Market Commentary 06/28/24, Market Commentary 06/28/2024

Market Commentary 06/28/2024

Reduced Rates On The Horizon As Housing Data Drifts Lower

Economic Data and Mortgage Lending Trends

Employers and economists alike continue to be challenged by the mixed bag of data presented by the economic landscape. Although a key inflation indicator emerged lower than expected, supporting the Fed’s belief that inflation is cooling, other reports like home sales, personal spending, and jobless claims have disappointed. Additionally, corporate earnings showed weakness, most evidenced by Nike’s significant miss. On top of that, declining furniture purchases underscore the ongoing difficulties of homeownership. The adage “as goes housing, so goes the economy” seems more relevant than ever.

The Fed faces a tough balancing act given the cumulative rise in costs for food, insurance, healthcare, and energy. The most vulnerable populations are suffering the brunt of these inflationary pressures. Lowering rates could help consumers but may also risk reaccelerating inflation, further impacting marginalized groups.

In the mortgage lending space, opportunities remain limited due to slowing sales and reduced refinancing activity. In response, banks, credit unions, and debt funds are sharpening their pencils on interest rates, specifically on residential 1-4 unit properties. Notably, Insignia Mortgage has identified a local lender offering stated income-stated asset home equity lines of credit. This lender focuses on credit scores and home values, with a maximum loan amount of $500,000 and combined loans on the property not exceeding 60%. The rate is prime +0.5%, offering a quick way to pay down credit cards and other expensive debt.

Indicators for Mortgage Rate Trends

Monitoring oil prices and the 2- and 10-year Treasuries provides insights into mortgage rate trends. Oil prices and interest rates are closely correlated, moving in tandem. The 2-year Treasury is a good proxy for shorter-term jumbo ARM pricing, such as 5-year ARMs, while the 10-year Treasury serves as a proxy for jumbo 10-year ARMs. Recently, with the 10-year Treasury down about 35 basis points, many jumbo lenders have lowered rates on their 7- and 10-year ARM products by about 25 basis points, offering a reliable estimate of rate direction and potential decreases.

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These are the opinions of the author. For financial advice, please talk to your CPA or financial professional.