Tag: jobs report

Market Commentary 5/12/2023

Posted on by Admin

Inflation and Slowing Economy Weighs Heavy on Consumer Confidence

The results of Friday’s University of Michigan Consumer Sentiment Report (UMCSENT) were lower than expected, emphasizing the impact of inflation and a slowing economy on consumer confidence. UMCSENT holds significance as it provides insight into the current sentiment of consumers, and the reading was not favorable. As we have previously mentioned, we believe that tackling inflation is always challenging. Although we anticipate short-term interest rates are approaching their peak, interest rates are not likely to decline as rapidly as some may hope. The Federal Reserve made a critical mistake by allowing inflation to exceed 9%. As a result, they will have to exercise caution in reducing interest rates until there is clear evidence that inflation has been effectively addressed.

In terms of the Consumer Price Index (CPI), overall inflation is showing signs of abatement. Regardless, super-core inflation ( which the Fed closely monitors) remains elevated. The Fed is prepared to accept a rise in unemployment and sustain potential market repercussions to bring down inflation. This strategy hinges on the recognition that inflation disproportionately affects the most vulnerable individuals. Additionally, it is important to consider that other factors continue to exert pressure on the prices of goods and services; like the post-Covid uncertainties in global supply chains and the absence of cheap labor from China. 

Housing Supply, Consumer Sentiment, and Lending Sources

The surge in interest rates has prompted a decline in existing home sales. Borrowers looking to upsize or downsize their homes are hesitant to give up their mortgage rates of around 3% in exchange for new rates of 5% to 6% or higher. This trend has contributed to the rise in stock prices of new home builders. The housing market remains constrained, particularly in larger cities, due to limited supply.

There are concerns surrounding regional banks as deposits flee and smaller banks face  balance sheet challenges. Stronger banks are positioned to acquire weaker ones. While these mini-regional bank crises are not systemic, they are creating a tighter lending environment. Many of these banks were involved in services like commercial office space as well as provided financing options for non-institutional sponsors, construction, and other specialized loans that larger money center banks often refused. We expect to witness further episodes of bank-related issues in the coming months.

At Insignia Mortgage, we are navigating this environment proactively. Our team of professional loan brokers has identified several interesting lending options, including credit unions, boutique banks, and larger private banks that offer excellent terms for the right clients. Here are some highlights:

  • Loans up to $4MM with loan-to-values up to 80%
  • Interest-only products available for high net worth borrowers up to $20 million
  • Bank statement loan programs up to $7.5MM with rates in the low 7s
  • Financing options with as low as 5% down payment for loans up to $1.5MM and 10% down payment for loans up to $2MM
  • Foreign national loans ranging from $2MM to $30MM

We remain committed to finding innovative solutions and serving our clients with exceptional lending opportunities amidst this challenging market landscape.

Market Commentary 5/5/2023

Posted on by Damon Germanides

Equities Surge Amidst Better Than Expected April Jobs Report 

Equities surged on Friday following the release of a better-than-feared April Jobs Report, calming worries of an imminent recession. Troubled regional banks rallied by over 70% in some cases, even as bond yields rose. Nonetheless, any optimism surrounding the regional banks may be short-lived as more bank failures are expected. This is due to the Federal Reserve’s decision to keep short-term interest rates higher for longer, which will put pressure on all but America’s biggest banks to raise deposit rates and scale back lending.

As borrowers realize that a 5%+ short-term U.S. Treasury bill is a much better return than keeping money in their bank, we’re seeing a movement of money out of banks designed to slow economic growth and cool off demand. The question remains: how long of a lag does Fed policy come with? Some on Wall Street believe that inflation and interest rates will fall dramatically within the coming months. We take the more conservative view that it will take a longer time for interest rates to decline and inflation to move back down to 2.00%. We don’t see the need to raise interest rates further, but we are taking the Fed at its word that rates will remain elevated for longer.

