This week’s trading was much tamer and equities rallied. There was not much price movement from the bond market as interest is already near-zero. The Fed announced it would purchase corporate bonds individually, something they had floated earlier this year. This has been common practice in Europe, but it is still an unprecedented activity by the Fed. Should the markets go south, The Fed will be buying equities. How this ends is anyone guess but by interfering in the markets, the Fed has created an environment where true price discovery on asset prices is becoming more and more difficult. The compression in yields is pushing investors into riskier asset classes. There’s an idea called the “wealth effect” in which a rising stock market would increase consumer spending in a virtuous cycle. With stocks elevated, this thesis may work if the economy can quickly rebound.
Housing starts were up which is a good sign. Home-related buying activities including home improvements has been a bright spot as well this year for the economy in general. As people have been forced to shelter in place, the home has become the central place where many people live, work, and share meals and family time in a way that we have never before been forced to. Home sales also appear to be on the uptick, especially in Southern California where our region is blessed with good weather, plentiful business opportunities, and the amenities of urban life.
Earlier in the week, there were some concerns about how the China-U.S. trading agreement was working and whether this agreement would sour and put additional pressure on the financial markets. Thankfully, China has kept its end of the bargain and that was well-received news Friday morning.
Banks remain very rigid overall, but there are some signs that things are improving on the loan deferment front. Mortgage brokers remain highly valuable in this fragmented market due to our ability to reach out to the lending marketplace on behalf of our clients. We’re seeing multiple loan scenarios offered that yield varying rates and terms from each lender. These resources benefit our clients. At Insignia Mortgage, we are grateful to have long-standing lending relationships with local lenders who are intimate with both self-employed borrowers and California real estate. This has allowed us to place successfully many loans for our clients during this difficult time.