Market Commentary 11/19/21

Renewed COVID-related lockdowns in Europe are providing a tailwind for U.S. bonds as equities are trading down in the news. Further supporting lower bond yields is poor consumer sentiment and a weak Labor Participation Rate.  With 70% of the U.S. economy driven by consumption, there is a growing feeling that the economy may have peaked.  With winter approaching and COVID cases rising in Europe and in parts of the U.S., the Fed may not need to raise short-term rates as we previously believed. It is important to remember that the markets are dynamic and that the pandemic can quickly change sentiment, economic output, and overall confidence by consumers and business owners.

The counterargument for higher yields is that the COVID-related supply disruptions and behavioral changes have created rampant inflation with too much demand chasing limited goods.  Fiscal and monetary stimulus are just exacerbating the issue as more money floods into the system, costs of goods and devices will keep going up. Inflation is a problem for many working-class Americans as food, gas, and shelter costs have risen. Next week the Fed’s favorite reading on inflation, core PCE, will be released and closely read by bond traders and economists. 

It would be wise to take advantage of this dip in interest rates. With inflation running well above 4%, locking in a rate lower than inflation is a great example of positive leverage while locking in a real negative rate. 

07_17_2020_blog

Market Commentary 7/17/20

In the U.S. this week, bond yields slid as a rise in coronavirus infections picked up. Weekly unemployment claims moved higher which also pushed bond yields down as economists view higher claims as a sign that the economic recovery may be losing stream. Many states shut down certain public-facing businesses in response. Small businesses are already suffering and more stimulus will be needed in order to avoid mass unemployment.


Banks’ earnings, which are being looked at closely as a sign of things to come, were mixed with those banks with substantial institutional trading departments reported strong earnings while more traditional lenders such as Wells Fargo reported poor to negative earnings. All banks are reserving more for loan loss provisions, however, there is no consensus yet as to whether the worst is behind us. A V-shaped recovery seems like a long shot, but equities continue to trade under that assumption for the moment. Bond yields support a more prolonged recovery.


Despite all this sour news, some hopeful green shoots have emerged as consumer spending has picked up and housing starts surged. In another positive sign of an improving residential mortgage market, Insignia Mortgage has been seeing some options return to the jumbo lending marketplace, including non-QM lenders with loan programs such as self-employed bank statements and one-year tax return options. 

07_10_2020_blog

Market Commentary 7/10/20

It’s a tale of two worlds as money on Wall Street floods into COVID-19-resistant sectors such as technology and biotech while Main Street struggles and many retail and public-facing businesses face hard times and tough decisions. With many cities and states scaling back on the re-opening of the economy as COVID-19 cases surge, it is becoming harder to imagine a V-shape economic recovery. Even amongst the backdrop of all the political bickering, more stimulus out of Washington seems baked-in, especially for the hardest-hit industries such as restaurants, fitness, airlines, and hotels, all of which employ a significant amount of folks, and they may be asked to close their doors again. Some positive news from Pfizer and Gilead on treatments to combat the virus is encouraging, but even if these treatments prove to be effective, getting these treatments out to our citizens and the 4 billion global population will be a herculean task. 

With little to no inflation and unemployment rates in the teens, interest rates are going nowhere for a while. It is interesting to see gold run above $1,800 per ounce. With global coordinated central bank stimulus packages in the trillions (and rising), there will be a day of reckoning one day in the future, and inflating dollars to pay a historical debt is one way out of this catastrophe. So it’s not surprising to see the rise in gold as a store of real value. Rising inflation is probably years away, but if and when inflation hits, watch out. 

Speaking of hard assets and inflation, residential real estate made a strong comeback after the initial shutdown. Home sales are on the rise and banks are flooded with loan applications. We at Insignia Mortgage are seeing tremendous demand for jumbo mortgage product as non-QM loans return and as our portfolio of lenders continue to work hard to approve loans during this difficult time. We continue to have access to lenders who do not require a banking relationship from customers and who are offering purchase-money loans with as little as 10% down up to $1.5 million, interest-only loans, unrestricted amounts of cash-out, and attractive interest rates, and terms for investment property transactions. 

07_03_2020_blog

Market Commentary 7/2/20

A strong June jobs report pushed equities higher on a shortened trading week. While the economy is still so fragile, back-to-back better-than-expected jobs reports support the premise that quite possibly the worst is behind us on Covid-19. However, new cases have been spiking which is worrisome. The next few weeks will be key as fresh data is released on infection rates, hospitalizations, and deaths. 

If you think of the stock market as a voting machine, the rally higher in stocks and less volatility in the bond market is telling us things are really improving. Yet many customer-facing businesses (retail, restaurants, services) are struggling. Meanwhile, the tech sector rallies based on the explosive growth of services that affect the new normal in the work-from-home economy. How these tech services help or the nearly 20 million unemployed find new opportunities is not yet clear, but never underestimate U.S. innovation and resilience. Pfizer released some very promising Covid-19 vaccination data. It is still early but should a treatment(s) become a reality, all markets (stocks and bonds) would breathe a sigh of relief and economic productivity would surge. 

