insignia mortgage weekly commentary Archives

Market Commentary 3/29/19

Posted on March 29, 2019 by Damon Germanides

Declining mortgage rates have spurred refinance activity, as well as increased the probability of a strong spring home buying season. With inflation in check and the Fed on pause, interest rates should remain attractive for the foreseeable future. However be on the alert as rates may have bottomed and hit resistance in moving lower after rallying greatly since the beginning of the year.

Fears of global economic activity slowing continue to weigh on bonds. The recent drop in rates has pushed several wealthy nations debt to trade at zero % or below. In the U.S., the 10-year Treasury bond briefly dropped below 2.4% this week and the 3 month to 10-year Treasury yields inverted, a potential ominous signal of a looming recession should the inversion hold. An inverting yield curve has predicted most recessions and the inversion is the result of fears of economic growth globally as well as a lack of inflation. These fears will keep investors on their toes and may create a more volatile rate environment in the coming months.

Given that we believe most of the concerns we’ve mentioned are priced in, we are biased toward locking in rates at these very attractive levels. Any unexpected good news could move rates up higher quickly.

Market Commentary 3/15/19

Posted on March 15, 2019 by Damon Germanides

Easing global monetary policy continues to provide the tailwinds pushing mortgage rates lower and equity prices higher. Recent confirmation from the February PPI and CPI also confirmed that inflation remains in check. As stocks have gained back most of the losses from late last year, risk is back in vogue.

Reduced mortgage rates have arrived just in time to boost what has been a slowing new market for the new and resale housing market. Recent stories on the glut of high-end homes (those over $10 million) have brought back the conversation as to whether and when housing will reset much lower. Our view is that a glut is unlikely given the strict underwriting guidelines that banks continue to follow. If anything, the return of low-interest rates may ignite a better than expected spring buying season in housing.

However, fears remain in the highly leveraged first world economies, especially in the corporate and government debt markets. As previously mentioned, QE has created absurdly low rates around the world and true price discovery is difficult to attain. Geopolitical events such as China trade talks, Brexit, and Italian debt levels are also worrisome, as well as the slowing of the global economy. Low rates work as a tonic in addressing these issues and central banks realize that.

With the 10-year Treasury dipping below 2.600%, locking is not a bad idea. However, given where European and Japanese bonds are trading, rates in the U.S. may go lower. Be careful what your wish for, as lower rates may mean trouble ahead. For now, all looks to be OK and borrower appear to be taking advantage of renewed low rates for both purchases and refinance. We continue to be cautious and are biased on locking-in interest rates at these levels.

Market Commentary 3/8/19

Posted on March 8, 2019 by Damon Germanides

The highly watched monthly non-farms payroll report was a bit of shocker at first blush with only 20k new jobs created in February versus economists’ estimates of 180k jobs. However, other details within the jobs report were positive with the unemployment rate dropping to 3.8% and a decline in the U-6 number (total unemployed) falling to 7.3% from 8.1%, which was the largest decline ever. The Labor Force Participation Rate (LFPR) remained unchanged at 63.2%. We will await revisions on this month’s report to see if the new jobs created are revised higher. Our hunch is that there were more jobs created then stated in this report as evidenced by the bond market’s muted reaction to the report. Stocks initially sold off but recovered most of the losses by day’s end.

Other big news this week was concerns over Europe and China’s slowing economy and the ECB reinstating stimulus. We are concerned about how long the U.S. can expand its economy in the face of global economic deceleration. Global bond yields have fallen again, and the Fed has also stalled on normalizing monetary policy which has capped interest rates globally for the moment. The fear is that with rates already so low (many bonds yield negative rates in Europe and Japan), central bankers have limited tools to in their toolkit to deploy should the world economy slow further. Keep an eye on the flattening yield curve in the U.S., especially the short-term treasury bills to 10-year Treasury spread. While a flattening yield curve does not mean a recession is near, an inversion of the yield curve is an ominous sign and has often properly predicted a recession.

Not all of this gloom and doom is bad for the consumer, as low-interest rates have spurred home refinances and purchases of both commercial and residential real estate. With home prices dipping a bit, it appears as if sales are starting to pick up into the spring buying season.

Given that the 10-year Treasury yield is below 2.62%, we remain biased toward locking-in interest rates, especially on purchase transactions.

Market Commentary 3/1/19

Posted on March 1, 2019 by Damon Germanides

The U.S. economy grew at the best clip in almost a decade even in the face of a slowing global economy, China-US trade tensions, and political uncertainty in Europe. The strong job market and tax reform helped spur consumer spending and on-going positive business investment. Fourth quarter GDP closed the year out at 2.6%. With the White House gunning for 3% economic growth and the Fed pausing on interest rate hikes, the good times look likely to roll on at least for a while.

Further supporting keeping interest rates on hold was the Fed’s favorite measure of inflation, Personal Consumption Expenditure (PCE), which came in at 1.9%, as expected. Low inflation readings cap bond yields and force investors to invest in riskier but higher-yielding assets classes.

Stocks continue to climb the wall of worry and are re-approaching all-time highs. Market risk-taking is back in vogue even in the face of a decline in earnings. A return to low rates has triggered increases in mortgage refinances and have certainly helped on-the-fence home buyers jump into the housing market.

