Bonds Can’t Catch A Break Amidst Unemployment Rate Increase
The July Jobs Report brought encouraging signals for both the bond market and the Fed. However, the workforce saw an influx of more workers than could be absorbed, resulting in the unemployment rate rising from 3.50% to 3.80%. While wages are still growing, they are beginning to moderate and show signs of trending lower. This shift might provide the Fed with justification to hold off raising rates at its next meeting. Although the futures market indicates around a 40% chance of a November rate hike, we anticipate that this might mark the last rate increase of the cycle (if it does occur). On the other hand, mortgage bonds and Treasury yields oddly increased, potentially influenced by a weakening dollar and surging oil prices.
Nonetheless, it’s important to avoid drawing broad conclusions from a single report. Commodity price inflation and service inflation remain high, and the Fed would likely want to see more substantial declines in these numbers. Conversations with local business owners reveal that input costs are eroding profits. Passing these increases on to customers is becoming increasingly challenging. The persistent difficulty business owners have in finding staff is keeping wages elevated. Notably, a major national retailer catering to lower to middle-income consumers, Dollar General, has reported that its customers are feeling financial pressure and adjusting their purchasing habits. This demographic has been hit hardest by elevated prices and could be a significant concern for the Fed. This context supports our belief that even if the Fed stops raising rates, a downward shift in interest rates might be a prolonged journey. Fed Funds rates could remain potentially elevated well into 2024 or even 2025.
Loan Success Takes Grit
Navigating the mortgage landscape is no longer a straightforward endeavor. While we maintain access to excellent products and lenders and are successfully closing loans, the path can be turbulent. Underwriting guidelines at banks are tightening, debt funds and mortgage banks are grappling with an illiquid secondary market, and limited housing supply in major cities complicates loan qualification. Financing costs have surged while housing prices have remained stagnant, particularly affecting higher-end home purchases. In this landscape, experienced mortgage brokers are proving invaluable by sourcing better-priced loan options, exploring more nuanced alternatives like interest-only or investment property loans, and connecting with smaller banks that embrace innovative thinking. Our broker team at Insignia Mortgage, for instance, achieved over $40 million in closings in July, while our fix-and-flip and bridge lending arm, Insignia Capital Corp, closed over $12 million in business. It was far from effortless. What matters most is that all our clients successfully completed their crucial transactions.