With the jobs picture improving, the new and resale housing market has improved as well. Supply remains a big issue, especially in tight markets like California. Interest rates are very attractive and the need for more space at home supports a stable housing market and perhaps even one that moves higher in price in certain pockets.  

Local banks and credit unions appear to be picking up the loans the large money center banks simply don’t want to deal with or lack the capacity to close on time. Insignia Mortgage continues to close purchase loans on time and with very attractive rates and terms. Cash-outs without restrictions, interest-only loans, and investment property loans are all readily available through our lending sources. 

06_26_2020_blog

Market Commentary 6/26/20

Major U.S. indexes fell this week as Covid-19 cases surged, putting the economic re-openings at risk. The resurgence of Covid-19 overshadowed what had been positive consumer-related data this week. Consumer spending, which had been on the upswing, slowed down. The notion of a quick recovery is unclear and the rise in infection rates suggest the recovery will be choppy.  Should the economy stall, we fully expect there will be more Fed stimulus and lending programs to help individuals and businesses get to the other side.  

Home buying and mortgage applications, at least in Southern California, have seen a major uptick. We are encouraged by this activity. Housing has been sheltered from this pandemic and is in a much better place than other real estate sectors, such as commercial properties and retail. Our L.A. office has been receiving a surge in applications as borrowers’ businesses recover and interest rates remain at historical lows. While we don’t expect rates to go too much lower, if equity volatility continues to increase, we may see rates drop. 

06_12_2020_blog

Market Commentary 6/12/20

Stocks sold off hard this week following a strong rally last week which had been ignited by a better than expected May jobs report. Thursday of this week (June 11, 2020) was a risk-off day that shook the equity markets as the market digested sobering comments by the Fed chair regarding the economic recovery combined with regional upticks in Covid-19 infection rates. Yet there is a positive takeaway in yesterday’s brutal pull-back. After a dramatic rise over the past several weeks in stocks, sharp sell-offs washed out speculators and may help prevent a bubble. Lately, there has been a lot of chatter about speculators profiting by betting on de facto bankrupt companies whose prices in some instances have surged more than 100% in a single day.  

Friday morning provided some relief to equities with a partial rebound. This is a welcome sign that Thursday’s sell-off was not the beginning of a deep sell-off. Treasury and mortgage rates fell as money moved into the safe haven of government-guaranteed bonds. The Fed’s stimulus operations will continue indefinitely which will keep interest rates very low and will also entice investors into more risky assets such as stocks, high yielding debt, and real estate. 

The Fed is committed to propping up the markets as we work through the process of getting our economy back on track. No doubt this will take time but there are some encouraging signs of a nascent economic recovery. However, the economy remains very fragile.

Currently, mortgage rates are low and may go lower. Lenders are slowly gaining the confidence underwriting files a bit more generously. Housing supply is in our main market, Southern California, and buyers are re-entering the market. These are all welcome signs that the worst may be behind us. Continue to expect mortgage rates to be priced favorably, especially on higher loan-to-value loan transactions, but perhaps not quite as well one would expect. Once banks have a better handle on the direction of deferred payment, we believe pricing overall will improve even further. Keep an eye on infection rates, manufacturing data, and consumer confidence. If these data points move favorably, interest rates on mortgages will price sharper in the coming months.      

05_29_2020_blog

Market Commentary 5/29/20

Core inflation is non-existent in the U.S. and for the moment presents no challenges to the Fed.There’s a massive stimulus being pushed out to the debt and equity markets as well as to Main street in response to Covid-19’s biologic shock translating into an economic one.

On Friday, Fed chair Powell reiterated a by-any-means-necessary attitude to support the economy in the event of the second wave of virus-related economic setbacks. Later in the day, the equity markets responded with relief to President Trump leaving the U.S.-China trade deal untouched.

Mortgage rates have remained flat even after Core PCE fell to less than 1%. While we believe mortgage rates will move lower later in the year, we still believe that banks are keeping interest rates padded above their corresponding benchmark U.S. treasury yields while simultaneously keeping an eye out for easing loan deferments and reduced unemployment. 

Americans’ savings continue to increase due to a combination of government assistance and sheltering in place. Evidence is mounting that consumption will rebound as life begins to return to normal. Traffic to websites such as Zillow has surged as prospective home buyers are researching potential new homes. Also, the stay-at-home orders have prompted people to re-evaluate their current housing situations. As a result, many families are deciding that it is time to look for a new home or upgrade their current home. 

In closing, Insignia Mortgage’s brokers are encouraged by the increase of purchase activity in the last few weeks. The coronavirus situation has temporarily stalled action in the real estate market, boosting supply. Buyers are definitely taking advantage of this situation and benefitting from historically low mortgage rates, which make housing payments very manageable.

