lock in rates Archives - Insignia Mortgage

Market Commentary 1/17/20

Posted on January 17, 2020 by Damon Germanides

U.S. equities charged higher spurred on by low-interest rates, solid consumer sentiment, low unemployment, good corporate earnings, and the signing of the U.S.- China phase 1 trade deal. With the Dow likely headed to 30,000 and home builders accelerating construction starts, it appears the spring buying season should be favorable. Consumers feel flush as retirement plans swell and wages also move higher. All of this is positive for this year’s new and existing home sales. Keep an eye on prices. With such tight supply, we hope sellers don’t price new buyers out of the market given the strong consumer sentiment we are seeing.

The U.S. economy continues to be the best house on the block and with the Fed holding steady on its accommodative monetary policies we expect this Goldilocks environment to carry on for the near term. The presidential election could create volatility, but that won’t come in to play until the back half of the year. Interest rates remain attractive as the developed world is awash in low or negative-yielding debt, which has helped keep our own interest rates capped back home. However, inflation, which has been non-existent for the last decade, is showing signs of reviving. Should inflation move past Fed targets, we could see bond yields move higher and quickly. For now, most strategists have the 10-year Treasury yield pegged between 1.900 – 2.500%.

With that in mind, we continue to advise locking-in interest rates at these levels. It is a call we have been making for quite some time, but given the abundance of positive information hitting the markets, and the fact that the market has shrugged off negative-market-moving news so quickly, our feeling is interest rates have a greater chance of moving higher than lower. One interesting point: a study was recently completed that showed that negative interest rates have done little to boost economic activity in Europe and Japan. While I am not an economist, I have always thought that lending one dollar to get back less than the principal does not make much sense.

Market Commentary 12/20/19

Posted on December 20, 2019 by Damon Germanides

The U.S. equity markets traded at all-time highs on the last full trading week of the year. The market’s soaring prices were propelled to record levels by accommodative monetary policy, positive news on the U.S. – China trade deal, a strong consumer, and unwinding of recession fears. Final GDP 3^rd quarter numbers were also released on Friday and were not revised, showing economic growth growing at a respectable 2.1%. Overall, the U.S. economy is in good shape and the recent stock market gains are a vote of confidence, supporting that narrative.

Homebuilders remain confident and housing starts surprised to the upside earlier in the year. Most economists had predicted the 10-year U.S. Treasury would end 2019 at above 3.000%. The plunge lower in rates (10-year U.S. Treasury currently at ~1.92%) has been a big factor in spurring home purchases and refinances, as well as underpinning the surge in equities and other asset prices. If rates remain low, we would expect the consumer to remain bullish and continue to spend on autos, homes, and other high-cost durable goods.

Banks remain aggressive on pricing and mortgage banks continue to serve the demand by self-employed borrowers who face challenges documenting their income. Rates are low and should be locked-in. Continued positive data both in the U.S. and abroad could lift rates higher. Then again, maybe they won’t.

Market Commentary 10/18/19

Posted on October 18, 2019 by Damon Germanides

Bonds traded sideways this week. There was no major headline, but the markets continue to grapple with whether the slowing world economy will lead to a recession here in the U.S.

On a positive note, some good corporate third-quarter earnings and talks of a Brexit deal were good for the equity markets.

On the bearish side, poor retail spending, a lower than forecasted housing starts report and a poor regional manufacturing survey are potentially worrisome. The consumer has been the mainstay of the U.S. economic expansion for the last many years so if they stop spending then the U.S. economy would certainly feel it. Bond yields were capped by news from China that their economy grew at the slowest pace in almost three decades. The tariffs are certainly hurting China’s overall economy which suggests a trade deal with the U.S. may be closer than some think.

Mortgage rates remain attractive and borrowers continue to enjoy the benefits of these low rates in the form of lower payments or the ability to buy a larger home. As we have stated previously, interest rates should be locked-in at these levels. The 10-year has moved from below 1.500% up to 1.75%. For the moment, there is just not enough bad news to move bond yields lower, especially in light of some comments from European and Japanese officials about the lack of effect of negative interest rates. The Fed meets again on October 31st, and the comments from this meeting will be impactful on the future direction of rates.

Market Commentary 10/11/19

Posted on October 11, 2019 by Damon Germanides

Positive comments about trade negotiations with China from the White House on Thursday and Friday sent the equity markets on a tear at the expense of bonds. Rates rose as optimism for a trade deal increased. The markets seem to think at least a partial trade deal may be in the works this time. If a deal is inked, it will be an ongoing positive for stocks and will certainly push interest rates higher.

