US stock market rally pressures mortgage rates higher

Think owning Portland real estate is a great investment?  Try purchasing a professional sports franchise.

The late Paul Allen purchased the Portland Trail Blazers in 1988 for $70 millionAccording to recent reports the Trail Blazers franchise is currently worth $1.6 billion.

Ignoring annual cash-flow the team has appreciated at a 10.6% annualized rate over that time (which outperforms housing).

The Blazers will try and outperform their 1st round opponents tonight at the Moda Center and advance to the 2nd round of the NBA playoffs.  Go ‘zers!

Mortgage Rates

Home loan rates have been trending modestly higher since the end of March.  They have increased .125%-.25% which is not a surprise given that during that time the yield on the US 10-year treasury note has increased from 2.37% to 2.57% (+.20%).  Mortgage rates tend to track changes in the the 10-year treasury note yield.

Technical Signals

The US 10-year treasury note has been trading at its 50-day moving average for the past week.  The technical signals suggest that bonds are oversold which means that yields may improve in the coming days.

That said, if yields break above this level then mortgage rates are likely to worsen by another .125%-.25%.

US Stocks

Much of the reason interest rates have suffered during the month of April is because the stock market has been rallyingStrong earnings from various companies have pushed investors into stocks and US indexes are now hovering near all-time highs.

The Week Ahead

The remainder of the week is relatively light on economic news so I expect markets to react to technical signals.  Given that momentum is working against us I think the safe play is to lock so will remain with that bias.  That said, I am hopeful the aforementioned technical levels can help interest rates improve.

Current Outlook: locking bias

As stocks rally mortgage rates pressured higher

Think your life is busy?  Each year the IRS receives over 290 million tax returns which the IRS receives.  According to the IRS only .50% of all filed tax returns are audited.

The IRS also reports that over 9,000 tax returns are filed where the taxpayer makes more than $200,000/ year but pays $0 income tax.  Has the President released his tax returns yet?

Stock Market

Earnings season is underway and analysts expect in aggregate that corporations will report stable or declining profits compared to last year.

However, financial companies appear to be bucking that expectation.  Last Friday Chase Bank reported better than expected financial results and earlier today Bank of America did the same.

The US Stock market has now completely recovered the declines it incurred at the end of 2018 and the S&P 500 is only 35 points away from all-time highs.  If profits fail to grow and stock prices continue to rally it may reignite concern over valuations which I wrote about last summer (HERE).

Mortgage Rates

As stocks rallied last Friday it pushed mortgage rates up by ~.125%.  See why HERE.

10-year treasury note

The yield on the US 10-year treasury note is currently trading at 2.58% which just below an important technical layer of resistance.  If yields break above this level then I expect mortgage rates to increase an additional .125%.

The Week Ahead

The economic calendar is heavy on new residential construction this week.  Earlier today the Home Builders’ Index was released and showed greater optimism amongst home builders compared to last month.

On Friday we’ll see fresh numbers for building permits and new housing starts.

Current Outlook: locking bias

Mortgage Rates Hold Steady at Multi-Month Lows

In 1930 two men spent $70,000 to buy 365 acres from Fruitland Nurseries Inc. with the vision of building a new golf course.  They hired an architect from Scotland by the name of Alistair MacKenize and by 1933 the course was ready for play.

Fast forward to today and Augusta National Golf Club is one of the most exclusive golf courses in the world.  Starting on Thursday it will play host, as it does each April, to the Masters Tournament and the champion golfer will don the signature green jacket on Sunday afternoon.

Mortgage Rates

Home loan rates are holding steady from last week.  Similarly the yield on the US 10-year treasury note has been almost flat at ~2.5% since the beginning of April.

Jobs Report

Last Friday the Bureau of Labor Statistics released the monthly employment report. It showed that 196,000 jobs were created during March and the unemployment rate held steady at 3.8%.

