Tag: low rates

01_17_2020_blog

Market Commentary 1/17/20

Posted on 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.

Dec-20-blog

Market Commentary 12/20/19

Posted on 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 3rd 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.

Nov-22-blog

Market Commentary 11/22/19

Posted on by Damon Germanides

Bonds continue to trade in a sideways trend as more positive news is circulating from the White House on a possible trade deal with China. it’s anyone’s guess how the protests in Hong Kong will ultimately affect those negotiations.

With a U.S. election less than a year away, and with the Chinese economy slowing, our thinking is that both sides need a deal. 

With the near-term fear of a recession off the table, equities are trading well and were boosted on Friday by upbeat manufacturing data from the November readings. A strong holiday spending season is forecast, which will benefit the economy while consumers, who make up 70% of the U.S. economy, gear up for the biggest spending season of the year.

Mortgage rates remain appealing and potential borrowers should take advantage of this ongoing low rate environment. In a speech this week, the Fed resisted the idea of “negative rates” as an effective monetary policy.  Negative rates in other countries with developed economies have seen mixed results. We have often questioned the rationale of lending out a $1 today to only receive 90 cents in the future.

With the 10-year Treasury under 1.75%, our advice remains to continue to lock-in interest rates at these near all-time lows.

Market Commentary 11/15/19

Market Commentary 11/15/19

Posted on by Damon Germanides

The Goldilocks environment helping to fuel the rise in U.S. equities remains intact. Encouraged by an accommodative and responsive Fed, a healthy consumer, and tame inflation, the equities market grinds higher, even as some manufacturing data suggest the economy may worsen.  

In other positive news, there was an announcement from the White House that “Phase One” of the China trade deal is close to being signed. Taking all of these signals into account, the threat of a recession has been removed in the near-term horizon. In fact, should equities continue to shine, bond yields may very well rise as we head into the holiday season. The consumer feels good and is spending. 

Interest rates remain at near historic lows, supporting our thesis that mortgage rates should be locked at these levels. For anyone who has monitored the markets over the long-term, a 10-year Treasury yield under 2.000% is essentially free money in real terms, once inflation is factored in. Jumbo mortgage rates, which price off of the 10-year Treasury, continue to offer borrowers attractive rates even as the economy points to continued growth.

Nov-8-blog

Market Commentary 11/8/19

Posted on by Damon Germanides

Interest rates have been on a tear as of late with the 10-year Treasury note moving almost 50 basis points over the last several weeks. The move up in interest rates is due to both domestic and global influences. 

Domestically, the job picture and consumer confidence remain strong, and some manufacturing indexes have picked up as of late removing the fears of a near term recession. Also, the Fed has been very responsive to the markets call for lower short term interest rates and their actions have steepened the yield curve. The stock market hasn’t helped the cause for lower rates as the “risk-on” trade has been in full bloom. Rounding out the case for higher interest rates is a positive commentary on phase 1 of the U.S.-China trade deal.

Globally, bonds have also risen as we’ve seen better-than-expected economic data out of Europe and prominent economists have opined that negative rates may be doing more harm than good. These factors have pushed yields higher. 

Don’t be too alarmed as we don’t foresee interest rates running away from current levels with inflation readings still running under 2.00%. However, as we stated previously, our belief is that positive news on the economy could pull the 10-year Treasury to around 2.00%.  

Mortgage applications have stalled due to interest rates moving higher. The low rate environment has put a floor on prices for sellers. Now with rates moving up, the question is how higher interest rates will affect home purchases in the coming months. Despite these trends, mortgage rates remain at very attractive levels, and we continue to advise locking-in.

In addition, we are adding a new program to our mix: bank statement loans starting at 4.25% for a 30-year fixed mortgage up to $3 million. Keep an eye out on our rates page for those details, or give us a call!

Weekly Blog Image 10/11/19

Market Commentary 10/11/19

Posted on by Damon Germanides

Positive comments about trade negotiations with China from the White House on Thursday and Friday sent the equity markets on a tear at the expense of bonds. Rates rose as optimism for a trade deal increased. The markets seem to think at least a partial trade deal may be in the works this time. If a deal is inked, it will be an ongoing positive for stocks and will certainly push interest rates higher. 

Earlier in the week, the Fed Chairman spoke about his committee’s view on the economy. While the Fed sees the economy slowing, for the moment there are no signs of a recession on the horizon. The Fed reiterated it will do whatever necessary to keep the economic expansion going.

Mortgage rates have also risen this week. As we have written previously, our position continues to be that loans should be locked in when the 10-year Treasury is below 2.00%. We continue to hold this view, especially as the 10-year Treasury yield has moved off of 1.500% and is trading near 1.800%.   

Market Commentary for October 4, 2019

Market Commentary 10/4/19

Posted on by Damon Germanides

In another volatile week in the markets, the September jobs report helped soothe recession fears with a report that came in close to estimates. After a poor ISM reading (Institute of Supply Management) and service sector reading earlier in the week, some forecasters were fearing a terrible jobs number. We are happy to report that this not come to fruition. While we are certain that volatility will be a given, it is hard to argue that a recession is on the horizon considering the very low 3.500% unemployment rate.

