Tag: jobs report

Market Commentary 10/18/2024

Posted on by Damon Germanides

Mortgage Rates Higher As Economy Continues To Grow

Interest rates have settled in the 4%–4.10% range on the 10-year Treasury, as the economy continues to show steady momentum. Housing starts met expectations with a consistent pace in single-family homes and a decline in multi-family, while the market absorbs the significant supply that recently came online. The consumer remains resilient as the cumulative effects of inflation continue to be a pain point. Nonetheless, the US stock market continues an upward trend, seemingly unaffected by talk of slower Fed rate cuts, rising oil prices, and ongoing geopolitical concerns. Mortgage applications have decreased as the base rate for 30-year conforming mortgages has climbed back into the mid-6% range, amidst the rise in interest rates.

In mature markets like Los Angeles, which depend on existing home sales, there has been a noticeable slowdown since the mid-summer uptick. The luxury market is facing adjustments, with many high-end properties sitting on the market. As interest rates rise, sellers may feel increased pressure to lower prices. Regardless, there is a significant number of buyers waiting for a price correction to offset the higher financing costs and secure a better deal. We anticipate many potential buyers are waiting for the outcome of the upcoming election, which is now less than three weeks away.

While the recent spike in rates may cause hesitation, Insignia Mortgage is here to guide you through these market changes. Our high-end, non-QM lending solutions have been curated to meet to your specific needs. Case in point, some of our team’s most recent loan successes include 2 week closings and 98% LTVs. 

Market Commentary 9/20/2024

Posted on by Damon Germanides

How Low Will The Fed Go?

Recent Conversations on Rate Movements

Mortgage rates have been trending lower in anticipation of a potential Fed cut. The implications of recent interest rate movements have been the focal point of recent discussions between Insignia Mortgage and our network of clients, real estate brokers, and bankers. Of critical concern is the actual short-term rate cut at the Fed’s forward guidance, commonly referred to as the “Dot Plot.” This guidance signals what Chairman Powell described as a “recalibration” of interest rates, with the median Fed Funds rate projected to decline to 3.375% by the end of 2025, down from 4.75% today.

Why the 50 Basis Point Cut?

The Fed’s dual mandate is a delicate balancing act to maintain stable prices and robust employment. With signs of a softening labor market, the Fed has determined that lowering rates is necessary to realign the economic environment. Prior to the meeting, there was significant debate over whether the cut should be 25 or 50 basis points. Supporters of the 50 basis point cut argued that a slowing economy warranted more aggressive action, while proponents of a smaller 25 basis point cut highlighted factors such as record-high stock market levels, persistent inflation, ample liquidity, and a still-healthy 4.2% unemployment rate.

A 50 basis point cut is uncommon, and as this decision takes hold, some are questioning what specific data may have driven the Fed to take this larger step. The issue is whether the Fed sees economic weaknesses that the broader market may not yet fully grasp. The economic data remains mixed, with some indicators surpassing expectations while others underperform. Be reminded should inflation pick up, the Fed will be quick to respond, especially if the markets overshoot on rate expectations and animal spirits take hold.

Impact on Mortgage Rates

As anticipated, interest rates have been trending down ahead of the Fed’s decision and mortgage rates have benefited. Currently, mortgage rates hover between 5% and 6%, with some high-net-worth clients securing rates below this range. Lower rates could stimulate homebuyer activity and potentially motivate sellers, many of whom have held off due to high financing costs, to finally list their properties. This would provide much-needed relief to the housing market, which has been constrained by limited supply, high prices, and elevated interest rates. After nearly two years of multi-decade highs in mortgage rates, this drop offers welcomed relief to both the residential and commercial real estate sectors—industries that are highly sensitive to rate fluctuations.

How Low Could Rates Go?

Looking ahead, mortgage rates may settle between 4.5% and 6.5%, depending on the length of the fixed-rate period. Borrowers seeking short-term floating or adjustable-rate mortgages could see rates below 5% in the coming months as the Fed continues to ease short-term rates. However, several headwinds could keep long-term rates higher than some might hope. These include a growing federal deficit, the substantial government debt burden, large-scale financial commitments to green the economy, and the significant investments needed for businesses to adopt and integrate artificial intelligence to remain competitive.

l956oPsq6sN6Sz4R4l1y1dX9gP4t7

Market Commentary 08/24/2024

Posted on by Damon Germanides

Fed Pivot Helping To Lower Mortgage Rates

Quick Thoughts on the Economy:

On Friday, Jerome Powell confirmed what many of us already suspected—the Federal Reserve is planning to lower interest rates. There is now almost a 100% chance of a rate cut in September. As expected, equity markets rose and bond yields fell. However, it’s important to note that the Fed’s decision to signal lower rates is driven by concerns about the job market, suggesting the economy may be slowing.

