Blog - Insignia Mortgage

Market Commentary 3/13/20

Posted on March 13, 2020 by Damon Germanides

All global financial markets have experienced max volatility as the novel coronavirus has reached pandemic levels. This has increased the odds of a global recession. U.S. government bonds sold off on Thursday as investors fled to cash. The market rebounded on Friday afternoon as a response to the White House’s declaration of the outbreak as a national disaster. We hope with this announcement can institute responses that will start to get ahead of this disease.

Economic data is not relevant at the moment. However, the U.S. economy was in a good place prior to this pandemic so the hope is that the economy will recover once the virus has abated. In addition to the White House declaring this a national emergency, the Fed and Congress will be pumping in fiscal and monetary stimuli at unprecedented levels to help ease the blow to business and individuals affected by the virus.

On the lending front, our lending sources are operational, have contingency plans in place, and are actively working on both purchase and refinance transactions. Interest rates are at historical lows which is important for those looking to buy a home or refinance debt. It is worth noting that the 10-year Treasury has moved from a low of under .500% to back near 1%. This is actually a positive as rates going to zero would be problematic for our nation’s banks and for the insurance companies which collectively finance our debt.

Market Commentary 3/6/20

Posted on March 6, 2020 by Damon Germanides

Coronavirus fears have driven interest rates across the developed world to historic lows. Equity markets have reacted violently to the uncertainty around how this new disease may disrupt global supply chains and affect overall economic activity.

In response to these concerns, the Federal Reserve stepped in earlier this week with an emergency 50 basis point rate cut. This cut was an attempt to promote confidence throughout the financial system and push down short-term interest rates, which will help corporations and individuals attain lower-cost financing.

There is no way of knowing what affects this virus will have on the globally interconnected economy and if it will send the world into a recession. What we do know is that it will eventually run its course and that disruption will stop once our scientific community develops remedies to combat the virus. It is important to note while the virus is very contagious, it does not appear to be extremely deadly for most healthy individuals. As a result, travel and leisure businesses will be hit hardest should the virus spread. On the other hand, the U.S. service economy (70% of the U.S. economy) is derived from service) may adjust better than currently being forecasted in the equities market given all the technology tools that permit employees to work remotely.

In other news, the February jobs report was a good one with a better than expected job creation number, while unemployment remained at 3.500%. However, even a good jobs report didn’t matter as the equity markets shrugged off the good news.

Government-guaranteed interest rates have touched levels most of us believed we would never witness unless we were in a full-on depression. The 10-year Treasury ended the week at .78%, which is remarkable, but also a bit scary. While banks lowered interest rates, it is important to note that as rates approach zero, it becomes increasingly difficult for banks to earn a net margin. The result is that mortgage rates remain higher than what some customers believe mortgages should be priced at. Should interest rates remain low, we would expect mortgage rates to continue to slide lower. However, we do expect that rates will move up once a clearer picture on the coronavirus emerges. It is our belief that rates will remain low for quite some time.

Market Commentary 2/28/20

Posted on February 28, 2020 by Damon Germanides

The fear surrounding the rapidly emerging COVID-19 threat has pushed U.S. Treasury yields to an all-time low. Worldwide equity markets plummeted in the worst week for equities since the 2008 financial crisis. With this biological event creating both supply and demand economic shocks, it is not clear how fiscal stimuli will help soothe the markets, but it appears likely that a coordinated international central bank package may be introduced next week to help stop the bleeding in equities. Furthermore, there are rumors that pharmaceutical companies in Israel and around the globe are racing against the clock to rapidly develop a vaccine and/or other anti-viral therapies.

From an economic standpoint, the virus has disrupted international supply-chains and hurt travel and leisure businesses. If the virus continues to spread or becomes a pandemic, it will affect consumer and business spending patterns. The virus is having a trickle-down effect on our economy and is hurting stocks as companies scale back earnings guidance/ Economists are lowering growth prospects. Keep in mind, these “black swan” types of events are impossible to handicap and the markets will remain volatile until there is a clearer understanding of the virus.

From an interest rate standpoint, government-guaranteed bond yields are now at historic lows in the U.S and may even go lower as the 10-year U.S. Treasury bond sits at 1.16% and may be headed to under 1.000%. However, mortgage rates are not at all-time lows, yet remain incredibly attractive. Many lenders we are speaking to are instituting a hard floor on interest rates and are not interested in lowering mortgage rates further for the moment.

Therefore, our posture which for the last many months has been biased toward locking in rates has now changed to floating rates in anticipation of a major internationally coordinated central bank coronavirus stimulus package. Should rates plummet further, banks will be forced to move interest rate floors to stay competitive.