05_22_2020_blog

Market Commentary 5/22/20

The U.S. economy is slowly reopening, a welcome sign to our small business owners. Social distancing will keep customer-facing businesses operating well below capacity. However, it is important that businesses open before too much time passes and customer habits change for good, and employees move on. Policymakers will be looking to balance the threat of the disease against the risk of long-term structural economic destruction as our country tries to normalize. It will be interesting to see how consumers respond to the re-opening of malls, restaurants, and other communal businesses.  So much remains to be seen. We hope only for the best. 

The weekly unemployment numbers continue to increase, but at a slower pace and within the range of economists’ expectations. Lower-paying, customer-facing jobs have been most affected. The government response to this crisis, while far from perfect, has been effective at getting money to those who needed it most. The government is expected to take some hit on the PPP loans and other disaster relief programs but those programs are providing a lifeline to small businesses. The Federal Reserve back-stopped the entire bond market preventing a total collapse in both the equity and debt markets. If the Treasury and Fed had not worked as quickly as they did, things would be much worse at the moment. While there is still a tremendous risk to so many business owners, and there’s a long road to recovery ahead, never underestimate American entrepreneurship and innovation.  

How the housing market will be affected by the pandemic over a longer period of time remains to be seen, but there are signs that some consumer behavior will begin to normalize. There is certainly pent up demand for many products which is encouraging for the housing market, and our consumer-led economy. Low interest rates (which may even go lower assuming a successful re-opening of the economy) should act as a tonic to both the purchase and refinance market.  Home supply remains constrained and the warmer weather of late spring and summer should act as a tailwind for people looking to buy homes as studies suggest coronavirus appears to be less virulent in the warmer weather.

Insignia Mortgage remains committed to helping clients access attractive financing. Our lenders continue to make common-sense decisions and offer out of the box solutions with very attractive interest rates and terms.

05_15_2020_blog

Market Commentary 5/15/20

In another dismal week of economic data, equity volatility increased while bonds closed the week out the week essentially unchanged. Further adding to the horrible economic news, U.S. and China tensions increased as well as the U.S. is set to impose restrictions against Huawei Technologies.

Fed chairman Powell spooked markets this week with his comments calling for more federal financial support or risk long-term damage to the U.S. economy. Truthfully, no one knows how the economy will re-open and we need to support our citizens with both monetary and fiscal stimulus to avoid small business owners sinking to a point of no return. Federal support along with congressional bipartisanship is needed as businesses many businesses will need the lifeline of the government to be in order to hang on long enough to gradually reopen during the coming months.  

On the residential lending front, we are starting to see a little bit more optimism as some lenders begin to loosen up Covid-19 related guideline overlays. This is welcome news as we are also seeing a slight uptick in new purchase inquiries in what is normally the busiest home-buying season of the year. Some lenders have lowered interest rates and expanded loan-to-value guidelines in a bid to grab market share. Overall, the lending landscape remains tough to navigate, but transactions are closing, and that’s a win in this otherwise challenging moment.

05_08_2020_blog

Market Commentary 5/8/20

The April jobs report was the worst on record with over 20 million of the U.S. workforce currently unemployed. Our hearts go out to each and every person who has lost their job as a result of Covid-19. However, the U.S. equities market is trading up today, so we ask ourselves, “what gives?” Perhaps the market is telling us the worst is behind us. We sure hope so, but we still believe there will be a tough road ahead as our governors and mayors slowly begin to re-open up the economy.

Interest rates remain pegged near zero on U.S. T-Bills and the 10-year U.S. Treasury bond has traded within a tight range over the last couple of weeks as volatility has subsided. However, mortgage rates have untethered from the U.S. Treasury rates as banks have raised interest rates and tightened guidelines, understandably. We expect mortgage rates to trade better if and when the U.S. economy can re-open without significant spikes in Covid-19 infections. 

Commercial lending, including multi-family, so far has been hit the hardest due to so many tenants or renters unable to pay their rent. Despite this, we are starting to see some relief as lenders slowly re-enter the market. Expect several months of payment reserves as part of the loan request, also known as an interest reserve, and reduced loan-to-values and risk-based pricing.

On the residential lending front, there has been no better time in my career to be a mortgage broker. Insignia Mortgage’s many long-term relationships are paying off as we are customizing loans for our clients day in and day out. Our suite of lenders all have different risk appetites, so having optionality and pricing power with different lenders has resulted in our ability to place loans that other large money center banks have declined. 

We continue to offer the loans for the following scenarios with very fair rates and terms:

  • Interest-only purchase loans, refinances, and cash-out loans for primary residences, second homes, and investment properties.
  • Non-occupant co-borrowers.
  • Foreign national loans.
  • Cross-collateralized loans and Asset consumption loans.
  • 1031 exchanges and loan structure with LLC, LP, or corporation as borrowers.