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.
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.
Economic pain caused by Covid-19 deepened this week as the unemployment numbers hit 30 million people. Expect next week’s April jobs report to hit 20%. With consumer spending down, and so many people out of work, it was no surprise that Q1 2020 GDP contracted by – 4.80% and will likely be followed up by a much larger drop in Q2 2020. The Fed and the federal government are implementing a “by any means necessary” approach, which is echoed by the European and Japanese central banks and governments as well. These trends continue to backstop our economy. It’s hoped that the approach will boost economic recovery once the U.S. economy is turned on again, as well as support asset prices. We sure hope this is the case but are also aware that consumer and business behavior has changed due to the pandemic and the recovery could take much longer than anticipated.
Regarding housing and lending, Covid-19 hit the spring buying season hard. However, interest rates remain low and may drop further over time, enticing more buyers into the market. There are also signs that the non-QM market is slowly reviving, which is a positive sign, especially for cities such as Los Angeles which have many self-employed borrowers. Big banks continue to pull back from the marketplace. Our office has received an unprecedented number of requests for financing the past few weeks as borrowers look for alternative financing options. We are happy to report that for the most part, our partner lenders remain committed to pulling out all the stops to help borrowers refinance or purchase homes. In our opinion, there has never been a better time to be a broker with long-term lending relationships and that is proving to be a great benefit for our clients during this very difficult time.
COVID-19 continues to be the focus as the entire world fights this disease and many countries hit pause on their economies to help tame the spread of the virus.
The U.S. saw the highest weekly jobless claims on record on Thursday as well as a downright awful March employment report. While the numbers were horrible, it was not unexpected. As we have opined previously, economic data is meaningless when the economy is on hold. What is important is COVID-19 testing, infection rates, and government assistance programs. We need testing to determine who is sick or has built an immunity to the disease so they may stay isolated or go back to work, and we need assistance to keep businesses from laying off staff or closing down so that once the virus passes, the economic engine can begin to churn.
The state of the residential mortgage market has tightened, as expected. However, our suite of lenders are still active and are offering common-sense underwriting. Most lenders are now offering drive-by appraisals as a safety-first response to the virus. Mortgage rates have decoupled from U.S. Treasury rates as banks are pricing mortgages higher in response to the volume surge and uncertainty of the moment (same with the commercial market). Liquid reserves are key and are being weighed more heavily on jumbo mortgages than income analysis. Interest-only loans and cash-out refinances are still available but at reduced loan-to-values. Overall, our lenders want to continue to help clients through this difficult time with a slightly more cautious approach when underwriting larger loan requests.
A strong January jobs report reinforced the strength of the domestic economy. However, after a 4-day surge by equities earlier in the week, stocks sold off Friday and bond yields pushed lower. On Friday, bonds took comfort from muted wage inflation and U.S. equities sold off as a response to renewed fears of a coronavirus pandemic still low, but hard to handicap. Equities rallied earlier in the week in response to stronger than expected manufacturing and service sector reports.
The January jobs report was impressive with 225,000 jobs created versus 164,000 expected. The unemployment rate ticked up to 3.6%, but for good reason, as more people entered the workforce. The Labor Force Participation Rate (LFPR) rose to 63.4%, the highest since 2013. Wage inflation rose month over month, but less than some experts expected given the tight labor market. Bonds rallied (yields moved lower) as wage and overall inflation remain persistently low.
Keep an eye on China and the coronavirus as unknown risks remain but for the moment appear to be contained. How this virus will affect global growth is yet to be determined, but handicapping this virus is nearly impossible and risk-on/risk-off trading could changes daily as more cases are discovered worldwide, and as scientists gain a deeper understanding of the virus.
Homebuilders remain optimistic and with unprecedented wealth creation in the U.S., this year’s home-buying season is shaping up to be a good one. Affordability and availability of home supply are top concerns. Mortgage rates are compelling and we continue to advise prospective borrowers to consider locking-in interest rates at these historically low levels.
Jobs, jobs, jobs, and more jobs! The November jobs report crushed expectations Friday morning, with job creation growing at the fastest clip in 10 months. The jobs report reinforces the thesis that the U.S. economy is on good footing, the U.S. consumer remains bullish, and that the recession fears have abated. The report followed other positive reports earlier in the week on housing, big-ticket purchases, and trade.
On the jobs front, the employment rate dropped to 3.500% with the addition of 266,000 new jobs blowing past the estimate of 182,000 new jobs. The U-6 reading, or total unemployed, fell to 6.90% from a reading last year of 7.6%. Wage growth grew year over year above inflation.
This combination of low rates, a strong consumer, and a strong workforce has created a “Goldilocks” environment. These numbers will keep the economy chugging ahead and work as a tailwind for the housing market heading into next year. As we have opined previously, interest rates remain attractive which provides more buying power for potential borrowers. For refinances, reduced mortgage payments free up money for other purchases. Our position on interest rates at these levels is to grab ’em while they are hot!
A better-than-expected October Jobs Report capped off a robust week of economic news.
Positive earnings from America’s best companies for the third quarter reconfirmed that the U.S. economy remains the envy of the developed world and has the resilience to adjust to a difficult trading environment with China.
On Wednesday, the Fed lowered short-term interest rates in what may be the last of rate cuts for a while. However, the Fed’s actions the past few months have steepened the yield curve and pushed financing costs lower, helping to keep the ball rolling on economic expansion. While business investments are slowing, the job market and consumer confidence readings remain strong, and housing remains a tailwind for growth.
Across the pond, the fear of a chaotic October 31st Brexit was put to rest as well, at least for now. This is all positive for the market and potentially bad for bonds.
Capping off the week, the September Jobs Report was solid and better than expected with positive revisions to both August and September. The unemployment rate was a tick higher, up to 3.60% from 3.500%, wage inflation clocked in at 3% annually, and the Labor Force Participation Rate (LFPR) moved higher. In summary, it was a very good jobs picture for the U.S.
With so much good news to share, interest rates have been moving moderately higher, as predicted. Personally, we see no recession and can easily see the 10-year Treasury moving back up to near 2.000% given all the positive economic data recently released. Mortgage rates have been on the move as well. We continue to advise that locking-in rates at these levels is prudent, especially with interest rates still near historic lows.
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.
Mortgage bonds had another good week as interest rates remain low. This week served up several market-moving headlines highlighted by impeachment headlines, positive news on the U.S.- China trade talks, and good housing numbers. Inflation picked up a touch, with the Fed’s favorite inflation gauge, the Core PCE, ticking up to 1.8% annualized inflation rate from a previous reading of 1.6%. However, this annual rate of inflation is still below the Fed’s 2% target and for the moment a non-threat to the bond market. Inflation and economic expectations for the future are what drive longer-dated bonds.
Next week will be a big week with the September jobs report. Given the slowdown in manufacturing and the recent lower reading on consumer confidence, we will be watching the jobs report with much interest. The U.S. economy has been resilient through the present moment and is the envy of the developed world. The big question has been how long can the U.S. continue to outperform other large economies. The jobs report will shed some important light on this question.
In housing news, the National Association of REALTORS® reported a pick up in homes under contract, thanks to lower interest rates. With interest rates near all-time lows, we continue to believe that locking-in interest rates are the way to go as playing the market is simply too risky, especially with lenders near capacity.
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.