Market Commentary 2/21/20

Posted on February 21, 2020 by Damon Germanides

The 30-year U.S. Treasury bond hit an all-time low on Friday as investors fled riskier assets and sought the safe haven of U.S. government-guaranteed debt. The causes for concern were weak overseas manufacturing data and ongoing uncertainty in handicapping how the coronavirus (now named “COVID-19”) will affect economic growth in the coming months. Should this virus become more of a problem, interest rates will plunge. For now, no one knows how this virus will evolve, but to date, it appears to not be as deadly as biologically similar infections.

Earlier in the week, bond yields held firm even after hotter than expected PPI and Core PPI inflation readings.

Home buying season should be a good one with interest rates remaining low for the foreseeable future. Supply and affordability will be the bigger issue, especially in the more expensive coastal markets. Building permits surged but housing starts fell which should put even more pressure on short term supply concerns.

With rates near historic all-time lows, we continue to believe that locking-in is the right course of action. The wild card is the potential threat that the coronavirus will have on global productivity. For now, that risk is low, but it may change. If the virus becomes an international pandemic, expect the U.S. 10-year Treasury to touch 1% or lower.

Market Commentary 2/14/20

Posted on February 14, 2020 by Damon Germanides

This weekend marks the unofficial start of the spring home-buying season. The combination of low-interest rates and overall good economic data out of the U.S. supports the belief that home sales and home-related activities will be robust. With the Fed staying on hold for the moment, and, with the odds favoring a rate reduction, the cost of financing debt is very attractive.

One concern remains home affordability. How far borrowers are willing to stretch may hurt higher end coastal markets. However, the demand for a luxury home product is strong (Jeff Bezos just purchased a $165 million home here in Los Angeles).

The 30-year Treasury auction this week was met with strong demand even with the offering being consummated with the lowest yield ever offered. With $13 trillion negative rates globally, the U.S. bond market is one of the few places where high-quality bonds change hands with positive yields. This phenomenon will cap how high-interest rates can go up in the U.S. With the 10-year near 1.500%, locking in at these levels is prudent, but interest rates may go lower. The uncertainty of the coronavirus could push rates higher or lower depending on how the virus spreads.

Market Commentary 2/7/20

Posted on February 7, 2020 by Damon Germanides

A strong January jobs report reinforced the strength of the domestic economy. However, after a 4-day surge by equities earlier in the week, stocks sold off Friday and bond yields pushed lower. On Friday, bonds took comfort from muted wage inflation and U.S. equities sold off as a response to renewed fears of a coronavirus pandemic still low, but hard to handicap. Equities rallied earlier in the week in response to stronger than expected manufacturing and service sector reports.

The January jobs report was impressive with 225,000 jobs created versus 164,000 expected. The unemployment rate ticked up to 3.6%, but for good reason, as more people entered the workforce. The Labor Force Participation Rate (LFPR) rose to 63.4%, the highest since 2013. Wage inflation rose month over month, but less than some experts expected given the tight labor market. Bonds rallied (yields moved lower) as wage and overall inflation remain persistently low.

Keep an eye on China and the coronavirus as unknown risks remain but for the moment appear to be contained. How this virus will affect global growth is yet to be determined, but handicapping this virus is nearly impossible and risk-on/risk-off trading could changes daily as more cases are discovered worldwide, and as scientists gain a deeper understanding of the virus.

Homebuilders remain optimistic and with unprecedented wealth creation in the U.S., this year’s home-buying season is shaping up to be a good one. Affordability and availability of home supply are top concerns. Mortgage rates are compelling and we continue to advise prospective borrowers to consider locking-in interest rates at these historically low levels.

Market Commentary 1/31/20

Posted on January 31, 2020 by Damon Germanides

The coronavirus fears continue to weigh on the global financial markets after having been declared a global health crisis. For the moment, this has pushed yields lower in the U.S. and slammed equities. We are keeping tabs on how this outbreak plays out and how it may affect global economic growth.

The bull case for equities and real estate acquisitions is supported by low unemployment and low inflation, a dovish Federal Reserve, and a vibrant consumer. The bear case for equities and predictions of an economic slowdown are spurred by uncertainty surrounding the coronavirus, mixed corporate earnings, and softening manufacturing data. Fears of recession remain remote but keep an eye on short-term rates which inverted the other day.

With respect to mortgage rates, we are back to near historically low-interest rates. It remains very hard to argue against locking-in rates at these levels, but rates could potentially drop further if the world comes to a halt while international health officials try to contain the spread of this new virus. However, we remain biased toward locking-in interest rates at these ultra-low levels.