For the financial markets the results were “Goldilocks” in that they were not too hot, which could have pressured rates higher, and not too cold which may have stoked fears of an economic slowdown.

Brexit

With the original Brexit date of March 29th come and gone EU leaders are meeting on Wednesday to decide if an extension will be granted.  Without an extension Britain will leave the EU on Friday without a trade deal.  Most analysts think an extension will be granted but for how long is not known.

Uncertainty from the Brexit proceedings have helped US interest rates remain low.  Any signals for a quick and orderly exist could pressure rates higher.

The Week Ahead

This week’s economic calendar heats up on Wednesday when the Consumer Price Index and minutes from the last Federal Reserve meeting are released. Recently mortgage rates have not reacted well to Fed meeting minutes.  Speaking of the Fed, Chairman Powell is schedule to give three speeches this week.  His comments can always influence the markets.

Current Outlook: floating

Rates remain low, home prices continue to rise

Happy National Peanut Butter & Jelly Day.  I wish I had more time to celebrate but my schedule is JAM packed!

Mortgage Rates

Home loan rates continue to hover at 13 month lows.  Although economic data out on Monday was relatively strong there are still concerns over Brexit and future growth which is helping US interest rates remain low.

Home Prices

Earlier today CoreLogic released its monthly Home Price Insights Report.  It showed that nationwide home prices increased by 4% from last year.  This marks a slowdown from prior years but they also foretasted that for the next 12 months home prices would increase by 4.7%.

Idaho lead all states with +10.2% year-over-year appreciation.

Interest Rate Forecast

Embedded in the aforementioned report CoreLogic Chief Economist Frank Nothaft said, “….the Federal Reserve’s announcement to keep short-term interest rates where they are for the rest for the year, we expect mortgage rates to remain low and be a boost for the spring buying season.

The Week Ahead

Being that it is the first week of a new month we will get the all-important jobs report this Friday.  Analysts are expecting +179,000 new jobs for the month of March and the unemployment rate to remain at 3.8%.

I am a little concerned that interest rates are overdue for a reversal so am going to recommend locking ahead of Friday.

Current Outlook: locking

Mortgage rates improve to best levels in over 12 months

If fruit grows on a fruit tree then what does chicken grow on?….A poultry.

Today is National Poultry Day which means that turkey sandwich you consume for lunch is actually your way of celebrating.

Mortgage Rates

Mortgage rates continue to improve reaching the best levels in over a year.  Whether or not they continue to improve or reverse higher will likely depend on the Fed’s comments due out tomorrow.

The Fed

The Federal Open Market Committee meets every six weeks and generally speaking their announcements tend to fall in line with analysts’ expectations.  In other words, there is typically not much uncertainty headed into a Fed announcement.

However, that is not the case for tomorrow when the Fed concludes its regularly scheduled two-day meeting.  For many months the Fed has allowed $4 trillion to fall off its balance sheet in an effort to unload assets it acquired during the economic recovery.

However, the Fed announced earlier this year that it may decelerate the pace at which its balance sheet shrinks by reinvesting some of the proceeds it receives back into the fixed-income markets.

Translation: If the Fed begins to buy up treasuries and mortgage-backed securities they would create significant demand that could help drive yields lower.

What to Expect

If the Fed announces tomorrow that they will immediately begin to reinvest into the fixed income markets I would expect mortgage rates to improve.

However, I fear that the markets have already priced an aggressive announcement from the Fed.  If the Fed delivers a more gradual message then we could actually see mortgage rates rise.

The Week Ahead

Aside from the Fed’s announcement due out on Wednesday the remainder of the economic calendar is light.  I recommend a locking bias headed into tomorrow.

Current Outlook: locking

Economic Headlines are Mortgage Rate Friendly

St. Patrick’s Day is this coming Sunday which may have you thinking if you should look at borrowing money from a leprechaun instead of your favorite mortgage lender?  Well, you can but last time I checked leprechaun’s are always coming up short……

Mortgage Rates

Home Loan interest rates remain at 10-month lows.  Might they go even lower?  Some of the current economic headlines are interest rate friendly.

