Weakness in stocks is helping home loan rates remain low

Home Loan Rates

Although mortgage note rates are unchanged from last week the associated closing costs are slightly lower so in fact the rate environment has improved.

Stocks and home loan rates

Weakness in the stock market is helping mortgage rates improve.  Why are stocks suffering?

Virus in China

Over 300 people in China and Taiwan have been infected with the coronavirus which health officials fear could spread into a pandemic.  The outbreak is happening just before the lunar new year when over 400 million Chinese citizens are expected to travel.

The health scare is causing a flight-to-safety in the Asian financial markets.  The Hong Kong stock index was down ~3% today which is creating demand for US-based fixed-income securities and driving down yields.

Stock Valuations

Citigroup conducts a statistical model which measures stock market sentiment.  As of today the model has reached a level they define as “Euphoira”.  80% of the time when this model reaches this level stock prices are lower 12 months later.  Furthermore, the last time this model hit this level was April of 2019 and stocks declined 7% the following month.

Furthermore, the Shiller Cyclically Adjusted Price to Earnings Ratio is currently back above 30 for the first time since 2018.  Prior to 2018 the only other times stock valuations had reached this lofty level was 1929 and 1999.

Should stock prices retreat it will likely help mortgage rates remain low.

The week ahead

This week’s economic calendar is light.  The only significant highlight is the existing home sales report due out on Wednesday.

Momentum appears to be on our side so I will recommend a floating position.

Current Outlook: floating

Can interest rates go even lower? A long-term view suggests they can…..

A long-term view of rates

If you took out a mortgage in the 1300s then it’s probably time to refinance.  A new working paper from the Bank of England looks at a trend in global interest rates over the past eight centuries.  

The findings show that interest rates have been trending lower over the past ~800 years.

Should the trend continue then our grandchildren receive interest (negative interest rates) when they borrow money.

Home Loan Rates

Looking at a much shorter-term…. Mortgage rates here in the US remain at very attractive levels despite an easing of geopolitical tensions between the US and Iran over the weekend.

Stocks and home loan rates

Corporate earnings season is upon us.  For the next couple weeks publicly traded companies will release their 4th quarter earnings reports.  

In aggregate, when earnings are stronger than expected it generally causes stocks to rise and hurts mortgage rates and vice versa.  

Jobs Week

Last week’s all-important jobs report came in slightly softer than expectations.  It showed 145,000 new jobs were created in December and the national unemployment rate of 3.5%.  All in all, the report signals continued strength in the economy.

However, looking back over the past few decades every recession has started while the unemployment rate is at cyclical lows.  

The week ahead

This week’s economic calendar is relatively light.  On Thursday we get retails sales and on Friday it will be housing starts and consumer sentiment.  

From a technical perspective mortgage rates are trading in a wide range.  I will be watching the stock market for direction.  If stocks rally then consumers should lock. If stocks trade sideways or decline then consumers can afford to float.

Current Outlook: neutral

Mortgage Rates Improve on Heightened Geopolitical Tension

Home Loan Rates

Mortgage rates are at the best levels in six weeks in response to a rise in geopolitical tensions between the US and Iran.

Geopolitical tension

Last week a top Iranian official was assassinated by a US airstrike.  Iran has characterized the attack as an act of terrorism and has vowed a retaliation.  I hope and pray that diplomatic efforts can ease the tension between the two countries.

However, the fear over a heightened conflict is causing uncertainty in the financial markets and encouraging investors to shift capital out of the stock market into safer havens such as US treasuries and mortgage-backed bonds.

A Flight to Safety

Should tensions continue to escalate then we may see US mortgage rates continue to decline as investors park their money in safer places.

Jobs Week

This week’s economic calendar is fairly light until we get to Friday when the all-important jobs report will be released.  Analysts are expecting 160,000 new jobs created for the month of December.  The previous month saw 266,000 new jobs.

Generally, when the employment report is stronger than expected it is bad for mortgage rates and vice versa.

Closer to home

Here in Oregon job growth in 2019 was slower than the previous six years.  The Bureau of Economic Analysis is predicting slow and steady growth for the next two years.

Outlook

From a technical perspective mortgage rates look like they have more to lose than to gain.  Therefore, I will recommend a locking bias.  However, should tensions between the US and Iran continue to escalate (and I hope they do not) then we should float.

Current Outlook: Locking bias

Home loan rates slightly worse on “phase one” trade deal

Home Loan Rates

Mortgage rates are mostly unchanged to slightly worse compared to last week.  The catalyst which pushed rates higher last week was an announcement pertaining to US-China trade relations.