This week, the Labor Department made a significant revision to its job data, revealing that nearly 1 million fewer jobs were created than initially reported. This revision may explain why consumer optimism is waning and why we’re seeing a slowdown in big-ticket items like autos, home improvement, and housing. The impact of lower interest rates on a slowing economy remains to be seen. Historically when the Fed first lowers rates, markets tend to become more volatile, and equities often decline.

Mortgage Rates & Housing:

Mortgage rates continue to improve as larger banks become more aggressive in anticipation of the Fed’s pivot. For high-net-worth borrowers, mortgage rates are approaching levels below 5%, which could significantly boost the high-end housing market. For the broader market, rates are trending lower, with many lenders offering deals in the high 5% to low 6% range—a major improvement from just a few months ago.

New home sales in July exceeded expectations, with existing home sales also showing improvement. Refinances have increased, likely because homeowners are looking for cash. With the substantial rise in home values, the cheapest form of debt remains on one’s home.

Indicators to Watch:

We are closely monitoring weekly unemployment data, the slope of the yield curve, oil prices, and consumer confidence, to gauge the overall health of the economy. While no one can predict the future with certainty, these indicators provide valuable insights into how aggressive banks might be with underwriting and rates, as well as the general mood of the market.

Market Commentary 08/16/2024

Posted on by Damon Germanides

Mixed Signals Push Mortgage Rates Lower

Input and consumer inflation continue to decline, indicating a strong week for the equity markets. It’s important to note that inflation is still rising overall. The cumulative effects of inflation remain a significant challenge for many working families. Retail sales exceeded expectations once again, highlighting the resilience of the U.S. consumer. Nonetheless, with rising credit card balances, reports of laid-off employees struggling to find new jobs, slowing travel, and low- to middle-income consumers running out of cash, there are growing concerns that the economy may be on the brink of a recession.

The decline in bond yields across the curve reflects concerns about the health of the U.S. economy. Even with lower rates, the housing market—particularly in the lower to middle segments—has not seen a significant boost. Homes are staying on the market longer and buyers are struggling to qualify for their desired properties. On the other hand, the upper end of the market remains active, as wealthier individuals enjoy cash generated in the equity markets and risk-free returns over the past few years.

The de-inversion of the yield curve, along with the rise in unemployment, has old-time economic historians on edge. When unemployment increases by 50 basis points (0.5%) or more from its low, it often signals that a recession is on the horizon. We’ve already exceeded that threshold with July’s unemployment reading.

This concern is echoed in conversations with business owners ranging from small operators to large family-run or private companies, with hundreds or even thousands of employees. While the challenges may not yet resemble those of a deep recession, the business environment is undeniably less fluid and more difficult than in recent years.

For those of us in real estate, there may be light at the end of the tunnel if interest rates continue to decline. Rates are finally dropping below 6% on many products, indicating hope that the worst may be behind us. Lower rates should provide much-needed relief to homebuyers across the market.

Market Commentary 08/02/2024

Posted on by Damon Germanides

Mortgage Rates Fall Significantly As Economy Shows Signs of Slowing

Mortgage interest rates have experienced a significant decline in response to signals the US economy may be slowing. Let’s explore what has changed over the past few months that’s impacting the direction of interest rates and the economy.

First, unemployment has been rising gradually, with today’s job report missing expectations and spooking the markets. The unemployment rate now stands at 4.3%, up from 3.5% just a few months ago. Additionally, the 2-10 year inverted Treasury spread, which was as wide as 100 basis points, has nearly de-inverted, indicating a high probability of recession. Oil prices have dropped into the low 70s, another important indicator of waning economic demand, as manufacturing consumption slows. Housing data recently softened, with home starts facing an unanticipated downside in June. While this week’s significant drop in mortgage rates should help the housing market, the cost of building and buying a home remains a challenge. Consumer debt has been growing, and consumer confidence has been negative. Finally, many large consumer-facing businesses have warned that consumers are struggling, with many putting food on credit cards and paying over time, which is not a good sign.