State of the Mortgage Market

Despite the challenging market conditions, the mortgage market is functioning well. We’re creating many new relationships with lenders we’ve not pursued doing business with or known of until recently. Here’s a sampling of some interesting products on active deals we’re working on in both the residential and commercial space (yes, Insignia Mortgage does commercial loans too!):

  • Single-family home loans of up to $4MM at 80% loan-to-value with rates in the mid-5s for ARM loans
  • Single-family home loans of up to $30MM at 70% loan-to-value with rates under 5% with a banking relationship
  • Owner-occupied commercial loans of up to $10MM with rates in the mid-5s
  • Multi-family apartment loans of up to $15MM with rates in the mid-5s

Market Commentary 4/21/2023

Posted on by Damon Germanides

Mortgage Rates Hold Steady

Markets were calm this week as initial worries over bank earnings and balance sheets were better than anticipated. Bank of America’s CEO, Brian Moynihan, provided comfort to the market with his commentary on the consumer, the state of the banks, and his explanation of why money is moving out of the banking system to higher-yielding and safe instruments such as Treasuries. In short, the outflow of money from banks is what the Fed wants to see. In our highly leveraged economy, money flowing from the banking system will tighten the amount of available credit and require banks to offer more yield to keep depositors. This keeps interest rates on mortgages elevated. As a result, there is less money in the economy, which should slow demand and help cool off inflation. It sounds simple, but the twist comes with timing. Fed policy works with long and variable lags, so any policy initiated many months ago may only now be impacting the economy. That is why many are calling for a pause to rate hikes to see what may come from the jumbo move in short-term rates over the last year. However, betting markets believe the Fed will raise rates another .25 basis points in May as Fed officials continue to advocate for further tightening in its inflation fight. With service inflation remaining sticky and business activity picking up, we too believe the Fed will go for one more hike.

Nevertheless, there are many mixed signals that suggest the economy is cooling. Auto sales and housing have certainly slowed (yet builder stocks are near all-time highs, go figure). While loan defaults across commercial, auto, and consumer credit remain low, default rates are rising, as are spreads. The MOVE index, a measure of bond volatility, is very high, which is never a good sign. Weekly jobless claims point to more layoffs ahead. Let’s not lose sight that a strong sign of a looming recession remains with the inverted yield curve. In addition, banks are limiting the lending box in anticipation of a slowing economy, lack of deposit growth, and in response to the SVB and Signature Bank failures.

Smaller Lenders Are Better

As big banks tighten the lending box on residential mortgages, Insignia Mortgage is locating eager to lend sources like smaller banks and credit unions.  We recently partnered with a local, federally-insured institution, with an old-fashioned way of doing business. This lender looks at each scenario case by case and then makes a decision. Interest rates are in the low 5’s for a 5/1 ARM, and this particular lender will offer a loan amount of up to $4 million dollars at 80% of appraised value. No banking relationship is required. We like these lenders because they are community-oriented and far easier to deal with than the bigger banks. Their interests are aligned with ours and most especially, our clients. Every deal matters to these smaller lenders fighting for market share against the bigger banks.

Market Commentary 4/14/2023

Posted on by Damon Germanides

Fall In Mortgage Rates Welcomed During Spring Home Buying Season 

Markets were generally upbeat this week as several key inflation readings trended lower. Nonetheless, we recommend paying close attention to service inflation. It is proving to be sticky and is the measure being closely monitored by the Fed. Services make up the bulk of business expenses, and the Fed is keen to see this metric fall to a range of 2% to 3% from around 5% per annum. Of additional concern is the rise in oil prices as OPEC cuts production and oil settles above $80 per barrel. The betting markets are over 60% that the Fed will raise short-term rates by another .25 basis points before pausing. Although our feelings are in line with the betting markets on the one-and-done on the Fed rate hikes, they differ from the consensus view that the Fed will pivot by late summer to lower short-term interest rates. Our thinking is that the inflation dragon needs to be slain. Ensuring that inflation is put back in the box will require the Fed to keep interest rates higher for longer. With financial conditions easing again along with the recent rally in the equity and bond markets, the Fed can justify another rate hike. They can do so veiled as an attempt to increase short-term interest rates above the average inflation to the so-called restrictive territory. 

JP Morgan reported earnings this morning and the bank had a very good quarter. Comments from the CEO, Jamie Dimon, soothed markets on the overall state of the economy and the resiliency of the banking sector. For the moment, while the economy is slowing, it is still doing better than feared. The banking crisis seems to have abated, and inflation is coming down slowly. Even so, one must listen to the great Warren Buffet, who is not so sure the banking crisis is over. Dissenting views are just part of what makes this market so tough to dissect. After 30 years of low-interest rates, the move to a higher neutral interest rate is affecting the economy on many levels. It is stressing banks, hitting valuations on apartments and office buildings, and making it much harder for consumers and businesses to qualify for loans. Persistent inflation is impacting consumer spending. The reworking of global supply chains is putting a floor on input costs as the world moves from just-in-time inventory to certainty of inventory in a post-COVID world. All of this and more is what makes the Fed’s job so difficult and why handicapping the direction of interest rates and the economy is a fool’s errand. 

