Bonds continue to trade in a sideways trend as more positive news is circulating from the White House on a possible trade deal with China. it’s anyone’s guess how the protests in Hong Kong will ultimately affect those negotiations.
With a U.S. election less than a year away, and with the Chinese economy slowing, our thinking is that both sides need a deal.
With the near-term fear of a recession off the table, equities are trading well and were boosted on Friday by upbeat manufacturing data from the November readings. A strong holiday spending season is forecast, which will benefit the economy while consumers, who make up 70% of the U.S. economy, gear up for the biggest spending season of the year.
Mortgage rates remain appealing and potential borrowers should take advantage of this ongoing low rate environment. In a speech this week, the Fed resisted the idea of “negative rates” as an effective monetary policy. Negative rates in other countries with developed economies have seen mixed results. We have often questioned the rationale of lending out a $1 today to only receive 90 cents in the future.
With the 10-year Treasury under 1.75%, our advice remains to continue to lock-in interest rates at these near all-time lows.
The Goldilocks environment helping to fuel the rise in U.S. equities remains intact. Encouraged by an accommodative and responsive Fed, a healthy consumer, and tame inflation, the equities market grinds higher, even as some manufacturing data suggest the economy may worsen.
In other positive news, there was an announcement from the White House that “Phase One” of the China trade deal is close to being signed. Taking all of these signals into account, the threat of a recession has been removed in the near-term horizon. In fact, should equities continue to shine, bond yields may very well rise as we head into the holiday season. The consumer feels good and is spending.
Interest rates remain at near historic lows, supporting our thesis that mortgage rates should be locked at these levels. For anyone who has monitored the markets over the long-term, a 10-year Treasury yield under 2.000% is essentially free money in real terms, once inflation is factored in. Jumbo mortgage rates, which price off of the 10-year Treasury, continue to offer borrowers attractive rates even as the economy points to continued growth.
Interest rates have been on a tear as of late with the 10-year Treasury note moving almost 50 basis points over the last several weeks. The move up in interest rates is due to both domestic and global influences.
Domestically, the job picture and consumer confidence remain strong, and some manufacturing indexes have picked up as of late removing the fears of a near term recession. Also, the Fed has been very responsive to the markets call for lower short term interest rates and their actions have steepened the yield curve. The stock market hasn’t helped the cause for lower rates as the “risk-on” trade has been in full bloom. Rounding out the case for higher interest rates is a positive commentary on phase 1 of the U.S.-China trade deal.
Globally, bonds have also risen as we’ve seen better-than-expected economic data out of Europe and prominent economists have opined that negative rates may be doing more harm than good. These factors have pushed yields higher.
Don’t be too alarmed as we don’t foresee interest rates running away from current levels with inflation readings still running under 2.00%. However, as we stated previously, our belief is that positive news on the economy could pull the 10-year Treasury to around 2.00%.
Mortgage applications have stalled due to interest rates moving higher. The low rate environment has put a floor on prices for sellers. Now with rates moving up, the question is how higher interest rates will affect home purchases in the coming months. Despite these trends, mortgage rates remain at very attractive levels, and we continue to advise locking-in.
In addition, we are adding a new program to our mix: bank statement loans starting at 4.25% for a 30-year fixed mortgage up to $3 million. Keep an eye out on our rates page for those details, or give us a call!
Insignia Mortgage’s co-founder and principal, Damon Germanides was recently interviewed by The Scotsman Guide’s chief reporter, Arnie Aurellano, to talk about how he became one of the country’s top loan originators. Damon reveals that working at his family’s beloved West Hollywood restaurant gave him the work ethic that underlies his success and fueled his entrepreneurial spirit.
Read the full Scotsman Guide interview.
A better-than-expected October Jobs Report capped off a robust week of economic news.
Positive earnings from America’s best companies for the third quarter reconfirmed that the U.S. economy remains the envy of the developed world and has the resilience to adjust to a difficult trading environment with China.
On Wednesday, the Fed lowered short-term interest rates in what may be the last of rate cuts for a while. However, the Fed’s actions the past few months have steepened the yield curve and pushed financing costs lower, helping to keep the ball rolling on economic expansion. While business investments are slowing, the job market and consumer confidence readings remain strong, and housing remains a tailwind for growth.
Across the pond, the fear of a chaotic October 31st Brexit was put to rest as well, at least for now. This is all positive for the market and potentially bad for bonds.
Capping off the week, the September Jobs Report was solid and better than expected with positive revisions to both August and September. The unemployment rate was a tick higher, up to 3.60% from 3.500%, wage inflation clocked in at 3% annually, and the Labor Force Participation Rate (LFPR) moved higher. In summary, it was a very good jobs picture for the U.S.
With so much good news to share, interest rates have been moving moderately higher, as predicted. Personally, we see no recession and can easily see the 10-year Treasury moving back up to near 2.000% given all the positive economic data recently released. Mortgage rates have been on the move as well. We continue to advise that locking-in rates at these levels is prudent, especially with interest rates still near historic lows.
Home Value: $5.2 MM
LTV: 70% LTV
Loan: 1st TD of $3.64 M
Terms: 5/1 ARM 5.25%
Challenge: The borrower was looking for a common-sense loan program to pay-off an IRS tax lien and replenish cash reserves. Due to inconsistent cash flow, Insignia Mortgage located a lender willing to offer competitive terms on a large cash-out refi. Closed in under 35 days.
Purchase Price: $6.375 MM
LTV: 70% LTV / 80% CLTV
Loan: 1st TD of $4.46 MM/ LOC of $500,000
Terms: 5/1 ARM 3.625% / Business Line of Credit 6.50%
Challenge: The borrower was earning a large income as a newly minted physician in private practice and had been turned down by a big money center bank. The borrower was looking for a solution that required a lender to be comfortable with a large jump in provable income, with only a 20% down payment on a $6 MM+ purchase.
Purchase Price: $7.5 MM
LTV: 10% Down Payment Cross-Collateralized Loan
Loan: $6.75 MM
Terms: 1st TD 5/1 ARM IO @4.00%
Challenge: The borrowers required a quick closing and needed a cross-collateralization loan to help with down-payment. Insignia Mortgage was able to locate worked with a lender comfortable with offering financing even with a limited cash-down payment, as well as the borrowers’ complex entity ownership structure. The loan closed in 30 days.
LTV: 70%, $4MM
Terms: 1st 5/1 ARM @ 4.50%
Challenge: The borrower was encumbered by the IRS and wanted to take cash out of his primary residence to pay-off the IRS tax lien. The borrower required a bank statement program due to his tax returns not being filed for the current tax year. Insignia Mortgage was able to get the lender comfortable with the borrower’s business cash flow through an in-depth analysis of the business bank statements. The IRS was paid in full through the loan proceeds.
Valuation: $12 MM
Loan: $5.1 MM
Terms: 1st 5/1 ARM @3.25%
Challenge: The borrowers needed cash-out quickly to participate in a private placement in public equity. The borrowers only had 3 weeks to come up with the funds to close on the investment. Insignia Mortgage was able to work with the borrower and their CPA to structure this complex refinance and quickly obtain loan approval. The property was owned in two separate irrevocable trusts which added an additional layer of complexity to the transaction. The lender agreed to move forward after reviewing the file with their legal team and also to close the loan within 14 days and approved $5 million in cash-out proceeds.