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

The shutdown’s impact on mortgage rates

The government shutdown is now the longest running shutdown in our history.  Over 800,000 federal workers remain without a paycheck.  Meanwhile, the government is accruing back wages to the tune of $2,000 per second.

How is the shutdown impacting home loans?

Mortgage Rates

The government shutdown has helped contribute to lower mortgage rates.  How?

First off, political uncertainty encourages investors to be less risky with their capital.  When investors seek safety mortgage-backed securities attract greater demand which drives yields lower.

Second, lower government spending has a slowing effect on the economy which is bad for the stock market.  As we know the US stock market has traded lower for the past two months which also helps interest rates improve.

Mortgage Processing

Most borrowers will not experience any delays as a result of the shutdown.  However, some applications require that the tax returns provided with the application be verified through the IRS.  They are not currently providing this service so those applications are likely to be delayed.

Furthermore, the VA and FHA are currently understaffed.  For applications which require specific underwriting guideline questions lenders are left to either proceed with the application without clarity from the VA/ FHA, deny the loan, or delay it.

Economic Data

The federal government issues most of the economic reports that analysts rely on to make forecasts.  Some reports are being issued on schedule but others are not (see a list of reports HERE).

The all-important jobs report is scheduled for release on February 1st (for now) but the financial markets may not react to the report because the reliability of the results will be called into question.

Given that there does not appear to be a compromise in sight we will maintain a floating bias BUT borrowers should be warned that we expect home loan rates to rise once the shutdown is over.

 Current Outlook: floating

Mortgage Rates at multi-month lows but expected to rise during 2019

Happy New Year!  77% of US citizens set financial goals for their new year’s resolutions.  Did you?  Unfortunately only 1 in 5 are able to see their resolutions through February.

I hope 2019 brings you good health and prosperity!

Mortgage Rates

Interest rates start off the new year at the best levels since the spring of 2018.  Weakness in the stock market helped mortgage rates improve during the final two months of 2018.

Trend line

A look at the chart of the US 10-year treasury note, which mortgage rates tend to follow, shows that yields fell from 3.22% at the beginning of November to 2.55% on January 2nd.  During that time home loan rates improved by .50%.

Currently the US 10-year treasury note is at 2.70% which is right up against the two month trend line.

Near-term Outlook

Should yields bounce lower off this trend line then mortgage rates are likely to improve by another .125%-.25%.  However, if the yield closes above 2.70% then I expect rates to move higher.

Longer-term Outlook

Most Wall Street Analysts believe that yields will increase by .50%-1.00% during 2019.  Therefore, I think the best buying opportunities will exist in the initial three to four months of the New Year!

 Current Outlook: locking bias

As 2018 draws to an end home loan rates benefit from stock market weakness

Happy holidays from all of us at Swanson Home Loans!  This will be the last ‘rate update’ post of 2018 as the next two Tuesdays fall on a holiday.  The next ‘rate update’ will be posted on January 8th!  Have a safe and joyous season!

Stock Market

Home loan rates continue to benefit from weakness in the stock market.  The S&P 500 index is off 13% from the highs reached back in early October.

If you are a consistent reader of this post then you know we started expressing concerns over stock valuations all the way back in the beginning of the year so we are not surprised to see this correction.

The Fed

The Federal Reserve Open Market Committee begins its regularly scheduled two-day monetary policy meeting today.  Tomorrow they will announce their latest monetary policy decision.

According to CME Group there is currently a 73% probability that they will hike by another .25% tomorrow.  The Fed does not directly control mortgage rates so we’ll have to see how they react.

Should the Fed defy the odds and not hike I expect the stock market to rally which would likely hurt home loan rates.

Yield Curve

Should the Fed hike the Federal Funds rate tomorrow by .25%, as expected, it will be interesting to see how the yield curve responds.  The 2-year treasury note is currently yielding 2.66% and the 10-year treasury note is yielding 2.83% a difference of only .17%.

If the 2-year yield surpasses the yield on the 10-year treasury note it will be the first time that the yield curve has inverted since 2005-2007.  Every time in recent history the US yield curve has inverted an economic recession has followed.

Outlook

Unfortunately many analysts are growing pessimistic on their economic outlook which is partially why we’ve seen home loan rates improve in the past month.  As long as this viewpoint holds I will recommend floating.

Current Outlook: floating

As job growth slows mortgage rates improve

As you read this take a quick look around.  Do you see a few things that were ‘Made in China’?  On this day in 2001 China joined the World Trade Organization.  Currently President Trump is working to resolve trade tensions which are helping to contribute to lower mortgage rates.

Mortgage Rates

Home loan rates have benefited from recent weakness in the stock market.  One of the major factors contributing to stock market weakness has been the lack of progress on trade talks with China.

There are reports that progress is being made but for now key differences remain.  If and when the US and China reach a trade deal we may see the stock market rally which presumably would cause mortgage rates to rise.

