 

While house prices appreciate across the country, the commercial sector will see some real challenges as tenant and landlord lease negotiations and workouts begin. Cap rates will need to move higher to attract investment as technology has disrupted the manner in which many of us work. The flexibility to be able to work from home and go into the office on a less rigid schedule will be a boon for housing for some time, especially in more affordable suburban areas. A move lower in interest rates from 4% to 2.75% increases affordability greatly. Borrowers’ affordability opens up more housing options, especially outside of crowded urban areas. Low interest rates also allow borrowers to recapitalize their balance sheets by lowering interest payments and freeing up money for other purchases. This will set up nicely for when a post-Covid world emerges as vaccines become widespread, treatment improves, and cases taper off.

In what was an action-packed week, equities enjoyed a boost higher and bond yields dipped lower. The markets seem to respond positively to political gridlock, with the presidency and the House going to the Democrats versus a Republican Senate. As of this writing, the election outcomes are still not 100% confirmed.

While the country (and the world) fixated on the outcome of the presidential elections, a respectable October jobs report escaped major notice. The economy continues to rebound from the Covid-19 induced shutdowns. At the same time, the pace of job gains is slowing, which rings a few potential alarm bells. Hopefully, once the presidential election is in the rearview mirror, Congress can come together and provide a stimulus bill to keep companies and individuals afloat during what we predict will be a challenging autumn and winter season. Social distancing will continue to affect travel, entertainment, restaurants, gyms, schools, offices, business districts, and so on, for the foreseeable future. Widespread availability and adoption of an approved vaccine is the resolution we’re waiting for and that’s still a way off.

Housing on the other hand remains on a tear. The combination of low interest rates and high demand has kept lenders very busy. Low rates have been a boon to both corporations and individuals who have been able to use cheap funding to either purchase new assets or refinance existing ones. The biggest benefactor of these low-interest rates has been asset-light equities and the high-end housing market.

Our suite of lenders remains very motivated to make responsible loans to our borrowers but is also sympathetic to the fact that the 2nd quarter of 2020 was very rough on many businesses. With housing values holding steady and many self-employed borrowers making adjustments to their businesses, loans are getting approved and deals continue to close. 

Equities sold off hard this week, even against the backdrop of a strong bounce-back 3rd quarter GDP reading, better-than-expected consumer spending, and strong earnings from tech giants such as Microsoft and Google. Increased global Covid-19 cases and the fear of shutdowns in Europe were partly to blame, as well as a failure by Congress to pass a stimulus bill. Next week looks to be a wild week in the markets with the looming U.S presidential election, Fed statements, and the October jobs report. Any of these factors, just by itself, can move the markets in a big way. 

Interest rates continued to move higher but still remain at attractive levels.  Given the tremendous volatility in equities, it may be construed as a good sign that bond yields did not plummet. Perhaps (and hopefully), bond traders are expecting some inflation, more government stimulus, and a return to some normalcy within the next year or so. Interest rates going to zero is generally a negative indicator, so we are mildly encouraged by rates moving up a bit.  

Home sales remain strong with existing home sales blowing past estimates. Home supply is tight, spurred on by high demand from people wanting a home or a home in a less urban area amidst viral threats. All things home related have been a big boost to the U.S. economy. Low-interest rates have incentivized refinance and purchase money transactions. Volume continues to be heavy and high-quality properties tend to receive multiple offers. Even though we’ve been seeing an uptick in business, we have an efficient process in place to help all new clients.

The Treasury yield curve has steepened recently as various factors have pushed out longer-dated Treasuries (hopes of a vaccine, improving jobs data, and signs of inflation, e.g. copper prices). It’s not all bad news as higher rates suggest the economy may be improving and more stimulus may be on the way. The Fed has already been clear about letting inflation run above the 2% target. Should inflation and or interest rates move up too far expect the Fed to implement yield control measures to push longer-dated Treasury yields below 1%.  

Housing has been on an absolute tear as both new and existing home sales constrain supply. Normally, you’d think a large ticket item such as buying a house during a global pandemic would be counterintuitive, but it appears that Covid-19 has nudged fence-sitters into action. Low-interest rates have definitely been helping this trend, with rates below 3%. Rates as low as 2% for high net worth borrowers are readily available. Big business has also benefited from the low rate environment, especially companies that can access the public debt markets. By lowering the cost of debt, companies will allocate debt service funds on innovation or share buybacks once Covid-19 is in the rearview mirror.  

Insignia’s funding sources remain fairly optimistic as borrowers have been able to rebound from the gut-punch they took in March. Our lenders continue to work with our borrowers on loan approvals and fast closings for purchases. More opaque products such as interest-only loans, investment property loans, and loans for foreign nationals are also available. The rate for these products begins in the low 3% range and moves up from there.  

The pandemic continues to present health and economic challenges across the globe, making the market a challenge to navigate. While the concerns are real, the U.S. economy continues to bounce back. Unemployment remains elevated but it has improved a great deal from the March lows. Positive reports this week on manufacturing, retail spending, and savings are all good news for the economy as we head into the holiday season. Homeownership remains on a tear, especially in the suburbs. It will be interesting to see how urban life is re-defined as working from home becomes the new normal, and whether this trend sticks post-Covid.

Rates will be low for some time. While it is hard to see rates go much lower, it’s possible that interest rates could dip even further. Covid-19 infections are on the rise in Europe and the U.S. and that could play a role. However, the odds seem in favor of a gradual rise in interest rates over time as we all adjust to the current environment.

Both the bond and equity markets are focused on whether Congress and the White House can agree on a much-needed additional stimulus package. Many businesses are suffering, as are all the employees in public-facing businesses such as restaurants, hotels, entertainment, and travel. Every day we hear of more companies laying off employees. The stimulus will help Americans get to the other side of the pandemic. On the other hand, the pandemic has propelled innovations in new ways to work, which may lead to more efficient business models going forward. 

Housing remains on a tear as people exit big cities for less population-dense zones such as suburbs and more rural areas. Super-low interest rates have driven high demand and mortgage activity. However, the 10-year U.S. treasury bond has been rising, approaching .80%. Market trends are impossible to predict due to the many variables at play. The biggest unknown is the intensity and impact of Covid-19 surges this fall. 

In the California luxury market, high-end inventory is scarce as the market remains very active, pushing prices upward. We continue to work with our lender-partners to help our clients take advantage of these incredibly low-interest rates on new mortgages and refinances.