Historically low mortgage rates help home prices accelerate

Have a happy and safe 4th of July!  Our offices will be closed on Thursday but otherwise around to help your customers!

Interest Rates

US home loan rates continue to benefit from pessimism regarding US-China trade talks.

US-China Trade

This past weekend leaders from the “G20” met in Osaka, Japan.  Headed into the weekend some analysts had predicted progress between US and Chinese trade negotiators which would likely pressure interest rates higher.  However, it appears that little progress was made and as a result mortgage rates remain extremely attractive.

Home Prices

CoreLogic’s monthly Home Price Index report was released earlier today and showed a jump in monthly home price appreciation.  After months of decelerating home price gains the report showed that nationwide homes appreciated by +.9% in May alone (annualized increase of +11%)!

After increasing by +3.6% from last year CoreLogic is predicting that home prices will increase by +5.6% over the next 12 months.

The Week Ahead

The financial markets are closed on Thursday in recognition of the 4th of July holiday.  I expect trading desks will be thinly staffed so we could see some volatility in stocks & interest rates on Friday.

We’ll get the all-important jobs report this Friday.  Expectations are for +170,000 new jobs for the month of June.  May’s results were a big miss which has helped mortgage rates improve.

Current Outlook: floating bias

Home loan rates remain low as payment performance improves

On this day in 1950, Ben Hogan bested two other golfers in an 18-hole play-off to win the US Open.  The remarkable aspect of the win was only 16 months earlier Hogan was involved in a near fatal car crash that left him unable to walk for months.  Doctors predicted he may never golf again.

The win was Hogan’s third major championship.  Where did Hogan win his first major championship?  Right here in Oregon at the Portland Golf Club!

Mortgage Rates

Home Loan rates have increased very modestly in the past week as trade tensions have eased and US stocks have rallied.  If stock finish in positive in positive territory today it will mark the 7th straight day of gains.

Home Loan Performance

Corelogic released its monthly Loan Performance Insights report earlier and it showed that only 4% of all mortgages in the United States are 30 days or more delinquent.  This is down from 4.3% a year earlier and is near historic lows.

Mortgage loan portfolios are performing extremely well which means credit standards should remain accommodating in the near future.

Home Equity

Contributing to strong loan performance is the fact that most homeowners have a significant amount of equity built up in their homes.  According to the most recent Corelogic Homeowners Equity Insights report the average homeowner has seen a +5.7% increase to their home equity since last year.  

Here in Oregon the average homeowner gained ~$7,000 in equity which is why homeownership is still one of the best ways to build long-term financial wealth.

The Week Ahead

Last week’s all-important jobs report disappointed the markets showing only 75,000 new jobs created during May.  

This week the economic calendar holds significant data released on Wednesday (Consumer Price Index), Thursday (Import/ Export prices), and Friday (Retail Sales & Consumer Sentiment).  

Momentum remains on our side so I will shift to a floating bias.

Current Outlook: floating bias

Mortgage Rates hit 18 month lows! Is a Fed rate cut next?

Today is National Cheese Day which is causing me to face my cheddar cheese addiction.  Luckily it’s only mild….

Cheese connoisseur’s in China will have to pay a little extra for US cheese thanks to recently imposed tariffs.  Will Mexico be next?  Trade tensions are the primary reason why mortgage rates are at the best levels since January of 2018.

Mortgage Rates

Home loan rates have improved substantially over the past couple weeks thanks to weakness in the stock market.  Investors have been selling stocks in favor of “safer” assets as trade tensions rise between the US and China and now Mexico.

President Trump has stated that if Mexico does not take measures to reduce the flow of migrants crossing the US border then he will impose trade tariffs which will gradually increase starting on June 10th.

The Fed

Investors are not the only people tracking trade tensions.  Fed Chairman Jerome Powell announced earlier today that Fed policymakers are monitoring trade tensions closely and might be willing to cut short-term interest rates later this year if the economy demonstrates weakness.

Home Prices

CoreLogic’s Home Price Index report showed that homes across the country increased by 3.6% over the past year.  They forecast that home prices will increase by 4.7% over the next 12 months.

The Week Ahead

This week’s economic calendar is headlined by Friday’s all-important jobs report.  Analysts are expecting +185,000 new jobs created in May.  A number north of that figure could pressure mortgage rates higher and vice versa.