This week’s shake-up in equities is no surprise, and this type of volatility is something that investors must be willing to stomach from time to time. Momentum works both ways, and the combination of greed and momentum created complacency. Think about the state of the world and how equities have been able to shrug off bad news over the last 18 months. High beta momentum trades in AI stocks created both an expensive and complacent market, despite earnings estimates missing the mark. Corporations also attributed the current landscape to consumer fatigue, the impacts of cumulative inflation, and a more difficult business environment.

However, real estate professionals, brokers, and mortgage folks have been in a deep industry recession since the end of 2022. With the odds of a recession or a Fed error in not easing soon enough, interest rates have fallen, leading to better days ahead for those in residential real estate. Well-qualified borrowers looking for a mortgage should now see rates, depending on product type, down payment, and potential banking, ranging from 5.5% to 6.25%. This is significant news, as just a few months ago, mortgage rates were over 100 basis points higher. Borrowers requiring stated income or other more opaque products have seen rates move into the mid-6s to low-7s. Government loans have increased considerably, with 30-year fixed products now in the high 5s.

With interest rates trending below 6% and potentially headed to 5%, we expect to see a pickup in both refinances and potential existing home listings. Many homeowners who were married to their mortgage may reconsider a move up or move down as mortgage rates become more favorable.

Last thought. Technically speaking, bonds are very oversold and the move lower has been swift and violent so we are advising on locking-in clients who have active loan applications. 

Market Commentary 07/26/2024

Posted on by Damon Germanides

Mortgage Rates Move Lower With Cooling Inflation

Mortgage rates performed well this week as inflation showed signs of cooling. Next week, the Fed meets to share its outlook on the economy, the direction of interest rates, and inflation’s trajectory. This meeting is crucial, as there are warning signs that the economy is slowing, such as poor consumer confidence readings, and very high credit card balances. The cumulative rise in inflation has hit many hard and the average consumer is stretched thin. Nonetheless, the economy continues to chug along, as evidenced by the better-than-expected GDP reading this week.

Should interest rates fall further, you could see jumbo ARMs down into the mid-5% range, which is great news for the luxury market. For first-time home buyers or middle-market buyers, some community-based programs up to $1M are being offered with rates at or below 6%. Interest rates below 6% offer welcomed support to this market in qualifying for mortgages. Remember, it was not that long ago that mortgage rates were well over 7% and in some instances touching 8%.

With an election around the corner, it will be fascinating to see how the Fed navigates the next two meetings. The Fed aims to remain politically agnostic, so there is a low probability that the Fed may cut rates in July to avoid influencing the election. While we believe interest rates are restrictive, we are not convinced the Fed is ready to make the final cut. One look at how equities bounced back this week illustrates how much liquidity is still in the market. Also, corporate spreads remain very tight, suggesting too much money is chasing too few deals. However, market momentum pushes yields lower, and we will take it.

Market Commentary 07/12/2024

Posted on by Damon Germanides

Jumbo Rates to Drop as Inflation Data Boosts Market Confidence

Thursday’s encouraging inflation data sent equity markets soaring, making future interest rate cuts almost certain by September and no later than November. For those in real estate and mortgage origination, the 4.65% to 4.45% drop in the 2-year Treasury is significant and should result in numerous banks lowering jumbo interest rates next week. Conforming and government loan products are also enjoying better pricing. The combination of reduced inflation, rising unemployment, and stalling consumer confidence, is helping to lower yields on the longer end of the yield curve.

While the CPI print was well-received by the markets, PPI (or wholesale inflation) surprised a bit to the upside, suggesting that inflation is not dead and could reaccelerate later in the year.  Of importance in the CPI reading was the attention paid to the owner’s equivalent rent, a lagging indicator and a main component of CPI. Although this reading came in soft, the indicator lags by 12-18 months, and there are many other signs that rents are starting to rise. Finally, huge deficits, geopolitical tensions, and massive spending all support the notion that inflation may not return to the 2% target. The United States and the free market economy have historically benefited from a complex and uncertain world, lowering bond yields.