Jobs Report

As I wrote in last week’s post I was very keen on seeing the results of Friday’s all-important employment report.  Initially when I saw the unemployment rate drop from 4.0% to 3.8% I was concerned that mortgage rates may rise (good news for the economy tends to be bad news for rates).

However, according to the report only 20,000 jobs were added to the US economy in February and analysts had been expecting +170,000.

Overall the results were disappointing which is favorable for mortgage rates.

Inflation Data

Earlier today the Labor Department released the Consumer Price Index (CPI).  Year-over-year prices increased by the slowest clip in over two years (+1.5%).  If you strip out volatile food & energy prices the core CPI increased by 2.1%.  These are considered “tame” price increases which is good for mortgage rates.

Outlook

The remainder of this week’s economic calendar is relatively light.  The highlights include the Producer Price Index and Durable Goods on Wednesday followed by New Home Sales and Consumer Sentiment on Friday.

I recommend maintaining a floating position.

Current Outlook: floating

How long until an average home in Portland is worth $1.0 million?

Happy birthday Fats Domino who was born on this day in 1928.  This little-known musician is considered a pioneer of rock and roll music and started playing bars in New Orleans at the age of 10.

Domino’s single “Fat Man” was the first rock and roll record to sell more than 1,000,000 copies in the US.

Home prices in Portland

Speaking of one million, how long will it take for an average home in Portland to be worth $1,000,000?

According to today’s Case-Shiller Home Price index report home prices increased by 3.9% during 2018.  For a median priced home in Portland ($423,000) that appreciates by 3.9% it will take 23 years for the home to be worth $1,000,000 (2042).

According to the FHFA Home Price Index report, which only tracks home prices for homes with conforming (non-jumbo) mortgages, home prices increased by 4.92% during 2018.  For a median priced home in Portland ($423,000) that appreciates by 4.92% it will only take 18 years for the home to be worth $1,000,000 (2037).

Why is there a discrepancy between the two reports?  The discrepancy is likely related to the fact that higher priced homes, which are generally bought with jumbo mortgages, are not appreciating as much as median and lower priced homes which are secured by conforming loans.

The Federal Reserve

Fed Chairman Jerome Powell is scheduled to testify on Capitol Hill tomorrow.  The interest rate markets will be listening for clues on how monetary policy will evolve during 2019.  Last week, the Fed commented that they may slow rate hikes.

Outlook

From a technical perspective interest rates have been trading in a sideways pattern.  If rates continue without much volatility then we could set ourselves up for a “breakout” which is when interest rates move sharply lower or higher (we never know in advance).

 Current Outlook: cautiously floating

Threat of government shutdown helps mortgage rates remain low

Are you having withdrawals from the ‘round the clock media coverage of the federal government shutdown?  Don’t worry, without a fresh funding bill the government will shut down this Friday at midnight.

Or will it?

Agreement in Principle

According to multiple reports republicans and democrats have reached an agreement to fund the government past this Friday.  Assuming the bill is passed and a shutdown is avoided I would expect the stock market to rally (it is up 200 points this morning) and interest rates to increase modestly.

Mortgage Rates

In the meantime, home loan rates remain at 9-month lows and there is plenty of uncertainty to help keep them low.  The US and China continue seemingly endless trade talks.  If and when there is a trade deal it could spark a stock market rally and hurt mortgage rates.

As I wrote about last week uncertainty about Brexit is also helping US mortgage rates remain low.

On tap this week

Tomorrow the Labor Department will release the latest Consumer Price Index (CPI).  Inflation is the primary driver of mortgage rates because it reduces the purchasing power of dollars repaid to a lender in the future.  Higher inflation results in higher home loan rates and vice versa.