Current Outlook: locking bias

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

What goes up……might come down?

If you are a believer in the proverb “what goes up must come down” then last week doesn’t hurt so bad.

Home Loan Rates

Mortgage rates suffered the biggest increase in one week since the presidential election in November 2016.  Interest rates rose by +.25% last week.

Affordability

It seems obvious that as the cost of borrowing increases affordability of homes worsens.  But how much? For every 1% increase to interest rates purchasing power decreases by 12% for homebuyers.  

Therefore, homes got 3% more expensive in five short days.

Wages

The good news and bad news is that average hourly wages are increasing in the US.  Over the past year American workers have seen their pay increase by 2.9%.  That is good news because it allows households to afford higher mortgage payments but bad news because it helps contribute to higher interest rates via wage-based inflation.

Why are rates rising?

One of the primary reasons why we’re seeing mortgage rates rise is because the Fed is no longer supporting them.  I explained this concept back in February (HERE).  For years the Fed had been purchasing mortgage-backed securities via quantitative easing.  Instead of stopping the support immediately they gradually tapered their activity.

As recently as September they had been reinvesting some of their capital into the mortgage-backed securities market.  Starting on October 1st that activity has ceased and as a result interest rates have risen in order to attract capital from other places.

The week ahead

The economic calendar is relatively light this week.  There are three Fed officials speaking today.  Tomorrow we’ll see the producer price index and on Thursday we’ll get the consumer price index.  Since mortgage rates increased so sharply last week I am going to recommend floating this week in the hopes that what goes up must come down.  

Current Outlook: floating bias

Holiday shortened week could cause volatility

If we celebrated the day that the Continental Congress voted on the Declaration of Independence from Great Britain then we wouldn’t be in the office today. It was actually on July 2, 1776 that the colonies voted to approve the Declaration of Independence. However, following the nearly unanimous vote Thomas Jefferson took the document, made a few edits, and it was adopted on July 4, 1776. Happy 4th!

Mortgage rates adopted modest improvements last week.

The Week Ahead
It is a holiday week and the financial markets will close early on Tuesday and remain closed until Thursday. During holiday weeks trading desks tend to be lightly staffed. With fewer buyers and sellers in the marketplace we have to be on guard for volatility.

Jobs
The economic calendar this week is compressed with the highlights coming Thursday and Friday. On Thursday we’ll get minutes from the last Fed meeting at which they hiked short-term rates.

On Friday we get the all-important jobs report. Analysts are expecting ~190,000 new jobs created. A number north of that estimate would likely pressure rates higher and vice versa.

US Stocks
US stocks continue to slide on fears of trade tensions. Since the middle of July the S&P 500 is off about 3% and mortgage rates have improved by ~.125%.

Technical Trading Patterns
The yield on the US 10-year treasury note continues to trade below 2.90%. As long as we remain at or below 2.90% I will continue to recommend a floating position.

Current Outlook: floating

Higher oil prices pressure home loan rates higher

They say that weddings are getting more and more expensive.  In fact, the average cost of one surpassed $30,000 in 2017.  That is enough to put 5% down and pay closing costs for a median priced home in Portland, OR..   

As I type there are four days, six hours, and 27 minutes until the royal wedding for Prince Harry and Meghan Markle.  That ceremony is estimated to cost $2.8 million which could be used to put 5% down on THIS HOME.

Mortgage Rates  

Unfortunately mortgage rates worsened modestly last week as US stocks rallied.  The US stock market registered its best week in over two months which put upward pressure on home loan rates.

Oil prices

Geopolitical tension in the middle east coupled with uncertainty around Iran economic sanctions further supported oil prices last week which are now at three and a half year highs.

Higher oil prices are problematic for interest rates because they tend to be inflationary and inflation is the primary driver of mortgage rates.  

The Week Ahead

This week’s economic calendar is relatively light.  It features a slew Fed officials speaking around the country.  The Fed does not directly control mortgage rates but their comments can certainly influence them.  

According to CME Group there is currently a 95% probability that the Fed will hike short-term interest rates at the next meeting on June 13th.  There is a 50% probability that the Fed will hike short-term rates three more times in 2018.

Outlook

Due to momentum and the longer-term trend for interest rates I favor a locking position this week.

Current Outlook: locking