Humanizing the Loan Process

Mortgage applicants have adjusted to the higher rate environment. Higher interest rates mean a lower mortgage for many, so the pre-approval process is crucial. There are lenders out there that will think outside the box and are helping borrowers maximize their loan dollar amounts. Liquid asset depletion, relying more on a recent profit and loss statement, RSU income, to name a few, can add more income to a borrower looking to qualify for a home mortgage. This type of common-sense underwriting is more prevalent with smaller banks and credit unions that look to humanize the loan underwriting process, offer competitive interest rates, and genuinely desire to help borrowers in their community. 

Market Commentary 4/7/2023

Posted on by Damon Germanides

Fed Maintains Rate Hike Path Due To Jobs Report 


An in-line Jobs Report will keep the Federal Reserve on hold until its next meeting in May. As a result, market forecasters predict there will be another .25 bp rate hike to 60%. Wage inflation continues to normalize, which is a welcome sign, while job growth in the private sector has slowed. The unemployment rate fell to 3.500%, which suggests the job market is still too tight, especially with the approximately 10 million jobs left unfulfilled. Viewing the economy based on the jobs picture, the economy is proving to be much more resilient than many had thought. This is despite the almost 500 basis points tightening in such a short period.  

Yet, there are other economic metrics flashing warning signs. This includes a crucial aspect, the de-inverting yield curve. Also, of concern is the senior loan officer survey which confirms our day-to-day view that bank underwriting is tightening up. There has been an increase in consumer debt and an uptick in auto loan defaults. In addition, keep in mind the recent bank failures. They have not only passed the panic phase but will also continue to impact bank underwriting of risk. This remains a very confusing market and we certainly do not have a crystal ball. Nonetheless, the risk of a recession or of a recession already in its early phase remains high. Oil moving up over 80 per barrel does not help those with brighter expectations. 

Some of you are wondering why mortgage rates continue to remain elevated despite the 10-year Treasury falling to around 3.35%. There are several reasons for this, but the most promising is the average spread of Bank Rates for 30-year mortgages moving to nearly 3.33% over the 10-year Treasury. Should that spread tighten to the low of 1.35%, 30-year mortgage rates would be closer to 4.75% -5% rather than the 6.00% to 7.00% many banks are offering. The demand by investors for a bigger spread on mortgage loans is very much affecting the ability of potential borrowers to qualify for home mortgages. This is also why Insignia Mortgage spends a considerable amount of time meeting with various smaller to mid-sized banks who are willing to sharpen their pencil on loan terms, as opposed to seeking large banking relationships on larger jumbo loans. The goal is to partner with a resource that offers commonsense decisions on loan approvals. It is precisely this optionality that makes the mortgage broker model so important in today’s particularly challenging marketplace. 

Market Commentary 3/31/2023

Posted on by Damon Germanides

Slowing Inflation Encourages Market 

While the recent banking crisis appears to be receding, there are still issues to be dealt with. Our belief is this will not become a 2008-type event, but the failure of SVB and Signature Bank has shown how fragile our banking system is as well as how quickly panic can set in. It only took two days for SVB deposit withdrawals to crater the bank. The long-term ramifications of these two bank failures will be felt in the form of more bank regulation and tighter lending standards. 

This Friday’s Core PCE reading, the Fed’s favorite inflation gauge, came in at 0.3% or 3.6% annualized. While this is still far too high, it is encouraging. However, the Fed remains resolute in its battle against inflation. They maintain their higher-for-longer stance on short-term interest rates. Their intention is to continue raising rates while the economy is still growing, and unemployment is low, as they fight inflation. We are not sure if this is the right decision, but history has shown that inflation is difficult to break once it is entrenched in the overall economy. This leads us to think that the Fed will keep short-term interest rates elevated for longer than many on Wall Street anticipate. Should these rates continue to rise beyond Wall Street’s expectations, volatility in the bond and equity markets will likely revive later in the year. 

Most of the news on loan defaults and property impairments is centered around office properties. Single-family residential loans are on solid footing. While valuations on single-family homes have fallen, they have not fallen dramatically. Many homeowners have locked in low long-term mortgage rates, potentially mitigating the need to sell.  This will act as a floor to price declines. Spring activity in housing is encouraging. We believe the worst is behind us, as clients adjust to the higher rate environment. 