Real estate experts are beginning to agree with an idea we shared a while back: if interest rates fall, inventory may rise. As a result, lower interest rates may lead to lower prices and increased activity as buyers have more property options, contrary to what we have all been taught. Since COVID-19, many economic principles have not made sense. Here are just a few thoughts:

• Higher rates for longer should have led to a lower stock market.

• Higher rates for longer should have led to lower housing prices.

• Commercial property defaults should have crippled regional banks by now.

• High Fed Funds should have seen inflation drop more than it has by now.

• An inverted yield curve is an ominous sign of recession.

None of this has happened. For housing, the longer people stay in their homes, the more inventory builds up. For those in real estate who can survive to 2025, there are signs that the overall residential market is getting much busier. This would be a welcome sign for us all.

Market Commentary 06/28/2024

Posted on by Damon Germanides

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.

Market Commentary 06/21/2024

Posted on by Damon Germanides

Housing Inventory Remains Tight As Mortgage Rates Drift Lower

Existing Home Sales: Trends and Insights

Existing home sales data has confirmed what industry insiders already knew: home inventory is extremely tight in many parts of the country. California is no exception. Home valuations continue to rise despite increased interest rates. There is growing optimism that interest rates have leveled off. Should rates drift lower, there’s a possibility for an increase in existing home inventory. Additional inventory could pressure sellers, but it would provide potential buyers more options across affordable, mid, and luxury home spaces up to $5M, significantly boosting activity.

The Rise of Non-QM Loans

Non-QM loans, typically offered by smaller banks, credit unions, and mortgage banks, provide more favorable guidelines, higher debt-to-income ratios, and interest-only products for borrowers who can’t qualify through traditional means. These “individual lending” loans do not rely on rigid guidelines. Instead, they focus on bank reserves, bank statement cash flow, foreign income, or rental income to qualify borrowers. Despite concerns about a repeat of 2008, these loans go through robust underwriting and require significant borrower investment, contributing to their strong performance since their introduction about a decade ago. Insignia Mortgage has identified non-QM lenders that are now comfortable with larger loan sizes up to $10M. 

Economic Outlook and Mortgage Rates

The economy presents a mixture of good and bad data. Technological advancements have created efficiencies, which some forecasters believe will lead to lower rates. However, input costs, commodity costs, and service costs remain high, hurting small business owners. Government debt remains a worry and needs to be monitored as the deficit continues to balloon. However, recent Fed comments have given the all-clear for banks to gradually lower rates. A+ borrowers will start seeing offers under 6%, and non-QM borrowers will find rates in the high 6’s to low 7’s, benefiting the existing home sales market.

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 symbiotically. 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. For instance, with the 10-year Treasury down about 35 basis points recently, 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.

Market Commentary 06/07/2024

Posted on by Damon Germanides

Stronger Than Expected May Jobs Data Pressures Bonds

We were initially encouraged by the JOLTS report which showed signs of a cooling economy as interest rates trended lower, earlier this week. However, Friday’s much better-than-expected May jobs report exceeded expectations for job creation and wage growth, reversing this trend. As a result, interest rates surged, and the likelihood of a Fed rate cut has been pushed to September. Those hoping for rate cuts are focusing on the rise in the unemployment rate to 4% as a sign of a subtly eroding economy.

While there are early signs of consumer stress, such as rising credit card balances and commercial real estate defaults, it is difficult to justify a near-term rate cut after today’s employment report. Cumulative inflation has been a significant drag on our most vulnerable citizens. However, the consumer remains in good shape overall. The stock market is at record highs, with a resurgence of FOMO, reminiscent of the Gamestock mania. We will listen closely to Chairman Powell’s insights on the economy and the direction of rates. The anticipated pain that Powell suggested would be needed to bring inflation down never fully materialized. With the upper 30% of the US population enjoying strong home price appreciation, stock market wealth, and rising wages, the loosening of financial conditions may stoke further inflation.

Trending In Real Estate Finance

Smaller banks and creative lenders are making exceptions on home loans that make sense. We are seeing some banks begin to waive income requirements for very liquid borrowers, increase debt-to-income ratio limits to 60% for the right profiles, and accept a credit blemish or two with a good explanation. Given the slowing existing home sale market, lenders who can lend are doing what they can to approve loans. This is significantly helping good borrowers secure home loans that they would have easily qualified for just a few years ago. Notably, interest rates remain range-bound, and lenders remain eager for business, with our best-priced lenders offering rates under 6% for well-heeled applicants.