Job growth declining

Last Friday’s all-important jobs report showed that 155,000 new jobs were created in the previous month.  This was less than the 190,000 that were expected.  The trailing three-month average has decreased to 170,000 which is the lowest of 2018.  Some economists are predicting an economic slowdown for 2019-2020.

Inflation Sensation

Ultimately inflation is the key driver of interest rates because if a lender forecasts that the purchasing power of money repaid in the future will be diminished they will charge a higher interest rate.

The Labor Department reported earlier today that prices at the wholesale level of the economy (Producer Price Index) increased by 2.7% last month when you strip away volatile food & energy.  This is a modest increase from last month.

Tomorrow the Consumer Price Index will be released.

Technical Signals

Mortgage rates are .375% better than they were a month ago.  It appears to me that the rally lower has lost steam.  I think the risks of mortgage rates reversing higher outweighs them improving so recommend locking.

 Current Outlook: locking

Is a recession on the horizon? Fear drives mortgage rates to multi-month lows

I hope you took time to celebrate National Roof Over Your Head Day on December 3rd!  I showed up to work and helped people get a new roof over their heads so I’m feeling good about my contribution.  

Mortgage Rates

Mortgage rates continued to improve last week.  They are currently at multi-month lows.

Yield curve

As long-term rates improve the short-end of the yield curve is basically unchanged.  The difference in yield between the US 2-year & 10-year treasury notes is only .015%!  It appears that the yield curve may invert in the coming months.

Going back many decades every time the US yield curve has inverted the economy has gone into recession shortly thereafter.

Housing Prices

Corelogic released its monthly Home Price Index today.  It showed that homes appreciated by +5.4% nationwide in the past year.  Oregon homes appreciated by +6.0% according to the report.  

Home prices are still increasing but at a slower pace.   

The Week Ahead

The financial markets will be closed on Wednesday this week in honor of President George Bush who passed away over the weekend.  On Friday we get the all-important jobs report which can definitely influence the markets.

Current Outlook: floating

Home loan rates at two month lows

What do you call a cow with a twitch?….beef jerky……Happy National Craft Beef Jerky Day!  

US Stocks & Interest Rates

Economic uncertainty is taking a toll on the stock market and helping mortgage rates improve.

In an interview with the Wall Street Journal President Trump said it was “highly unlikely” that the US would accept a request from China to hold off on additional trade tariffs as the two countries head into a trade summit.

Furthermore, investors are less certain about the Fed’s future monetary policy as US interest rates head closer to a “neutral” level.  

Economic uncertainty tends to discourage investment in the stock market and encourage capital to flow into safe-havens which helps US mortgage rates.

US interest rates are currently at two-month lows.

Housing Prices

As interest rates decline so do appreciation rates for homes.  Home prices are still increasing year-over-year but not as rapidly as they have over the past few years.  

The Case-Shiller Home Price index for Portland released earlier today shows that homes are 5.1% more expensive than they were 12 months ago.  For a homebuyer who puts 10% down that is still a great cash-on-cash return.  

Josh Lehner of the Oregon Bureau of Economic Analysis recently wrote THIS PIECE which explains how the housing market is re-balancing after years of under supply and strong demand.

The Week Ahead

This week’s economic calendar is busy.  On Wednesday we’ll see new home sales and Fed Chairman Jerome Powell is scheduled to speak.   On Thursday we’ll get minutes from the last Fed meeting and their favorite gauge of inflation (PCE price index).  

Given that mortgage rates are at recent lows I recommend locking in.

Current Outlook: locking

As stocks slide mortgage rates benefit

The irony of Thanksgiving and Black Friday on back-to-back days has always seemed funny to me.  How is it that we spend one day acting grateful for everything we already have then spending the next day trampling over each other to buy new things?

I wish you a warm and blessed Thanksgiving Holiday!

Mortgage Rates

Home loan rates are on a nice run lower thanks to weakness in the stock market.  When stocks do poorly investors typically park their money in perceived safe places which includes the US debt markets.  The additional demand for these securities drives yields lower.

US Stocks

The US stock market was trading at all-time highs only seven weeks ago.  Since then the S&P 500 has fallen approximately 10%.  Since July Facebook, Amazon, Netflix, and Google have lost nearly $1 trillion in combined market capitalization.

Is the loss of stock market wealth contributing to the slowdown in demand for home sales?  Afterall, in order for a person to make a large financial commitment like purchasing a home they have to feel confident about their future prospects.  Lower wealth could cause some people to hold off on buying a home.

Consumer Confidence

According to the Conference Board the Consumer Confidence Index (CCI) is currently at 137.9.  This is the highest level since September of 2000 when it stood at 142.5 so according to this measure households are still feeling pretty good.

However, the CCI has a pretty good track record of being a contrarian indicator as the graph below shows.

Source: Advisor Perspectives

The Week Ahead

It is a holiday shortened week and the economic calendar is relatively light.  I expect US mortgage rates to react to the stock market.  If stocks can rebound and move higher then home loan rates will likely worsen and vice versa.

Current Outlook: floating