Market Commentary 3/10/2023

Posted on by Damon Germanides

Treasury Yields Drop As Regional Banks Show Signs of Stress

Treasury yields dropped precipitously on Friday, but for all the wrong reasons. Several California-based regional banks experienced a sharp drop in equity values as customers withdrew money out of fear the banks may become insolvent.  Silicon Valley Bank (SV) was seized as it was forced to liquidate its bond portfolio due to a negative interest rate margin. In basic terms, this means the bank was paying more to depositors than to borrowers. Fear bled over to the First Republic and the Signature Bank as those stocks were down heavily. These episodes are the result of a decades-long easy money cycle that forced banks to buy long-dated bonds as well as lend money at near-zero interest rates. Additional uneasiness surrounds the fact that there’s never just one cockroach in the room – that these banks, unlike the banks of the 2008 Financial Crisis, are heavily regulated. As a result, they were supposed to have ample capital in reserves to protect against stressful scenarios. In the case of SVB, it still failed. Of further concern is the fact that SVB has been the bank to the most coveted part of the economy for the last 10 years. Their technology and their management team were presumed to be world-class. Yesterday I was telling a friend that the last two days were reminiscent of the Bear Sterns collapse. History does not repeat yet it often rhymes.  However, to keep this all in perspective, the big money center banks, or more bluntly, the banks that really matter from a systemic standpoint, maintain abundant capital reserves. So, while the SVB collapse is worrisome, I do not believe we are reliving 2008 all over again.

The Jobs Report came in a bit above expectation and wages grew slower. This takes the .50 basis point hike off the table (especially after today’s negative events in the banking sector). The Fed will most likely go .25 basis point at its next two to three meetings as inflation remains a problem but could change quickly. We assume the Fed funds rate to top off at 5.75% to 6.00% before turning the other way. There is a sense of apprehension in the air now and I think consumers, risk-takers, and business owners will continue to hunker down. Perhaps, the Fed’s work of raising rates to slow the economy and encourage a more cautious spending public is now at play.   Higher interest rates have already slowed real estate activity by making mortgages unattractive. They’ve also lowered commercial real estate values and are hitting equities now in a meaningful way. The pain of a slowing economy is beginning to take hold. 

What are we to do?  Business, real estate, and life have cycles.  Real estate is in an adjustment phase and prices (as we have reiterated) will need to adjust to the new era of higher interest rates. Anecdotally, many brokers I speak to realize that price reductions will lead to buyers returning to the table.  While not great news for sellers, this is the reality of a free marketplace.  The good news is the Fed is nearer to the end of the rate hike cycle than the beginning. Once there is consensus on a rate ceiling, the uncertainty of higher interest rates will dissipate, and activity will resume.  However, waiting for that time will not be without some additional distress, I am afraid.

Market Commentary 3/3/2023

Posted on by Damon Germanides

Strong Jobs Data and Inflation Increase Burden On Fed

After a grueling week of higher interest rates, some of Thursday’s Fed speak soothed the markets. As we have previously mentioned, we are not huge fans of the ceaseless opining that has become the norm from the Fed. We are often confused by Fed comments which tend to require clarification later on. 

We would prefer to focus on the data. Employment remains tight, as evidenced by weekly unemployment statistics and a very strong January Jobs Report. Although we are seeing many large corporate layoffs along with signs of a slowing economy, the unemployment data suggests the economy is much more resilient than many experts assumed. Inflation is also proving to be stickier. While some inflation will certainly be transitory, wage inflation and service inflation are less likely to fall. As the 10-year Treasury surged above 4.000% this week, bond traders are more accepting of the idea that persistent inflation could drive interest rates higher and make qualifying for a mortgage more difficult.

Higher interest and widening spreads are starting to negatively affect the commercial real estate markets, especially office spaces.  Lenders are becoming more selective in their loan decision-making process. We expect to see more and more defaults within the commercial space as the era of easy money comes to an end.  In the single-family home sector, activity on the eve of the busy spring buying season is showing signs of life. Nonetheless, volume is a far cry from the frantic pace of recent years.  Qualifying for a home remains challenging but we are seeing buyers change their expectations based on affordability. We assume that price adjustments will be required to close the gap between buyer and seller.

