Jan-18-blog 2019

Market Commentary 1/18/19

The effects of the partial government shutdown

Interest rates are drifting higher as the damage caused by last month’s brutal volatility washes out and the focus returns back to earnings, the economy, global trade, and inflation.  

We will learn more about earnings in the coming weeks, but it has been a mixed bag so far. With respect to the economy, the U.S. economy remains strong, but across the pond, Europe’s economy appears to be slowing along with China. The global economic slowdown is a big concern and is partly responsible for the drop in interest rates that took hold late last year and continued into 2019. Counteractively, a slowing economy could be good for stocks as it will keep the Fed from raising rates.  

Secondly, the effects of the government shutdown (if it continues), will become a drag on future confidence readings and overall GDP if it’s not resolved soon. However, keep in mind, Wall Street loves political gridlock and the surge in the stock market is evidence of this.

Thirdly, there are rumors that the U.S. and China are working together on a trade deal. Stocks are higher on this news and bonds have sold off a touch as the risk of an all-out trade war subside.

Finally, inflation remains in check even with full employment here in the U.S. This is a big positive for bond yields along with the Fed clearly stating their intention to remain patient.  

With the recent upward trend in stocks, and, the 10-year Treasury Bond trading below 2.80% yield, we remain biased toward locking-in interest rates given recent events.   

Dec-28-blog

Market Commentary 12/28/18

After a gloomy start to the week, U.S. equities rallied significantly to the delight of traders and investors. While the equity markets are poised to close lower for the year, a strong rally on the day after Christmas stock rally and a follow up positive close took some risk off the table with respect to if “Mr. Market knew something the rest of us didn’t”. Part of the recent volatility can be attributed to year-end tax selling, but the violent moves appear to be the result computer-driven algorithmic trading. Volatility is usually a benefit to bonds, and given the strong economic data and low unemployment rates throughout the year, we are glad to report the 10-year Treasury is well under 2.82%. Around the developed world, interest rates remain accommodative as both China’s and Europe’s economy show signs of slowing. Whether or not a recession is on the horizon is debatable, but low rates appear to be needed to keep the global economy moving forward.

With inflation in check, a volatile stock market, the threat of ongoing trade tensions with China, as well as a partial government shutdown, we see interest rates remaining low for the first few months of the year. This reprieve in interest rates should be a boon for home buyers who were worried about rising interest rates and a slowing housing market. Banks are fighting hard for home loans and we look forward to helping our borrowers and referral partners in the coming year find the best loan they can.

Alt-A Loans Get New Respect

ALT-A-loansAs a mortgage broker specializing in complex jumbo loans in California, I read with interest the article from the  Wall Street Journal on “Alt-A” loans (Remember ‘Liar Loans’? Wall Street Pushes a Twist on the Crisis-Era Mortgage, February 2, 2016). I took this as a sign of encouragement for the many self-employed borrowers with sporadic income, or less than perfect credit.

These borrowers have had little success obtaining financing from large banks, even when putting down payments of over 40%! Today’s “non-qualified mortgages” do not resemble the “liar loans” of the past. These days, both borrowers and lenders must invest more effort analyzing complicated loan terms that are structured to compensate for factors such as unpredictable income, or lower credit scores.

We at Insignia Mortgage have built strong relationships with regional California-based lenders who will underwrite these types of loans, often offering very favorable interest rates (example: 5-year fixed 3.218% to 3.718% APR). This WSJ article reinforces the ideas that investors are starting to realize these loans are not all bad. Wall Street certainly seems to be warming up to these loans.