Tag: portland home loan rates

Might low unemployment signal a recession near?

Posted on by Evan in Rate Update, Swanson Home Loans Blog - Mortgage Rate Updates and More

On this day in 1896 the chief engineer of Edison Illuminating Company first test drove the “Quadricycle” he had developed.  That engineer’s name was Henry Ford and the “quadricycle” would eventually be commonly known as a car.  

The next stage of automobile evolution is expected to be the driverless car.  CLICK HERE to learn how they may impact real estate values.  

Jobs, Jobs, Jobs

Friday’s all-important employment report showed continued strength in the Labor Market.  According to the release the US economy added 223,000 new jobs, average hourly wages rose, and the unemployment rate decreased to 3.8%.  

Seemingly a healthy jobs market is a great indicator for the housing market.  However, there are two concerns that arise from the report.

#1: Inflation & Home Loan Rates

Job growth coupled with a low unemployment rate means employers will have to pay higher wages to attract workers.  This is great for employees but also can lead to wage-based inflation where producers are forced to charge higher prices.  

Since inflation is the primary driver of mortgage rates strong job growth becomes a double edged sword for housing demand.

#2: Recession near?

The US economy has been growing for more than eight years now making it one of the longest expansions in recent history.  Dating back to World War II recessions have always followed cyclical low points in the unemployment rate as the chart above shows (grey shadowing signals recessions).  

I subscribe to the belief that we are 12-24 months away from a recession.  Mortgage rates tend to drop during recessions so it might make sense for homebuyers to consider 5/1 & 7/1 ARM’s at this time.

The Week Ahead

This week’s economic calendar is relatively light.  The US Treasury will auction 10-year notes and 30-year bonds this Thursday.  The additional supply of longer-duration securities will make it difficult for rates to improve.  Furthermore, the political drama in Italy seems to be quieting down.  I will recommend a locking bias.  

Current Outlook: locking

US 10-year below 3.00%, might rates improve this week?

Posted on by Evan in Rate Update, Swanson Home Loans Blog - Mortgage Rate Updates and More

Monday mornings don’t seem like the ideal day for a bloody mary but I would be lying if I said the thought hadn’t crossed my mind.  Speaking of “Bloody Mary Mornings” today is Willie Nelson’s 85th birthday.  HERE IS A LINK to his famous song.

In an upward trending rate environment it feels like a win when I can report that mortgage rates did not increase last week.  They also didn’t go down.

10-year treasury below 3.00%

After spending most of last week above 3.00% the US 10-year treasury note is currently trading at 2.94%.  I am hopeful that the 3.00% level will act as a strong technical ceiling.  If so, we may see mortgage rates improve by .125% or so.

Inflation

Higher prices are the primary driver of mortgage rates.  That is because when inflation rises it reduces the purchasing power of dollars used to repay debt.  Therefore, when inflation rises lenders charge higher rates of interest to compensate.

Earlier today the Fed’s favorite gauge of inflation, called the Personal Consumption Expenditure price index (PCE), was released.  It showed that on a year-over-year basis prices rose by 2.00% which is the Fed’s target.  This was moderately below expectations.

However, if we strip out volatile food and energy prices the “core” PCE increased by 1.9% which is an increase from last month when prices rose by 1.6%.  The large increase is alarming and may be a signal of higher inflation in the future (and thereby higher home loan rates).

The Week Ahead

On Tuesday the latest version of the Case-Shiller Home Price Index will be released.  We’ll also see new home sales and consumer confidence data.

On Friday we’ll get the all-important jobs report and gross domestic product.  That will be a big day for interest rates.

I am cautiously optimistic that rates could improve assuming the yield on the US 10-year treasury note remains below 3.00%.

Current Outlook: cautiously floating.

Rates end Q1 on a positive note but higher rates likely later in the year

Posted on by Evan in Rate Update, Swanson Home Loans Blog - Mortgage Rate Updates and More

At the end of her life my wife has already decided to be buried at the golf course so that I visit her multiple times per week.  It’s’ Masters week which means my productivity at work will decline significantly starting Thursday.

Quarterly Report

Interest rates had a tough start to the year increasing by approximately .50% during the first seven weeks.  Peaking on February 21st mortgage rates have since flattened and even improved modestly.