The deeply inverted yield curve is troubling to us and should be taken as a serious precursor to a recession. No one knows what type of black swan event is circling until it happens, but a sharp drop in interest rates amidst the realization the economy has stalled is one possible outcome in the coming months. Also, a slow grinding economy with fits and starts remains another possibility in what is being called a soft-landing outcome. The present moment can only be described as unusual. The economy seems to be slowing, but inflation remains high. Housing activity is at a multi-decade low, but wages continue to go up as employment remains tight. Only in time, will we know the true impacts of Fed policy.            

Market Commentary 2.24.2023

Posted on by Damon Germanides

Markets Rethink Inflation Amidst Fed Pivot

The quote “this too shall pass” may be apropos for the strain of higher inflation, higher interest rates, and increased volatility is having on all of us. For the mortgage market, it is an arm-wrestling match with interest rates, each day, in real-time. 

Unfortunately, our instinct has been that once inflation is left to run hot for longer, it infects all aspects of the economy and does not retreat quickly.  We opined recently that we were concerned Fed Chairman Powell’s press conference in early February was way too optimistic about the pace of cooling inflation. Also odd was the Fed’s belief that financial conditions were nearing a neutral level of tightening while most economists were seeing financial conditions ease up again.  All of this has now come home to roost with CPI, PPI, January jobs report, and PCE, all of which came in hotter than expected. It is now widely believed that the Fed will need to raise interest rates further while also holding rates higher for longer to ensure inflation is wrung out of the system.

Financial Reality: Recession, Rates, & The Grind

Regardless of the popular belief that rates will continue to rise for a longer period, we suspect that the economy may be in a recession. As a result, the higher cost of living is impacting spending, which may come through in the data sooner than later. Mortgage rates are certainly making it harder for borrowers to qualify for home loans as well as purchase or refinance commercial properties. Bank liquidity remains tight, credit card balances are soaring, and high-risk auto loans are rolling over. All are signs that the consumer is under pressure. The lagging effects of monetary policy take time and the thinking is that the jumbo rate hikes from last year take about 9 months to work their way into the system. Should the economy fall into an official recession, the Fed will be forced to lower rates. At what point the Fed rate hikes break something is unknown, but we are no longer in a low-interest rate market as interest has returned to a normal level. 

Our motto is that you must live in the world you are in, and not the one you want. Applying this to real estate means working much harder for much less, and seeing deals come and go. Again, we are of the firm belief that many prospective buyers are actively looking for a discount on the price to overcome the big increase in monthly mortgage payments. We are starting to see signs of more favorable negotiations between buyers and sellers, which is encouraging. For the deals that big banks refuse to fund, local banks are doing whatever they can to make common sense decisions on successfully closing such deals. The reinstatement of a busy market will take time. For now, it remains a grind. 

Market Commentary 2/17/2023

Posted on by Damon Germanides

Resurgent Inflation And Tight Jobs Market Raise Interest Rates

A better-than-expected jobs report combined with a hotter-than-expected CPI and PPI report has put the Fed back on its heels. There is now talk of a 50 bp increase in the Fed’s Funds Rate come March. The bond market seems to be reassessing inflation, pushing bond yields up across maturities. As we have written in previous posts, when inflation is allowed to run hotter for longer, it invades every nook and cranny of the economy. Fed Powell was presumed to relax last month based on his press conference about inflation. Unfortunately, there is more wood to chop, in the form of higher rates and more restrictive policy decisions by the Fed. We believe the Fed Funds Rate will not go much above 5.500%.

The US economy is proving to be very resilient. Although wonderful news long term, it is creating tension between the bond market, equity market, and Fed policy.  The Fed wants a slowing economy. This requires higher unemployment rates and lower levels of GDP growth. Higher interest rates have hit the real estate market quickly. So far, other sectors of the economy have not been as affected by tighter Fed policy. The extended endurance of higher rates will lead to price declines across all asset classes. Given the pent-up demand for housing in our main market, if prices fall by another 5% to 10%, we foresee a surge in real estate activity. 

Mortgage rates have enjoyed a few months of calmness. That period has ended momentarily, commensurate with the 30-year conforming mortgage rate climbing back to the upper 6.00% range.  With so many banks coming in and out of the mortgage market week-to-week, mortgage brokers serve a very important service. Insignia Mortgage works with over 30 institutions. Given the volatile market conditions, we speak to banks and credit unions daily and are able to stay highly informed on which lenders are aggressively priced and desirous to do business.