US-China trade talks continue to influence mortgage rates

Happy Birthday to Ken Galbraith who would have turned 111 today.  The Canadian economist famously predicted in his 1958 book The Affluent Society that as society becomes more affluent private business would create additional consumer demand through marketing and consequently public goods (i.e. schools & parks) would be neglected.

Seems to me like he was on to something.

US-China Trade Talks

Trade negotiators from China and the US may be onto something too.

There are literally thousands of factors which can influence the direction of mortgage rates.  However, over the past few weeks one story line in particular has dominated.

Trade tensions between the US and China began flaring up in March of 2018.  Since then both sides have taken a tit for tat approach to trade policy.

Over the past few months trade negotiators from both countries have engaged in talks to try and resolve differences.   The financial markets have monitored the talks closely and sentiment has see-sawed accordingly.

When optimism rises that a trade deal will be reached mortgage rates worsen and when pessimism over a trade deal grows home loan rates tend to improve.

Following last weeks meeting between President Trump and China’s vice premier the financial markets are relatively optimistic that a trade agreement can be reached and therefore interest rates are currently cycling higher.

Will they continue to move higher?  Or will optimism wane and help rates cycle back lower?  Time will tell.

Brexit

Similarly, news out of Brussels is that UK and European leaders are close to reaching a draft Brexit deal which may allow the UK to separate from the EU in an orderly fashion.

Interest rates in Europe are increasing on optimism over an orderly exit.

The week ahead

Although I expect mortgage rates to react to sentiment over US-China trade talks there are a few other story lines I’ll be following.  Third quarter earnings reports have started.  As the stockmarket reacts to the reports I expect interest rates to react accordingly (click HERE to learn how the stock market can influence mortgage rates).

Furthermore, we’ll get the latest reads on retail sales (Wednesday), housing starts & building permits (Thursday), and industrial production (Thursday).

I think rates may worsen in the coming days but I do think they will reverse course at some point.  For those who can wait I would recommend floating.

Current Outlook: neutral

Mortgage rates are better than fluffernutter!

What do you get when you add peanut butter to marshmallow?  Well if you add them to two pieces of bread you have yourself a fluffernutter sandwich and today is National Fluffernutter Day!  Never tried one but if I did I would probably add bacon.  Doesn’t that sound good?

Mortgage Rates

Home loan rates are good this week and are benefiting from a deterioration in US-China trade talks.  The two countries are scheduled to meet this week but on Monday the US Commerce Department added 28 Chinese companies to an export blacklist which will make an agreement all that much harder to achieve.

Economy

Last week’s all-important jobs report showed weaker than expected hiring.  Furthermore, a reading of service sector activity also showed weaker than anticipated results. Earlier today, the head of the International Monetary Fund warned that, “the global economy is now in a synchronized slowdown.

Bad news for the economy tends to be good news for mortgage rates.

Federal Reserve

We may learn more about the Fed’s economic outlook on Wednesday when the minutes from their last monetary policy meeting are released.  The financial markets currently think there is an 80% probability that the Fed will cut again at the next meeting scheduled for October 30th.

Outlook

The economic calendar is relatively light this week which means mortgage rates will likely respond to technical trading patterns and sentiment surrounding US-China trade relations.

Mortgage-backed bonds are currently trading at an important technical layer.  If bond prices can rally and close above this level then it would be a positive signal for rates.  However, if bonds sell-off then it’s likely rates will trend higher the remainder of the week.

Current Outlook: cautiously 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

Home price gains moderate while mortgage rates improve

Every Tuesday I try to explain what is happening in the financial markets that will impact mortgage rates.  The truth is sometimes I highlight factors that do influence interest rates and sometimes I don’t.  Sometimes mortgage rates fluctuate……just because.

Today is National Just Because Day so if there is something you’ve been wanting to do but never done it.  Well…. today is your day.

Mortgage Rates

Two weeks ago I highlighted the divide between fixed mortgage rates and the yield on the US 10-year treasury.  At that time the 10-year treasury yield had fallen by .40% while mortgage rates had only improved by .25%.

As I had expected and hoped, that spread tightened this week as mortgage rates have improved by ~.25% and the 10-year treasury yield has only improved by ~.125%.

Home Prices

The S&P Case Shiller Home Price Index report was released earlier today and showed that home price appreciation slowed in June to +3.1% nationwide (down from +3.4% the prior month).  In Portland home price gains remained at +2.4% year-over-year which is unchanged from the previous month.

Home Prices during recessions

As the US yield curve continues to invert the media is growing more focused on the possibility of a recession in 2020.  Some prospective home buyers are assuming that if a recession does take place that home prices will fall.

However, it’s important to note that prior to the most recent economic recession, which was primarily caused by speculation in housing, home prices in the Portland-metro region actually increased during economic slowdowns.

Therefore, if a consumer is planning to wait for home prices to drop they may be disappointed.

Outlook

The remainder of the economic calendar this week is light and we expect trading volumes to be low as we head into Labor Day weekend.  Momentum remains on our side so I will maintain a floating bias.

Current Outlook: floating bias

Mortgage rates slightly improved

Feeling busy and anxious about all the things you have to get done?

Just remember, “stressed” spelled backwards is “dessert” and today is National Vanilla Ice Cream Day!

Interest Rates

Home loan rates have improved modestly from last week.

