The equity markets surged this week after Pfizer announced a high efficacy rate for its Covid-19 vaccine. Bond yields steepened in what some are saying is a welcomed sign of an improving world. However, the virus is surging and while there are long-term solutions coming into focus on how to treat this virus, the developed nations could be in for a very tough winter. These beliefs were echoed by the Fed as well. With the presidential race looking settled, the focus should resume on how to help mainstream. Business owners in certain segments need the financial help to bridge the gap from shutdown to full re-opening and that help can only come from fiscal stimulus. We hope it does as the country has so many wonderful entrepreneurs that are taking the brunt of this pandemic induced recession. 

Some positives for the economy include a slowdown in unemployment claims, albeit at a slower pace, some improvements in manufacturing data, and an unbelievability strong housing market. However, consumer sentiment fell, probably due to the combination of a very tense political environment during the pandemic. Also, creating some concerns are threats of statewide or national shutdowns. There are varying opinions on whether a full shutdown is advisable. We think that full lockdowns create more harm than good. 

While house prices appreciate across the country, the commercial sector will see some real challenges as tenant and landlord lease negotiations and workouts begin. Cap rates will need to move higher to attract investment as technology has disrupted the manner in which many of us work. The flexibility to be able to work from home and go into the office on a less rigid schedule will be a boon for housing for some time, especially in more affordable suburban areas. A move lower in interest rates from 4% to 2.75% increases affordability greatly. Borrowers’ affordability opens up more housing options, especially outside of crowded urban areas. Low interest rates also allow borrowers to recapitalize their balance sheets by lowering interest payments and freeing up money for other purchases. This will set up nicely for when a post-Covid world emerges as vaccines become widespread, treatment improves, and cases taper off.

In what was an action-packed week, equities enjoyed a boost higher and bond yields dipped lower. The markets seem to respond positively to political gridlock, with the presidency and the House going to the Democrats versus a Republican Senate. As of this writing, the election outcomes are still not 100% confirmed.

While the country (and the world) fixated on the outcome of the presidential elections, a respectable October jobs report escaped major notice. The economy continues to rebound from the Covid-19 induced shutdowns. At the same time, the pace of job gains is slowing, which rings a few potential alarm bells. Hopefully, once the presidential election is in the rearview mirror, Congress can come together and provide a stimulus bill to keep companies and individuals afloat during what we predict will be a challenging autumn and winter season. Social distancing will continue to affect travel, entertainment, restaurants, gyms, schools, offices, business districts, and so on, for the foreseeable future. Widespread availability and adoption of an approved vaccine is the resolution we’re waiting for and that’s still a way off.

Housing on the other hand remains on a tear. The combination of low interest rates and high demand has kept lenders very busy. Low rates have been a boon to both corporations and individuals who have been able to use cheap funding to either purchase new assets or refinance existing ones. The biggest benefactor of these low-interest rates has been asset-light equities and the high-end housing market.

Our suite of lenders remains very motivated to make responsible loans to our borrowers but is also sympathetic to the fact that the 2nd quarter of 2020 was very rough on many businesses. With housing values holding steady and many self-employed borrowers making adjustments to their businesses, loans are getting approved and deals continue to close. 

Equities sold off hard this week, even against the backdrop of a strong bounce-back 3rd quarter GDP reading, better-than-expected consumer spending, and strong earnings from tech giants such as Microsoft and Google. Increased global Covid-19 cases and the fear of shutdowns in Europe were partly to blame, as well as a failure by Congress to pass a stimulus bill. Next week looks to be a wild week in the markets with the looming U.S presidential election, Fed statements, and the October jobs report. Any of these factors, just by itself, can move the markets in a big way. 

Interest rates continued to move higher but still remain at attractive levels.  Given the tremendous volatility in equities, it may be construed as a good sign that bond yields did not plummet. Perhaps (and hopefully), bond traders are expecting some inflation, more government stimulus, and a return to some normalcy within the next year or so. Interest rates going to zero is generally a negative indicator, so we are mildly encouraged by rates moving up a bit.  

Home sales remain strong with existing home sales blowing past estimates. Home supply is tight, spurred on by high demand from people wanting a home or a home in a less urban area amidst viral threats. All things home related have been a big boost to the U.S. economy. Low-interest rates have incentivized refinance and purchase money transactions. Volume continues to be heavy and high-quality properties tend to receive multiple offers. Even though we’ve been seeing an uptick in business, we have an efficient process in place to help all new clients.

The Treasury yield curve has steepened recently as various factors have pushed out longer-dated Treasuries (hopes of a vaccine, improving jobs data, and signs of inflation, e.g. copper prices). It’s not all bad news as higher rates suggest the economy may be improving and more stimulus may be on the way. The Fed has already been clear about letting inflation run above the 2% target. Should inflation and or interest rates move up too far expect the Fed to implement yield control measures to push longer-dated Treasury yields below 1%.  

Housing has been on an absolute tear as both new and existing home sales constrain supply. Normally, you’d think a large ticket item such as buying a house during a global pandemic would be counterintuitive, but it appears that Covid-19 has nudged fence-sitters into action. Low-interest rates have definitely been helping this trend, with rates below 3%. Rates as low as 2% for high net worth borrowers are readily available. Big business has also benefited from the low rate environment, especially companies that can access the public debt markets. By lowering the cost of debt, companies will allocate debt service funds on innovation or share buybacks once Covid-19 is in the rearview mirror.  

Insignia’s funding sources remain fairly optimistic as borrowers have been able to rebound from the gut-punch they took in March. Our lenders continue to work with our borrowers on loan approvals and fast closings for purchases. More opaque products such as interest-only loans, investment property loans, and loans for foreign nationals are also available. The rate for these products begins in the low 3% range and moves up from there.  

