Tag: tariffs

Market Commentary 04/11/2025

damon Damon Germanides
April 11, 2025

Tariffs, Volatility & Mortgage Market Whiplash

The Trump administration’s aggressive tariff announcements sent global equity and bond markets into a tailspin, driving the CNN Fear & Greed Index down to a 4. We are now at levels not seen since the Great Financial Crisis or the shock of COVID. While the current backdrop may not be as severe, investor panic is evident. Since World War II, global growth has relied on comparative economics — countries focusing on what they produce best and trading for the rest. But persistent U.S. trade deficits have led this administration to push for a more level playing field, targeting tariffs and VAT-related pricing disadvantages overseas. The scale of the proposals, however, rattled bond markets and led to a temporary pullback in policy.

Mortgage rates dipped briefly as the 10-year Treasury yield touched below 4%, but that rally was short-lived. The reversal wasn’t driven by inflation data — CPI and PPI came in cooler than expected — but rather by fears of tariff-induced inflation. Manufacturers are now in a bind and consumer confidence is weakening, which makes passing on higher input costs difficult. As a result, we face potential margin compression, weaker earnings, and continued market volatility.

One bright spot for consumers: oil has dropped below $60/barrel, easing some cost-of-living pressures. And while equity markets have pulled back roughly 10% from recent highs, this correction may be a healthy repricing after an extended period of overvaluation.

In the housing market, expect:

  • Price adjustments as buyers grow more cautious
  • Cash-out refinances by self-employed borrowers seeking liquidity
  • Tighter underwriting as lenders brace for inflation, recession risk, and asset repricing
  • More loan applications moving to the non-QM or private credit space due to tightened credit box by big banks (bank statement loans, no-income verification loans, DSCR loans, bridge loans).

On the interest rate front, Wall Street is split — from zero to four cuts forecasted this year. Based on borrower sentiment and softening labor trends, we believe the Fed may deliver 1–2 rate cuts. Consumers are watching their wallets, and business owners are becoming more defensive.

If the Fed does ease later this year, it could bring much-needed relief to mortgage rates — a welcomed boost for the housing sector.

Market Commentary 04/04/2025

damon Damon Germanides
April 4, 2025

Tariffs Overshadow Strong Jobs Report

Mortgage Rates Fall As Economic Fears Rise

A better-than-expected March jobs report took a back seat to the volatile market response following the latest tariff announcements. Equity markets are experiencing heightened volatility as strategists attempt to assess how U.S. tariffs—and retaliatory measures—will unfold in the coming weeks. One big potential consequence of a trade war is triggering a global recession. There is growing concern that a trade war could lead to stagflation—a slowing economy paired with rising costs.

It remains unclear whether the goal of the tariffs is to bring other nations to the negotiating table for improved trade agreements with the U.S. or if they represent a more permanent shift in trade policy. We hope for the former and that these tariffs serve as leverage to secure better trade deals, ultimately benefiting U.S. trade relationships.

High Volatility

The market’s current anxiety is best exemplified by the VIX above 40 and CNN’s Fear & Greed Index at a reading of 4, which is an extreme fear level. While it’s uncertain whether last week’s developments fully justify this level of negativity, there is a sense that automated trading is amplifying market swings. Wall Street has a reputation for punishing retail investors during periods of heightened volatility.

A look at the 2-year Treasury note suggests the market is pricing in upcoming Fed rate cuts. Despite the Fed Chair downplaying this possibility, the probability of cuts appears to be rising. Long-term inflation expectations are also falling. Significant equity losses and weakening consumer confidence weigh heavy on sentiment. We expect inflation to decline rapidly, driven by reduced government spending and a shift in consumer behavior following major wealth erosion. Lower interest rates are likely to follow.

Positive Outlook for Residential Mortgage Rates

Mortgage rates are improving across the board, benefiting from equity market volatility as banks reprice downward. Many loan products are now offering rates below 5%, which should enhance affordability for homebuyers and incentivize refinancing, particularly for cash-out borrowers. Sellers may also be more willing to reduce home prices amid recession concerns, a desire to raise cash, or a need to lower housing expenses.