Phase One

On Thursday, it was announced that the US and China had agreed to a “phase one” trade agreement.  On the announcement the US stock market rallied and mortgage rates increased.  However, after analysts had a chance to read the details of the agreement stocks and rates recovered slightly because the initial plan is less substantial than the markets had thought.

The Fed

Last week the Federal Reserve Open Market Committee met and elected to make no changes to short-term interest rates.  Although the Fed does not directly control mortgage rates their comments can, at times, impact their direction.

The markets currently are not expecting any cuts or hikes to the Federal Funds rate in 2020.

Home Construction

Data released earlier today shows strength for home building in 2020.  According to the Commerce Department housing starts were up 8.5% in October compared to a year earlier.  Furthermore, building permits hit the highest level in over 12 years.

More housing supply should help soften home price appreciation in the near-term.

The week ahead

This week’s economic calendar is relatively light.  I will be watching for existing home sales (Thursday), leading economic indicators (Thursday), and the Personal Consumption Expenditure Price Index (Friday).

From a technical perspective there is more room for mortgage rates to worsen than there is for them to improve.  I will maintain a locking bias this week.

Current Outlook: Locking bias

Mortgage rates improve on an escalation of trade tensions

Home Loan Rates

Mortgage rates are at the best levels in over a month today thanks to weakness in the US stock market.

Trade Tensions Escalate

Speaking at a NATO summit President Trump commented earlier today that a trade deal with China may not come until after the 2020 election.  Furthermore, he said he may use trade sanctions to punish countries who do not fund a fair share of NATO’s budget.

On the news US stocks declined.  The S&P 500, Nasdaq Composite, and Dow industrials were all down over 2% in midday trading.  Bad news for the stock market is good news for interest rates.

Jobs Report

This Friday we’ll get the latest monthly jobs report.  Analysts are currently expecting +189,000 new jobs to be reported.  A number south of that figure could help push rates back down to 2019 lows.

Locally, job growth in Oregon is slowing but as economist Josh Lehner points out this is mainly due to fewer job hirings, possibly because of tight labor market, rather than layoffs (which is a good thing).

The week ahead

Aside from the employment report the weekly economic calendar is relatively light.  Therefore, I expect mortgage rates to react to sentiment surrounding US-China trade talks and technical trading patterns.

From a technical perspective the yield on the US 10-year treasury note is currently trading at 1.711% which is below several layers of importance.  If yields can close below this level and follow through tomorrow then I expect rates to drift lower.

Current Outlook: floating

Mortgage rates improve as builders pick up pace

Home Loan Rates

I recommended “floating” in last week’s ‘rate update’ and that paid off.  Mortgage rates are about .125% lower today than they were a week ago.

Trade Talks

Interest rates have improved because optimism surrounding US-China trade talks have subsided.  There have not been any new details regarding trade negotiations in the past week and therefore sentiment is turning more pessimistic which is helping US interest rates move modestly lower.

Home Construction

Earlier today the Commerce Department released the latest figures for housing starts and building permits.  The figures were stronger than expected and demonstrate that builders are continuing to break ground on new homes.

Ironically, here in the Pacific Northwest the level of residential construction remains historically low relative to in-migration numbers.  The result is that home prices and rents continue to rise.

The week ahead

Tomorrow we’ll get minutes from the last Fed meeting.  It is expected to show that Fed officials will be on hold from any further short-term interest rate adjustments (CLICK HERE to see why the Fed’s rate cuts don’t matter that much anyways).

On Thursday we’ll get existing home sales from the National Association of Realtors and on Friday we’ll get the latest reading on Consumer Sentiment.

From a technical perspective interest rates appear vulnerable to reverse course and move higher.  However, longer-term the stock market also appears over-bought.  If we see the US stock market pull back that would be very favorable for mortgage rates.

Current Outlook: locking bias

The Fed cuts and mortgage rates don’t budge. Explain that one….

It’s counter-intuitive that when a person blushes, presumably because they are embarrassed, we tend to like them more.

Do you know what else is counter-intuitive?

Home Loan Rates & The Fed

It can be confusing for consumers when the Fed cuts interest rates and mortgage rates go up.

Since July the Fed has made three rate cuts totaling -.75%.  However, consumers should know that the Federal Funds Rate, which is what the Fed controls, has a very obscure purpose (see HERE).

Mortgage rates today are effectively the same as they were when the Fed started this campaign.

Mortgage rate forecast

Nobody has a crystal ball but it’s worth noting that Fannie Mae released its latest forecast for housing and interest rates.  They are predicting that mortgage rates will average 3.5%-3.6% in 2020.  Their forecast includes interest rates with discount points but nevertheless they believe rates will be the same and moderately lower next year.