Earlier in the week, the Fed Chairman spoke about his committee’s view on the economy. While the Fed sees the economy slowing, for the moment there are no signs of a recession on the horizon. The Fed reiterated it will do whatever necessary to keep the economic expansion going.

Mortgage rates have also risen this week. As we have written previously, our position continues to be that loans should be locked in when the 10-year Treasury is below 2.00%. We continue to hold this view, especially as the 10-year Treasury yield has moved off of 1.500% and is trading near 1.800%.

Market Commentary 10/4/19

Posted on October 4, 2019 by Damon Germanides

In another volatile week in the markets, the September jobs report helped soothe recession fears with a report that came in close to estimates. After a poor ISM reading (Institute of Supply Management) and service sector reading earlier in the week, some forecasters were fearing a terrible jobs number. We are happy to report that this not come to fruition. While we are certain that volatility will be a given, it is hard to argue that a recession is on the horizon considering the very low 3.500% unemployment rate.

The September jobs report was solid for a number of reasons. First, the market was primed to expect a major dud. Secondly, there were upward revisions from the past previous reports (i.e. there have been even more people working). Thirdly, unemployment dipped to a 50-year low and the U-6 reading, which includes those working part-time and those “discouraged” workers who’ve stopped job-hunting, dipped to 6.9%. Finally, wage inflation is under control which puts a lid on bond yields.

Housing has rebounded, and low-interest rates are boosting mortgage applications. Lower monthly housing payments free money up in consumers’ budgets, which can be spent on other goods and services, which helps the overall economy.

With the September jobs report behind us, and the 10-year Treasury yielding around 1.51%, we are recommending locking-in loans at this level. While rates could go lower, it is hard to imagine a <1% 10-year Treasury yield for the moment, given the current generally healthy state of the U.S. economy.

Market Commentary 9/20/19

Posted on September 20, 2019 by Damon Germanides

The Federal Open Market Committee (FOMC), as expected, lowered short term lending rates by .25%. The effect on equity and bond markets was muted as the 10-year Treasury closed right under 1.73% for the week. Stocks closed down a touch on Friday. The Fed also opined on the state of the U.S. economy and confirmed that the job picture was good, inflation was under control, and that the worry was on manufacturing data which has slowed considerably. However, given the strength of consumer spending and the small uptick in wage inflation, the Fed does not seem to see a looming recession on the horizon.

Further supporting the no recession thesis, there has been a rise in housing permits and good data on existing home sales. With 7 million-plus more job openings than people available to fill them, we agree that the recession fear narrative was maybe overdone. However, by late Friday, China cut off talks early with the U.S. on trade discussions, and if the U.S. and China negotiations on a trade agreement turn south, the disruption could be big enough to push the world into a recession. Also, worth noting is the fact that most developed countries besides the U.S. are not experiencing great economic growth. For the moment, the U.S. remains the envy of the world.

Regarding interest rates, we continue to believe a sub 2.000% 10-year Treasury is a gift to borrowers and that loan programs should be locked-in at these levels. The low rates have definitely spurred buying in the higher-priced coastal markets as borrowers are able to qualify for more home which is also a positive sign for our domestic economy.

Market Commentary 9/6/19

Posted on September 6, 2019 by Damon Germanides

Stocks surged mid-week in response to some positive news regarding the news that the U.S. and China may be returning to the negotiating table on trade talks. Also, the U.S. economy, while slowing, appears to be in pretty good shape for the moment. The August jobs report was lower than expected but had no real effect on stocks and bonds. The unemployment rate held steady at 3.70%, and while the report suggests the economy is slowing, there were no real surprises within the report.

However, multiple mixed signals regarding recession persist. It is hard to reconcile the various reports as there many cross-currents on the direction of both the economy. Interest rates and bond yields are flashing different signals. Recently published manufacturing data in the U.S. is worrisome and support the need for lower rates to boost growth, but better than expected economic data out of China suggest otherwise. An inverted yield curve in the U.S. (indicating a potential recession) support the argument that U.S. interest rate policy may be too tight, but low inflation and low unemployment suggest that interest rate policy may be near neutral and on target. Strong consumer spending and high levels of small business optimism argue strongly against the recession outcome, while a global slowdown and negative yields in Europe and Japan are an ominous signal of a recession or worse in the coming 24 months.

What has been great for many homeowners or those buyers sitting on the sidelines is that low-interest rates are either lowering monthly expenses or helping new home buyers qualify for a bigger mortgage or a better quality home. We continue to be in the rate-lock camp and continue to advise clients to take advantage of the 10-year Treasury note at ~1.500% which has pushed loan rates way down.

