Blog - Insignia Mortgage

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.

Market Commentary 12/20/19

Posted on December 20, 2019 by Damon Germanides

The U.S. equity markets traded at all-time highs on the last full trading week of the year. The market’s soaring prices were propelled to record levels by accommodative monetary policy, positive news on the U.S. – China trade deal, a strong consumer, and unwinding of recession fears. Final GDP 3^rd quarter numbers were also released on Friday and were not revised, showing economic growth growing at a respectable 2.1%. Overall, the U.S. economy is in good shape and the recent stock market gains are a vote of confidence, supporting that narrative.

Homebuilders remain confident and housing starts surprised to the upside earlier in the year. Most economists had predicted the 10-year U.S. Treasury would end 2019 at above 3.000%. The plunge lower in rates (10-year U.S. Treasury currently at ~1.92%) has been a big factor in spurring home purchases and refinances, as well as underpinning the surge in equities and other asset prices. If rates remain low, we would expect the consumer to remain bullish and continue to spend on autos, homes, and other high-cost durable goods.

Banks remain aggressive on pricing and mortgage banks continue to serve the demand by self-employed borrowers who face challenges documenting their income. Rates are low and should be locked-in. Continued positive data both in the U.S. and abroad could lift rates higher. Then again, maybe they won’t.

Market Commentary 12/6/19

Posted on December 6, 2019 by Damon Germanides

Jobs, jobs, jobs, and more jobs! The November jobs report crushed expectations Friday morning, with job creation growing at the fastest clip in 10 months. The jobs report reinforces the thesis that the U.S. economy is on good footing, the U.S. consumer remains bullish, and that the recession fears have abated. The report followed other positive reports earlier in the week on housing, big-ticket purchases, and trade.

On the jobs front, the employment rate dropped to 3.500% with the addition of 266,000 new jobs blowing past the estimate of 182,000 new jobs. The U-6 reading, or total unemployed, fell to 6.90% from a reading last year of 7.6%. Wage growth grew year over year above inflation.

This combination of low rates, a strong consumer, and a strong workforce has created a “Goldilocks” environment. These numbers will keep the economy chugging ahead and work as a tailwind for the housing market heading into next year. As we have opined previously, interest rates remain attractive which provides more buying power for potential borrowers. For refinances, reduced mortgage payments free up money for other purchases. Our position on interest rates at these levels is to grab ’em while they are hot!