The pandemic continues to present health and economic challenges across the globe, making the market a challenge to navigate. While the concerns are real, the U.S. economy continues to bounce back. Unemployment remains elevated but it has improved a great deal from the March lows. Positive reports this week on manufacturing, retail spending, and savings are all good news for the economy as we head into the holiday season. Homeownership remains on a tear, especially in the suburbs. It will be interesting to see how urban life is re-defined as working from home becomes the new normal, and whether this trend sticks post-Covid.

Rates will be low for some time. While it is hard to see rates go much lower, it’s possible that interest rates could dip even further. Covid-19 infections are on the rise in Europe and the U.S. and that could play a role. However, the odds seem in favor of a gradual rise in interest rates over time as we all adjust to the current environment.

Both the bond and equity markets are focused on whether Congress and the White House can agree on a much-needed additional stimulus package. Many businesses are suffering, as are all the employees in public-facing businesses such as restaurants, hotels, entertainment, and travel. Every day we hear of more companies laying off employees. The stimulus will help Americans get to the other side of the pandemic. On the other hand, the pandemic has propelled innovations in new ways to work, which may lead to more efficient business models going forward. 

Housing remains on a tear as people exit big cities for less population-dense zones such as suburbs and more rural areas. Super-low interest rates have driven high demand and mortgage activity. However, the 10-year U.S. treasury bond has been rising, approaching .80%. Market trends are impossible to predict due to the many variables at play. The biggest unknown is the intensity and impact of Covid-19 surges this fall. 

In the California luxury market, high-end inventory is scarce as the market remains very active, pushing prices upward. We continue to work with our lender-partners to help our clients take advantage of these incredibly low-interest rates on new mortgages and refinances.

The markets began Friday morning trading down as the president and the first lady tested positive for Covid-19 which reminded all of us how contagious this disease is. However, by mid-day, stocks recovered much of their losses as Congress confirmed additional stimulus for the economy in the face of a potential second wave of infection, presenting a challenge to economic recovery. The September jobs report was disappointing. The unemployment rate fell to 7.90% from 8.40%. Jobs may have recovered off of their April lows, but the stall is affected by a global economy that is not fully reopened. Many industries are still not operational, or if they are, at very reduced levels.  

Housing remains one of the great positives during this pandemic as potential buyers flee the big cities for the suburbs. People who can afford to be a homeowner are going for it. Mortgage rates at all-time lows are serving as an economic stimulus since reduced payments leave more money in the pockets of homeowners, freeing up dollars for more discretionary spending.

Here at Insignia Mortgage, we continue to see unprecedented demand for residential, bridge, and commercial real estate financing. Fortunately, our suite of lenders has healthy balance sheets, are mostly local and portfolio lenders, and are working closely with our team to help our clients with their real estate financing needs.

Interest rates remain low and may go lower as volatility picks up in the equity market. Some of the reasons of this down market includes a very tense upcoming presidential election, a slowing recovery, high unemployment, and a global uptick in Covid-19 cases, just to name the biggest factors. These concerns should benefit bonds near-term. However, there are some positives as the economy has recovered from the March lows. There has been a spark of innovation due to the pandemic and business data indicates that durable goods sales have picked up. There are also some rumblings that Congress is working on additional stimulus relief packages.

The mortgage environment remains very busy as many borrowers are looking for new homes outside of city centers. Many are also seeking to refinance their existing mortgages at these all-time low-interest rates. Banks continue to underwrite applications vigorously while ensuring that the borrowers they qualify will be able to repay their mortgages. Banks share the concern that as COVID cases continue to spike upward, we may face more shutdowns, as the UK has recently enacted. Keep an eye on weekly unemployment claims, which just moved up, as a sign of where the economy is headed.   

The August jobs report continued to show progress as non-farm payroll employment increased by 1.371 million as the unemployment rate fell to 8.40%. Prior to the COVID-19 outbreak, the unemployment rate was 3.50%. While the jobs picture has improved a great deal from the April high of 14.70%, we still have a long way to go. Also, these numbers don’t take into consideration white-collar workers who have taken pay cuts or whose bonus structure has been adjusted downwards. These high-income earners account for a lot more consumption so it will be interesting to see how consumption looks for the biggest buyers of goods and services in the coming months as the pandemic continues to limit economic activity. Also, the pace of employment gains appears to be slowing as the U.S. heads into the fall and winter months. How the virus reacts to cooler weather is weighing on all of us.  

Treasury and mortgage bond yields traded higher on good, but not great, jobs data. What’s ironic about the move up in interest rates today is that the equity markets are experiencing the heaviest selling pressure since June which typically pushes bond yields lower. With Central Banks printing literally trillions of dollars in currency, the fear is that inflation will finally arrive as evidenced by the hint of upward-moving hourly earnings data which came in well above expectations. This fear seems to be of bigger concern than the recent market volatility. Also, the concentration in mega-tech stocks is where a lot of the carnage is being felt as momentum stocks give up gains, and valuation and fundamentals are being discussed as the reason to buy stocks. Only time will tell if the market is moving past momentum trading. The gains in the tech sector specifically have been positive for those investors who were invested in this sector and have helped increase net worth and consumer confidence.  

In mortgage news, our local-based banks and credit unions continue to offer a wonderful combination of intelligent underwriting and very fair pricing. Purchase transactions are being reviewed quickly and the Southern California housing market is very healthy. Insignia Mortgage continues to offer unique products to help our wide swath of borrowers obtain financing.