Existing Home Sales

The National Association of Realtors released figures earlier today which showed that the number of existing home sales slid 2.2% in May compared to a year earlier.  Despite low mortgage rates and a strong labor market a lack of housing supply is causing the number of units sales to decline.

Home Prices

According to the aforementioned report the median home price in the US increased for the 88th consecutive month.  A median priced home increased by 4.3% compared to a year earlier and is at historic highs.

The Fed

The Fed is scheduled to meet next week and is widely expected to cut short-term interest rates.  The markets are currently predicting a .25% cut but some think the Fed may come up and slash rates by .50%.

This rate cut is already baked into the rates consumers see today.  As a reminder, the Fed does not directly set mortgage rates.

Outlook

From a technical perspective mortgage-backed bonds have some room to rally which would help interest rates improve.

The remainder of this week’s economic calendar is relatively quiet.

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

Rates modestly worse but long-term trend in tact

Congratulations to the US Women’s soccer team who capped a dominating performance on Sunday by winning the World Cup.  The US recorded 26 goals during their seven games in the World Cup and only gave up 3!

Interest Rates

Mortgage rates are modestly worse to start the week after the Bureau of Labor Statistics released a stronger than expected employment report on Friday.

Jobs Report

The all-important jobs report showed that 224,000 new jobs were created during the month of June and eased recession concerns.  Yields increased modestly following the release.

Home Loan Performance

A strong labor market and healthy home price appreciation is creating conditions for low delinquency.  CoreLogic’s monthly Home Loan Performance Insights Report was released earlier today and shows delinquency is currently at a 20-year low across the US!  It’s hard to imagine a housing crash is on the horizon given that statistic.

The Fed Speaks

Fed Chairman Jerome Powell is scheduled to speak Wednesday and Thursday this week.  The Fed’s Open Market Committee is scheduled to meet July 31st and there is currently only a 5% probability that the Fed will cut rates at that time (the markets assign a 60% chance of a cut at the Sept. 18th meeting).

The minutes from the last Fed meeting are also scheduled to be released on Wednesday.  Should his comments or the minutes alter the outlook for a rate cut it could cause some volatility in the financial markets.

The rest of the week

Aside from Fed speak we’ll be watching the Consumer Price Index scheduled for release on Thursday and the Producer Price Index on Friday.  Hotter than expected inflation could put upward pressure on rates.

The long-term trend remains in our favor so will remain in a floating stance.

Current Outlook: floating

US 10-year treasury note dips below 2.00%, mortgage rates improve

The fourth of July is right around the corner which means it’s time to start looking for the best place to buy fireworks.  Some people look for the lowest prices but as my friend Rob Chrisman advises the best fireworks can be found where the salesperson has three fingers and an eye patch.

Interest Rates

Interest rates around the globe continue to trend lower.  The yield on the US 10-year treasury note, which mortgage rates tend to track, has pierced below 2.00% for the first time since 2016.

What’s this mean for mortgage rates?

Home loan rates are currently at the lowest levels since 2017 based on the US 10-year treasury note hovering around 2.00%.  If the US 10-year treasury dips down to the lows of 2016 (~1.4%) then we could see mortgage rates improve by another .50%.

There is no guarantee that this will take place but momentum appears to be on our side.

Home Prices

The S&P CoreLogic Case-Shiller home price index for April was released earlier today and showed that home price appreciation nationwide was +2.5% year-over-year.  Here in Portland home prices grew by +2.6% which was unchanged from the month before.

I suspect home price appreciation may pick up a little in May and June given that interest rates have improved significantly since April.

The Week Ahead

Later today Fed Chairman Jerome Powell is scheduled to speak.

At the beginning of the year the financial markets were predicting the Fed would hike short-term interest rates twice during 2019.  Now expectations are that the Fed may cut rates twice.  Chairman Powell’s comments will be closely watched in the coming weeks.

On Thursday we’ll get the latest reading on pending home sales and ono Friday we’ll get the Fed’s favorite gauge of inflation (PCE).

Given that momentum is still on our side I will maintain a floating position.

Current Outlook: floating bias

Mortgage rates continue to move lower

Give a man a fish and he eats for a day.  Teach a man to fish and he will neglect his job and family thereafter.”- anonymous

Today is National Go Fishing Day!  As anglers take to the waterways mortgage rates are sinking!

Mortgage Rates

Mortgage rates continue to trend lower prompting many homeowners to evaluate their refinance options.  The Mortgage Bankers Association reported that refinance applications jumped 47% last week compared to the prior week.

European Interest Rates

Yields in the US are following European interest rates lower.  Concerned with declining economic growth European Central Bank President Mario Draghi stated earlier today that he is prepared to cut short-term interest rates and accelerate bond-buying programs with the hopes of driving interest rates down.

The yield on a German 10-year bund is currently negative .30%.  Comparatively the yield on a US 10-year treasury note is trading at ~+2.06%.

The Fed

The US central bank begins their regularly scheduled two-day monetary policy meeting today.  Tomorrow they will announce any changes to US short-term interest rates.  I don’t expect they will cut rates tomorrow but their comments could help mortgage rates improve further.

The Week Ahead

The weekly economic calendar is relatively light.  The highlights include the aforementioned Fed announcement (Wednesday) and Existing Home Sales (Friday).

Momentum is on our side which is why I shifted to a floating bias last week.  I will maintain that position.

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