Market Commentary 1/24/20

Posted on January 24, 2020 by Damon Germanides

Stocks dipped and bond yields fell in a light economic news week, but nonetheless, it was a week filled with plenty of market-moving events. The fears of a new coronavirus out of China moved money from riskier assets into the safe haven of government bonds. Also, soft global PMI data helped to lower bond yields, which remained flat but may have bottomed.

Back here in the U.S., on the one hand, the consumer remains bullish as equity and real estate asset prices are at historical levels supported by a dovish Federal Reserve interest rate policy. While on the other hand, business leaders are skeptical and large scale purchases are soft.

With the U.S. economy expected to grow between 2.00% and 2.50%, the consensus is that it will continue to hum along and equity indexes will continue to reluctantly move higher. Some recent positives supporting that narrative include the Phase 1 U.S. – China trade deal and the expected signing of the USMCA agreement.

The strong consumer should bode well for a strong spring homebuying season so long as sellers don’t push prices back up in response to a very accommodative interest rate environment and strong demand. Interest rates are also spurring refinances as refinances lower monthly debt service payments and or cash-out refinances tap home equity to pay down more expensive debts.

With the 10-year Treasury bond set to close below 1.700%, our continued view is to take advantage of these near historically low rates. However, a “Black Swan” event such as this new virus that broke out in China could temporarily push U.S. bond yields much lower if government health officials cannot contain the spread of the virus. For perspective, very few people to date have been infected with this new virus, and the fears of widespread contagion are remote, as of this writing.

Market Commentary 1/17/20

Posted on January 17, 2020 by Damon Germanides

U.S. equities charged higher spurred on by low-interest rates, solid consumer sentiment, low unemployment, good corporate earnings, and the signing of the U.S.- China phase 1 trade deal. With the Dow likely headed to 30,000 and home builders accelerating construction starts, it appears the spring buying season should be favorable. Consumers feel flush as retirement plans swell and wages also move higher. All of this is positive for this year’s new and existing home sales. Keep an eye on prices. With such tight supply, we hope sellers don’t price new buyers out of the market given the strong consumer sentiment we are seeing.

The U.S. economy continues to be the best house on the block and with the Fed holding steady on its accommodative monetary policies we expect this Goldilocks environment to carry on for the near term. The presidential election could create volatility, but that won’t come in to play until the back half of the year. Interest rates remain attractive as the developed world is awash in low or negative-yielding debt, which has helped keep our own interest rates capped back home. However, inflation, which has been non-existent for the last decade, is showing signs of reviving. Should inflation move past Fed targets, we could see bond yields move higher and quickly. For now, most strategists have the 10-year Treasury yield pegged between 1.900 – 2.500%.

With that in mind, we continue to advise locking-in interest rates at these levels. It is a call we have been making for quite some time, but given the abundance of positive information hitting the markets, and the fact that the market has shrugged off negative-market-moving news so quickly, our feeling is interest rates have a greater chance of moving higher than lower. One interesting point: a study was recently completed that showed that negative interest rates have done little to boost economic activity in Europe and Japan. While I am not an economist, I have always thought that lending one dollar to get back less than the principal does not make much sense.

Market Commentary 1/10/20

Posted on January 10, 2020 by Damon Germanides

Bond yields flattened after a very tense week filled with heightened geopolitical tensions, as well as significant economic news. Rates dropped Wednesday after it was reported that Iran fired missiles at U.S.-occupied air bases in Iraq. Thankfully, no U.S. casualties were reported. The flight to safety was short-lived as the stock market rallied the day after the attack. Both the U.S. and Iran suggested that further escalations would be halted. Oil prices took a wild ride up and then quickly came back down as oversupply halted a surge in oil prices based on disruption fears surrounding the conflict.

On the economic front, weak manufacturing data was discounted due to the Phase One U.S. China trade deal being inked on January 15^th. The all-important December jobs report was a bit lighter than expected, but overall not a terrible report. Unemployment remains at 3.5% and at a multi-decade low, and the U-6, or total employed, fell to 6.7%. The U.S. economy remains on solid footing and appears to be in what is often referred to as a “goldilocks” trend as the combination of low-interest rates, low unemployment, and low but stable economic growth increases our overall prosperity.

A surging stock market and low-interest rates should bode well for the coming spring home-buying season as potential homeowners feel flush. Inventory remains tight, but home builders are optimistic. With this in mind, we continue to advocate locking-in interest rates at these attractive levels. Many economic forecasts are factoring in higher inflation in the coming year, which would propel bond yields higher. Also, the overall global economy seems to be doing better and for now, any sign of a potential recession in 2020 has faded.