Market Commentary 8/30/19

Posted on August 30, 2019 by Damon Germanides

Some positive headlines on trade negotiations as well as good consumer readings, modest corporate profits, and low inflation data helped stabilize the equity market this week. Bond yields seem to have hit a floor with the 10-year U.S. Treasury touching a low of 1.47% before settling at 1.50%. While the yield curve remains inverted and should be closely watched as it has historically foretold past recessions, fears of recession quieted this week as the markets stabilized after last Friday’s ugly trading day. However, there remain many potential landmines in the coming weeks that could turn markets for the worst beginning with an increase in tariffs on Chinese goods September 1^st, a highly anticipated Fed meeting, and a no-deal Brexit at the end of October. With negative rates in Europe and Japan, U.S. mortgage rates will only move so high, which should keep investors analyzing riskier asset classes such as equities and real estate for yield.

What is not making headlines is the fact that lenders are so busy that in order to slow the flow of business rates are being increased. This disconnect is creating opportunities for some smaller lenders to compete with larger money center banks on deals that they would usually not be able to compete on. Our office continues to see increased volume from our clients who are both buying new real estate and refinancing currently owned properties with favorable terms.

As we mentioned last week, our stance is to lock-in interest rates at these attractive levels, especially with the added knowledge that lenders are filling up to the point where rates may have to rise lender by lender to slow down the volume. This does not mean rates couldn’t go lower, but with the 10-year at ~1.500%, there is no shame in locking in loans at these low levels.

Market Commentary 6/28/19

Posted on June 28, 2019 by Damon Germanides

In what has become a tale of two different forecasts on the state of the U.S. economy, bond yields continue to test multi-year lows as stocks continue to climb the wall of worry. With all eyes on the G-20 summit and if a trade deal or path to a trade deal can be worked out, interest rates are stuck and equities grind higher. The outcome of this summit has the potential to move bond and equity markets in a big way, as well as the structure of our global economy. Also of concern is the slowing of corporate earnings, the decline in manufacturing data, and the move lower in consumer and business confidence (although readings still are high but off of higher levels).

Lack of inflation, as indicated by the Fed’s favorite inflation reading, the May core PCE reading, was unchanged at 1.60%. Low inflation serves as a benefit to bond yields and is yet another reason the Fed may bring down short-term lending rates at their next meeting. However, it is important to note that future price reductions in short-term lending facilities have already been priced in by “Mr. Market.” With the middle of the yield curve beginning to steepen from recent levels (although parts of the curve still remain inverted and should serve as a warning sign of heightened recession risk), absent a very big unforeseen negative event such as major bank default or big slowdown in economic activity, interest rates may be near the bottom in the U.S and both individuals and corporations are taking advantage of these lower rates via the surge in loan application and corporate bond deals.

The savings in monthly mortgage payments is a positive sign for consumer spending as those savings can be used to buy other goods and services. Lower rates also make home buying more affordable assuming it is not offset by a price increase. Considering the health of the U.S. economy in relation to the plunge in bond yields, we continue to be biased toward locking-in interest rates at these extremely accommodative levels.

Market Commentary 5/17/19

Posted on May 17, 2019 by Damon Germanides

In a volatile week on Wall Street, bonds have traded well with the 10-year Treasury note touching 2.350% for the week. Market strategists have had to react to both tough trade talk on China by the Trump administration, as well as elevated tensions with Iran in the Middle East in directing trades this week. Traders flight to quality investments benefited high-quality bond yields such as government-guaranteed and A-paper mortgage debt with yields moving slightly lower but within a tight band.

Back home, the U.S. economy is humming, job growth is robust, and inflation is tame as evidenced by GDP expanding at a 3.2% annual pace in the first quarter. Unemployment touched a 50-year low and year-over-year CPI is running at 1.9%. This begs the question “why are rates so low?” The answer probably lies in long-term economic growth forecasts as well as fears of a looming recession given the potential for an elongated trade negotiation with China and anemic economic growth out of Europe and Japan. Continue to keep an eye on the 2-10 Treasury spread as signs of looming trouble ahead. For the moment, the spread is around 19 basis points and rebounding from the 9 basis point spread just a short while ago. Treasury inversions are one of the most reliable indicators of a recession and need to be taken seriously when they occur.

Home sales have rebounded due to both the time of year as spring is an important home buying season enhanced by the low-interest rate environment. Our feeling remains that the economy is strong and rates should be higher. However, we have no magic ball and so for the moment, we continue to advise clients to lock-in interest rates at these highly attractive levels.

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