I’ll also be watching the Producer Price Index which is released on Thursday and Consumer Sentiment on Friday.

Outlook

Mortgage rates remain in a long-term downward trend which I highlighted in last week’s update (see HERE).  I will maintain a floating position but am concerned that rates may reverse higher if a government funding deal is reached.

Current Outlook: cautiously floating

Mortgage rates remain at 9 month lows

Later tonight President Trump will deliver his State of the Union address to a joint session of Congress.  Generally the US president will use the address to communicate the state of the national budget, economy, and layout priorities for the coming year.

In other words, it’s a great night to binge watch “Friends from College” season 2.

Mortgage Rates

Interest rates remain at the best levels since April of last year.  Will they reverse course and move higher?  Or might they go even lower?

Technical Signals

The economic calendar is relatively light this week so I expect interest rates to react to technical trading patterns.

Currently, the yield on the US 10-year treasury note is trading up against its 3-month trailing trend line.  I will be watching to see if the yield can bounce lower off this level.  If so I expect home loan rates to improve.

If not, watch out as rates will likely increase by .125%-.25% in the coming week.

Home Prices

Core Logic released its monthly Home Price Index report earlier today.  It showed that on average home prices across the US increased by +4.6% from last year.  This confirms trends seen in similar housing data.

Home prices continue to increase but at a pace that is declining.  This is much like a car that is slowing.  Home prices continue to move ahead but at a slower speed than they have previously.  Home prices are not reversing and going backwards despite the media’s spin.

Outlook

I expect mortgage rates to react based on the aforementioned technical trading patterns.  What may make it difficult for mortgage rates to improve this week is that the US Treasury is scheduled to auction ~$84 billion in fresh bond supply.  Last year at this time the US government only had to auction ~$66 billion to funds its budget.

Read THIS LINK to learn how this can adversely impact home loan rates.

Current Outlook: cautiously floating

Uncertainty keeps mortgage rates at low levels

Think “fake news” is a new phenomenon?

Back in 1935 an organization called the Clark Foundation based in Cooperstown, NY publicized a false story claiming that US Civil War hero Abner Doubleday invented the game of baseball in that town 100 years earlier.

Despite the story being inaccurate it helped the organization raise money to build the baseball hall of fame which inducted its first members on this day in 1936.

Every year around this time baseball fans eagerly await the election results to see which former players will be inducted in that year’s class.

Brexit uncertainty

The financial markets are eagerly awaiting a vote in the British Parliament today which will set the stage for Brexit which is currently scheduled to take place on March 29th.

Britain still does not have an approved trade agreement with the European Union and if Brexit takes place in the absence of one it is likely Britain will fall into recession.

Many analysts are predicting Brexit will get delayed so an agreement can be reached but there is still much uncertainty.

…more uncertainty

Political uncertainty is not contained to Britain.  Here in the US we recently reopened the Federal government after the longest shutdown in history.  The threat of another shutdown looms three weeks away and it is not a clear that a longer funding bill will get passed in time.

Furthermore, US and Chinese trade negotiators continue to meet periodically but by all accounts are still far from a comprehensive trade deal.

Political and economic uncertainty helps US mortgage rates remain low.  Should these issues get resolved I would expect mortgage rates to move higher by .25%-.50%.

Home prices still rising

The Case-Shiller Home Price index report was issued earlier today and showed that home prices nationwide increased by 5.2% from a year earlier.  Here in Portland home prices only increased by 4.4% from last year.  Many in the media are painting a doomsday scenario.

However, for a customer who puts 5% down on a $400,000 home ($20,000) and sees their home value increase by 4% in the first year (+$16,000) that is better than they could expect from the stock market.

Outlook

Still to come this week is the Fed monetary policy decision (no rate hike expected) and the all-important jobs report due out on Friday.  For now we can continue to float but I am concerned rates may have hit a bottom at current levels.

 Current Outlook: floating