Trade Talks

Sentiment over US-China trade talks have played a significant role in the direction of the stock market and interest rates recently.  Over the past two weeks the financial markets have been optimistic that the US and China will iron out a new trade deal which has hurt mortgage rates and pushed stocks to all-time highs.

However, last week President Trump disputed progress so it’s tough to know what is going on behind the scenes.  The President is scheduled to speak in New York City today to a group of economists so any news could drive sentiment and influence the direction of mortgage rates.

The week ahead

This week’s economic calendar features the Consumer Price Index on Wednesday, the Producer Price Index on Thursday, and Retail Sales on Friday.  In addition there are Fed officials scheduled to speak through the week.

I recommended locking last week but am going to switch to floating.

Current Outlook: floating

Mortgage rates worsen in September, what’s in store for October?

I apologize for the absence of ‘rate update’ during the month of September.  I could give you a list of excuses including 40th birthday celebration, loan volume, rainy weather, washing my hair, etc.

But the bottom line is I allowed things to get in my way.  Back on track in October….

Mortgage Rates

The month of September was not kind to mortgage rates.  After reaching multi-year lows at the end of August home loan rates increased by .125%-.375% during the month of September.

The fact that mortgage rates increased during a month when the Federal Reserve cut short-term interest rates has created some confusion amongst consumers.

Bank of Japan

For the past two decades the central bank in Japan has orchestrated “loose” monetary policy in an effort to keep interest rates low and promote economic growth.  Low interest rates overseas helps keep a lid on rates rising in the US.

Yesterday, the Bank of Japan announced they would be less accommodating in the future signaling that they’d like to see long-term interest rates move higher.  This is not a positive sign for US mortgage rates.

Brexit

We are now 30 days from the scheduled Brexit and an agreement between Britain and the EU remains elusive.  A disorderly exit may help US interest rates improve but there is still time for an agreement to be reached.

Outlook

This week’s economic calendar is highlighted with the monthly jobs report due out Friday.  Technical trading patterns suggest floating for now.

Current Outlook: floating bias

Mortgage rates continue to trend lower

It would be glamorous to be reincarnated as a great big ring on Liz Taylor’s finger.”- Andy Warhol

Happy birthday to Andy who would have been 91 today.

Interest Rates

We’ve held a “floating” position for some now and it’s paid off.  Mortgage rates are at their best levels in over three years and some analysts are calling for them to continue to trend lower.

10-Year Treasury Note

The yield on the US 10-year treasury note, which mortgage rates tend to track, has fallen from 2.05%  to 1.75% in the past 5 days.  Over that time mortgage rates have improved by .125%.  I won’t be surprised if mortgage rates improve by another .125% over the next couple weeks.

Yield Curve

With yields falling for longer duration bonds we are back in a scenario where the yield curve is inverted.  Many economists think an inverted yield curve is a signal of an impending economic recession but there are never any guarantees.

China Trade Tensions

Concern over trade tensions pushed US stocks sharply lower on Monday.  At the moment it appears that the US and China are a long ways from solving their trade disputes.  This is not favorable for near-term economic growth but favorable for US interest rates.

Outlook

From a technical perspective mortgage rates are benefiting from momentum.  We could see rates go up later this week but I still believe we are in store for lower rates in the coming months.

Current Outlook: floating bias

 

Mortgage rates back off of historical lows as economic outlook is mixed

You can file this one in the “wish I had reason to celebrate” folder.  Today is #NationalPersonalChefDay!  Don’t forget to pat your chef on the back and thank them for all their hard work.

Interest Rates

Mortgage rates are unchanged this week after increasing by ~.125% last week.

Recession looming?

The US economy is currently in the longest economic expansion in modern history.  It started back in 2009 and has been in tact for 121 months.  Naturally, all good things must come to an end and as this growth pattern grows long in the tooth more and more economists will begin to predict a near-term recession.

Earlier today an index that tracks global freight movement was released and showed seven straight months of contraction.  According to the report the US economy is, “signaling economic contraction.”

I am not sure how reliable this indicator is but if the US economy does move towards economic contraction one would think that US mortgage rates would improve.

Or not…..

Earlier today the monthly retail sales report showed stronger than expected consumer activity.  Furthermore, an index which gauges homebuilders’ confidence also came in higher than anticipated.

The rest of the week

The remainder of the week features Fed Chairman Jerome Powell speaking (later today), housing starts/ building permits (Wednesday), and leading economic indicators (Thursday).

Outlook

In the near term mortgage rates are testing important technical layers.  I expect mortgage rates to be at these levels or possibly even higher in the next 3-7 days.  Beyond that I think mortgage rates will come back down.

Current Outlook: floating bias