The September jobs report was solid for a number of reasons. First, the market was primed to expect a major dud. Secondly, there were upward revisions from the past previous reports (i.e. there have been even more people working).  Thirdly, unemployment dipped to a 50-year low and the U-6 reading, which includes those working part-time and those “discouraged” workers who’ve stopped job-hunting, dipped to 6.9%. Finally, wage inflation is under control which puts a lid on bond yields.  

Housing has rebounded, and low-interest rates are boosting mortgage applications. Lower monthly housing payments free money up in consumers’ budgets, which can be spent on other goods and services, which helps the overall economy.

With the September jobs report behind us, and the 10-year Treasury yielding around 1.51%, we are recommending locking-in loans at this level.  While rates could go lower, it is hard to imagine a <1% 10-year Treasury yield for the moment, given the current generally healthy state of the U.S. economy. 

a man at the crossroads of rates - 9/27/19 blog image

Market Commentary 9/27/19

Posted on by Damon Germanides

Mortgage bonds had another good week as interest rates remain low. This week served up several market-moving headlines highlighted by impeachment headlines, positive news on the U.S.- China trade talks, and good housing numbers. Inflation picked up a touch, with the Fed’s favorite inflation gauge, the Core PCE, ticking up to 1.8% annualized inflation rate from a previous reading of 1.6%. However, this annual rate of inflation is still below the Fed’s 2% target and for the moment a non-threat to the bond market. Inflation and economic expectations for the future are what drive longer-dated bonds. 

Next week will be a big week with the September jobs report. Given the slowdown in manufacturing and the recent lower reading on consumer confidence, we will be watching the jobs report with much interest. The U.S. economy has been resilient through the present moment and is the envy of the developed world. The big question has been how long can the U.S. continue to outperform other large economies. The jobs report will shed some important light on this question. 

In housing news, the National Association of REALTORS® reported a pick up in homes under contract, thanks to lower interest rates. With interest rates near all-time lows, we continue to believe that locking-in interest rates are the way to go as playing the market is simply too risky, especially with lenders near capacity.

Sep-20-blog

Market Commentary 9/20/19

Posted on by Damon Germanides

The Federal Open Market Committee (FOMC), as expected, lowered short term lending rates by .25%. The effect on equity and bond markets was muted as the 10-year Treasury closed right under 1.73% for the week. Stocks closed down a touch on Friday. The Fed also opined on the state of the U.S. economy and confirmed that the job picture was good, inflation was under control, and that the worry was on manufacturing data which has slowed considerably. However, given the strength of consumer spending and the small uptick in wage inflation, the Fed does not seem to see a looming recession on the horizon.

Further supporting the no recession thesis, there has been a rise in housing permits and good data on existing home sales. With 7 million-plus more job openings than people available to fill them, we agree that the recession fear narrative was maybe overdone. However, by late Friday, China cut off talks early with the U.S. on trade discussions, and if the U.S. and China negotiations on a trade agreement turn south, the disruption could be big enough to push the world into a recession. Also, worth noting is the fact that most developed countries besides the U.S. are not experiencing great economic growth. For the moment, the U.S. remains the envy of the world.

Regarding interest rates, we continue to believe a sub 2.000% 10-year Treasury is a gift to borrowers and that loan programs should be locked-in at these levels. The low rates have definitely spurred buying in the higher-priced coastal markets as borrowers are able to qualify for more home which is also a positive sign for our domestic economy.

blog image 9/6/19

Market Commentary 9/6/19

Posted on by Damon Germanides

Stocks surged mid-week in response to some positive news regarding the news that the U.S. and China may be returning to the negotiating table on trade talks.  Also, the U.S. economy, while slowing, appears to be in pretty good shape for the moment. The August jobs report was lower than expected but had no real effect on stocks and bonds. The unemployment rate held steady at 3.70%, and while the report suggests the economy is slowing, there were no real surprises within the report.

However, multiple mixed signals regarding recession persist. It is hard to reconcile the various reports as there many cross-currents on the direction of both the economy. Interest rates and bond yields are flashing different signals. Recently published manufacturing data in the U.S. is worrisome and support the need for lower rates to boost growth, but better than expected economic data out of China suggest otherwise.  An inverted yield curve in the U.S. (indicating a potential recession) support the argument that U.S. interest rate policy may be too tight, but low inflation and low unemployment suggest that interest rate policy may be near neutral and on target. Strong consumer spending and high levels of small business optimism argue strongly against the recession outcome, while a global slowdown and negative yields in Europe and Japan are an ominous signal of a recession or worse in the coming 24 months.

What has been great for many homeowners or those buyers sitting on the sidelines is that low-interest rates are either lowering monthly expenses or helping new home buyers qualify for a bigger mortgage or a better quality home. We continue to be in the rate-lock camp and continue to advise clients to take advantage of the 10-year Treasury note at ~1.500% which has pushed loan rates way down.