With Europe and China slowing, and the Fed being very careful about its next move, we can see interest rates remaining low for the next several months. With the 10-year Treasury yield under 2.67%, we advise locking rates except for those borrowers willing to play the market in search of a marginally better deal.

Market Commentary 2/22/19

Posted on February 22, 2019 by Damon Germanides

U.S. Treasuries and major equity markets continue to trade benevolently as investors adjust to a more a “risk on” environment. A December wash-out in stocks and subsequent dovish commentary out of the Fed stoked this move upward in stocks and a move downward in interest rates. For the moment, Mr. Market has moved aside global growth concerns, some weak earnings guidance from analysts, and the fear of Brexit and Italian bond defaults. Positive talks with China are encouraging and have helped ease the markets. No less important is the fact that low interest rates spur risk-taking in equities and have arrived just in time for the spring buying season. Refinance volume has also improved amongst other debt-related activities.

The Fed pausing on their rate hike forecasts does raise some concerns given the supposed strength of our economy and near all-time highs in the stock market. Historically, the Fed mandate was to watch over employment and inflation, but it is clear that supporting equity and asset valuations is no less important in today’s world. Low rates have probably distorted true price discovery and the Fed will need to be very careful about how to move rates as December’s vicious stock market decline is evidence of what one misstep can bring on.

Next week will be an important week for Fed-related news. We believe they will be very careful with policy statements and promote their “patience” policy to Congress.

We are grateful for the low interest rates and continue to advise clients to be cautious with respect to floating rates. One quickly forgets how fast stocks and bonds can move against you should the market have a change of heart. A 10-year U.S. Treasury bond trading under 2.700% was not forecasted by many this time last year.

Market Commentary 1/25/19

Posted on January 25, 2019 by Damon Germanides

Government, investment grade, and mortgage rates remain low amidst uncertainty over the government shutdown, China trade negotiations, the Brexit outcome, and overall concern about a slowing global economy. As stated previously, Wall Street likes gridlock so it is no surprise to see U.S. equities rise in the face of a government shut down. Furthermore, the Fed has been fairly clear that we may be closer to the neutral rate of interest than previously thought, as well as slowing the reduction of the balance sheet which has been draining liquidity out of the financial system. These measures have served as a boon to equities.

Low rates have helped mortgage applications. Home sales have slowed which has forced some re-pricing that has benefited many who have waited for a break in the upward trend in housing prices.

With interest rates on the 10-year Treasury note under 2.800%, we remain cautious and are biased toward locking in interest rates at these levels. Should the government open and should we see more positive discussions on the China trade negotiations, we believe rates may move higher and possibly, very quickly.

Market Commentary 1/18/19

Posted on January 18, 2019 by Damon Germanides

The effects of the partial government shutdown

Interest rates are drifting higher as the damage caused by last month’s brutal volatility washes out and the focus returns back to earnings, the economy, global trade, and inflation.

We will learn more about earnings in the coming weeks, but it has been a mixed bag so far. With respect to the economy, the U.S. economy remains strong, but across the pond, Europe’s economy appears to be slowing along with China. The global economic slowdown is a big concern and is partly responsible for the drop in interest rates that took hold late last year and continued into 2019. Counteractively, a slowing economy could be good for stocks as it will keep the Fed from raising rates.

Secondly, the effects of the government shutdown (if it continues), will become a drag on future confidence readings and overall GDP if it’s not resolved soon. However, keep in mind, Wall Street loves political gridlock and the surge in the stock market is evidence of this.

Thirdly, there are rumors that the U.S. and China are working together on a trade deal. Stocks are higher on this news and bonds have sold off a touch as the risk of an all-out trade war subside.

Finally, inflation remains in check even with full employment here in the U.S. This is a big positive for bond yields along with the Fed clearly stating their intention to remain patient.

With the recent upward trend in stocks, and, the 10-year Treasury Bond trading below 2.80% yield, we remain biased toward locking-in interest rates given recent events.

Market Commentary 8/3/18

Posted on August 3, 2018 by Damon Germanides

Bonds breathed a sigh of relief after an intense week of economic reporting. The Federal Open Market Committee left short-term interest rates intact, but a .25% point increase in the overnight lending rate is all but a given after the Fed’s next policy meeting in September. Friday morning’s July unemployment report was strong with unemployment dipping below 4%. Total unemployment dropped to 7.5% and the May and June employment numbers were revised higher by 59,000 jobs. Wage inflation remains in check, which definitely gave bonds some breathing room from surging higher after the report was released.

Further pressuring bonds is the desire by central bankers to start dialing back the ultra-accommodative monetary policies we have all become so accustomed to. The U.K., the Czech Republic, and India all raised short-term lending rates as the fear of quickening inflation becomes more of a concern ten years out of the 2008 financial crisis.

Domestically, our own 10-year Treasury note touched over 3.00% mid-week for the first time in several weeks. While trade frictions remain a real potential threat to ongoing global growth for the time being, the markets have shrugged off these fears and focused on U.S. growth, strong corporate earnings, and business confidence, which all support higher interest rates.

While much lower interest rates in Japan and Europe are providing a cap for now on how high our domestic rates may rise, we still are of the opinion that interest rates remain very low by historical standards and therefore we continue to advise locking-in interest rates.

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