For the quarter mortgage rates increased by about .375%.

Yield Curve

The yield curve is at the flattest point since 2007.  The yield curve measures interest rates over a variety of durations.  The chart below depicts the difference between the yield on the 2-year and 10-year treasury notes.  As the difference declines the yield curve gets flatter.

A flat yield curve is thought to forecast either an economic slowdown or higher long-term interest rates in the future.  Given that the economy appears to be stable I think we are in for higher mortgage rates later in the year.

US Stocks

Home loan rates are currently benefiting from volatility in the US stock market.  Equities are off ~2% again today as investors fret over the possibility of trade wars with China and regulatory backlash on tech companies.  When stocks do poorly interest rates tend to benefit.

The Week Ahead

It’s the first week of a new month so we’ll get the all-important jobs report this Friday.  Analysts are most interested in average hourly earnings which has remained sluggish despite low unemployment.  A higher reading for hourly earnings would be unfriendly to mortgage rates. The remainder of the economic calendar is light.

Mortgage rates are presently at the lower end of their recent range so I will recommend locking.

Current Outlook: locking

Advancement of tax plan expected to pressure mortgage rates higher

Posted on by Evan in Rate Update, Swanson Home Loans Blog - Mortgage Rate Updates and More

If you’re looking for something to celebrate this week look no further.  On December 5, 1933 the 21st Amendment to the US Constitution was ratified effectively ending prohibition.  Fast forward to 2017, Oregon’s brewing industry contributes $4.49 billion to the state economy and directly/ indirectly employs over 30,000 people.  I can toast to that.

Republicans are toasting their advancement of tax overhaul legislation.  The Senate narrowly passed their version of the tax bill which will now be reconciled with the House version.

The Tax Plan:

The new tax plan is bad for mortgage rates on a couple levels.

First, passage of the new tax laws is expected to add ~$1.4 trillion to the Federal debt over the next ten years.  In order to fund the deficit the US Treasury will have to issue an equal amount of debt which will crowd out other borrowers and push yields higher.

Second, the new tax cuts are expected to promote economic growth which is good news for stocks.  The Dow Jones Industrial Average has increased by over 1,000 points in the past week and is trading at all time highs.  When stocks rally it tends to push interest rates up.

Jobs Week:

It’s the first week of a new month which means we’ll get a fresh all-important jobs report this Friday.  The markets are currently expecting ~+190,000 new jobs created during the month of November.  A figure significantly better than that would put upward pressure on mortgage rates and vice versa.

The Fed:

The next monetary policy meeting is scheduled for next week with an announcement set for December 8th.  There is currently a 90% probability that the Fed will hike short-term interest rates by +.25%.

In other words, the home loan rates you see today already assume a rate hike.  Please help consumers understand that mortgage rates will not automatically increase next week on account of this action (they could move higher for other reasons).  The Fed does not directly set home loan rates but their comments and actions can cause volatility.

Given the momentum of the tax plan I recommend locking in.

Current Outlook: locking

Mortgage Rate Update August 28, 2017

Posted on by Evan in Rate Update, Swanson Home Loans Blog - Mortgage Rate Updates and More

Housekeeping: ‘Rate update’ will be taking a break from laboring one week from today.  In honor of Labor Day here is a quote from Robert Orben: “every day I get up and look through the Forbes list of the richest people in America. If I’m not there, I go to work.”

My thoughts and prayers go out to all those affected by the devastating impact of Hurricane Harvey.  I wish those who lie in the storm’s wake a safe next few days and rapid recovery.

This week appears to be a pivotal one in terms of the direction of mortgage rates.  Since the beginning of July interest rates have improved and mortgage rates are currently at the best levels of the year.

However, the yield on the US 10-year treasury note has idled at the 2.18% level over the past week.  Given the amount of significant economic data due out this week I think interest rates will make a decisive move higher or lower in the coming days.

On Tuesday we’ll get the latest reading of the Case Shiller Home Price Index report.  On Thursday we’ll get a reading on personal income and pending home sales.  Finally, on Friday we’ll get the all-important jobs report, manufacturing activity, and consumer sentiment.

For now I will maintain a floating position but have grown concerned that this trend lower has run out of steam.

Current Outlook: floating