Caution for Commercial Real Estate

Unlike the residential market, commercial real estate may not see the same relief. Widening spreads—particularly in high-yield markets—are concerning and should be closely monitored. Riskier segments of the commercial real estate market may face higher borrowing costs and diminished investor appetite if spreads continue to widen and delinquencies rise.

Blog Image for October 18, 2019

Market Commentary 10/18/19

damon Damon Germanides
October 18, 2019

Bonds traded sideways this week. There was no major headline, but the markets continue to grapple with whether the slowing world economy will lead to a recession here in the U.S. 

On a positive note, some good corporate third-quarter earnings and talks of a Brexit deal were good for the equity markets.    

On the bearish side, poor retail spending, a lower than forecasted housing starts report and a poor regional manufacturing survey are potentially worrisome. The consumer has been the mainstay of the U.S. economic expansion for the last many years so if they stop spending then the U.S. economy would certainly feel it. Bond yields were capped by news from China that their economy grew at the slowest pace in almost three decades. The tariffs are certainly hurting China’s overall economy which suggests a trade deal with the U.S. may be closer than some think.

Mortgage rates remain attractive and borrowers continue to enjoy the benefits of these low rates in the form of lower payments or the ability to buy a larger home. As we have stated previously, interest rates should be locked-in at these levels. The 10-year has moved from below 1.500% up to 1.75%. For the moment, there is just not enough bad news to move bond yields lower, especially in light of some comments from European and Japanese officials about the lack of effect of negative interest rates. The Fed meets again on October 31st, and the comments from this meeting will be impactful on the future direction of rates.

Aug-30-blog 2019

Market Commentary 8/30/19

damon Damon Germanides
August 30, 2019

Some positive headlines on trade negotiations as well as good consumer readings, modest corporate profits, and low inflation data helped stabilize the equity market this week. Bond yields seem to have hit a floor with the 10-year U.S. Treasury touching a low of 1.47% before settling at 1.50%. While the yield curve remains inverted and should be closely watched as it has historically foretold past recessions, fears of recession quieted this week as the markets stabilized after last Friday’s ugly trading day.  However, there remain many potential landmines in the coming weeks that could turn markets for the worst beginning with an increase in tariffs on Chinese goods September 1st, a highly anticipated Fed meeting, and a no-deal Brexit at the end of October. With negative rates in Europe and Japan, U.S. mortgage rates will only move so high, which should keep investors analyzing riskier asset classes such as equities and real estate for yield.

What is not making headlines is the fact that lenders are so busy that in order to slow the flow of business rates are being increased. This disconnect is creating opportunities for some smaller lenders to compete with larger money center banks on deals that they would usually not be able to compete on. Our office continues to see increased volume from our clients who are both buying new real estate and refinancing currently owned properties with favorable terms.

As we mentioned last week, our stance is to lock-in interest rates at these attractive levels, especially with the added knowledge that lenders are filling up to the point where rates may have to rise lender by lender to slow down the volume. This does not mean rates couldn’t go lower, but with the 10-year at ~1.500%, there is no shame in locking in loans at these low levels.

May-31-blog

Market Commentary 5/31/19

damon Damon Germanides
May 31, 2019

The “Sell in May and Go Away” theory is on full display as stocks endure a tough week of trading to the benefit of lower bond yields. The main culprits are ongoing trade tensions with China and strong rhetoric from President Trump concerning Mexico. The U.S. will begin imposing tariffs on Mexican goods coming to the U.S. until Mexico applies stricter measures to help halt the illegal immigration crisis. This surprised the market on Thursday.  Adding to the volatility is a slower growing global economy, negative interest rates on German and Japanese government debt, and fears of a potential recession. All of these factors have helped push U.S. Treasury yields to a many months low even against the backdrop of strong consumer confidence, a 3.1% GDP 1st quarter reading, and a fairly decent first-quarter earnings season. For the moment, it certainly is a tale of two stories with the “fear trade” winning.

Mortgage rates are also benefiting from lower rates and low inflation readings, but not as much as U.S. Treasuries. We continue to advise borrowers to take advantage of this very low rate environment as it would not take much to push yields higher should some positive comments come out of Washington or Beijing concerning trade talks.