steven.bray

Dec 112018
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

The jobs report last week didn’t disappoint, but it didn’t excite either. Sure, the headline number of jobs created missed expectation, but the miss wasn’t huge by historical standards. Wage growth continued, albeit at a moderate pace. All in all the report did little to help bond markets decide whether the economy is slowing. Markets reacted as they’re wont to do in these situations – by shifting into sideways mode.

So, we keep looking for that source of market inspiration. Next up on Wed is the Consumer Price Index, the granddaddy of inflation reports. Since stoking inflation fears this summer, the report in recent months has suggested that inflation has waned once again. But like last week’s read on wage inflation, any uptick in consumer inflation could quickly erase the rate gains we’ve made since Thanksgiving.

If that report doesn’t give markets inspiration, next week’s Federal Reserve meeting might. Most analysts expect the Fed to raise short term interest rates for a fourth time this year, so doing that is unlikely to affect longer term rates like mortgage rates. Any effect is already baked in.

However, it’s what the Fed says after the meeting that probably will carry the most weight. Recent speeches by Fed governors have indicated the governors sense some risks to continued economic growth. If they translate those feelings into the post-meeting communication, rates could enter rally mode again. That said, I think a more likely outcome is an equivocal statement that leaves rate drifting through the end of the year absent something unexpected.

Dec 052018
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

It’s another jobs report week, and this could be an important one for mortgage rates. Rates have been trending down slowly for the last couple weeks aided by low oil prices and concerns about the sustainability of economic growth. It’s the latter that should be of more interest to those wanting lower interest rates.

While US economic data remains strong, market sentiment has become more equivocal. Several factors have contributed to this turn.

– The Federal Reserve has hiked short term interest rates three times this year and seems likely to hike again in a couple weeks. Markets worry that higher rates are going to choke off growth by making it harder for consumers and businesses to afford debt. An indication of their concern is the Treasury yield curve, the yield difference between short and long term Treasury bonds. The difference is as small as it’s been since the last recession and could go negative soon. A negative, or inverted yield curve has been an accurate indicator of recessions for the last half century.

– Even though the US economy appears strong, other economies have softened, and the World Bank continues to lower its estimates for global growth. Brexit and the Italian budget crisis add further uncertainty to the mix. A global slowdown should increase the appetite for US debt and reduce inflationary pressures, both of which help interest rates.

– Finally, some investors are simply worried the current economic expansion has gone on too long, and they don’t want to get caught on the wrong side of trading when it ends.

The wildcard this week is the jobs report on Friday. Watch the wage component of the report. Wage growth has moderated slightly since it jumped earlier this year. If that moderation continues, markets are likely to consider it a validation of the recent decline in rates. If the report shows elevated wage pressures, our recent holiday from higher rates could come to an end very quickly.

Dec 032018
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Rising home prices have prompted federal regulators to raise the loan limits for conventional loans starting in Jan. The maximum loan amount for a conforming loan on a single-family home, one eligible for acquisition by Fannie Mae or Freddie Mac, will rise to $484,350.

The Federal Housing Finance Agency (FHFA) reviews the loan limits each year as established by the Housing and Economic Recovery Act (HERA) and adjusts them as necessary to reflect changes in home prices. FHFA reported its housing price index rose 6.9% since the third quarter of last year, so it adjusted the loan limit higher by the same amount.

Higher limits apply in certain “high cost” areas where 115% of the local median home price exceeds the new limit; however, FHFA hasn’t indentified any of those “high cost” areas in TX. Higher limits also apply to two, three, and four unit properties.

For some historical perspective, conforming loan limits go back to the early 1970’s, when the single-family loan limit was $33,000. Congress set the limit to $417,000 in 2008, where it remained for several years until average home prices rebounded from the great recession.

FHA and VA set their loan limits independently of the conforming loan limit, and I’ll report those as soon as they’re available.

Nov 282018
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

After a rather quiet Thanksgiving week, bond markets that determine interest rates begin the Christmas countdown, well, quietly. Mortgage rates remain near the bottom of their recent range. It’s almost as if they’re waiting for something, but what could that be?

I think they’re staring at two events looming on the horizon. First up is next week’s jobs report. Recent reports have shown the economy is humming, and wages are rising. It’s the wage component of the report that may garner the most attention. Rising wages usually translate into inflation, and inflation is the enemy of low interest rates.

The second event is the Federal Reserve’s Dec meeting at which it’s expected to raise short term rates another quarter point. It may be counter-intuitive, but that could be a good thing for lower mortgage rates. Talk is growing louder that the Fed is hiking rates too quickly, and not just from the President. Remember that bond traders determine rates, and traders are people. If traders think Fed rate hikes are going to stifle the economy, they may push rates down in acticipation of a weaker economy regardless of what they’re spending on Christmas.

I’ll give you one other data point to watch. Oil prices have been on a tear recently – lower. The price of oil factors into the cost of so many goods that its collapse has taken some of the wind out of the sails of inflation hawks. I suspect rates will have a hard time rising much as long as oil prices remain down.

Rate update: Giving thanks for lower rates

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Giving thanks for lower rates
Nov 192018
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Starting this holiday week, we find mortgage rates still hanging out in the same range they’ve held since the first part of Oct, albeit at the lower end of that range thanks to “flight to safety” market action last week. And it’s that action that possibly could deliver an early Christmas present of lower rates in the upcoming weeks.

First, let’s get through this week. Holiday weeks like this tend to produce limited overall rate movement because few traders are tuned in. In the odd case that remaining traders push rates higher or lower, the market probably will self-correct next week absent some unexpected headline. My conclusion is if you aren’t risk averse, odds are you’ll see similar rates next week given the current market sentiment.

Looking out a little further, we have the most positive outlook for lower rates that we’ve had since summer. While the US economy still looks incredibly strong, global conditions aren’t quite as rosy. Economists are starting to sound alarm bells about slowing global growth. On top of that, recent headlines about Brexit, the Italian budget drama, and emerging market difficulties are like wind gusts embedded in an increasing headwind.

Traders mostly had been ignoring these negative factor given the prospects for rising US inflation, increased government borrowing, and the Federal Reserve’s apparent rate hike plan, all of which support higher rates. However, last week’s inflation report showed inflation remains tame. Friday, the Fed’s Vice Chair acknowledged the potential effects of slowing global growth on the US economy, which made traders question the rate hike plan.

Overall, I think momentum favors slightly lower rates, but if you’re going to float your rate, be cautious. The US economy is still a powerhouse, and I’m not convinced yet we’ve seen the highest rates of this cycle.

Is this another housing bubble?

 Real Estate Market  Comments Off on Is this another housing bubble?
Nov 082018
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Rapidly rising home prices preceded the housing crash 10 years ago during which some homes lost more than 50% of their value. Prices bottomed out a couple years later and have been rising steadily ever since. The strength of the recovery has some folks asking if we’re entering another housing bubble. Let’s look at the data.

Home prices nationally have risen 57% since the 2011 trough and are at record highs in some markets. However, the recovery hasn’t been uniform, and some markets still haven’t fully recovered. In addition, in order to assess market frothiness, it’s important to look at not only what homes cost, but also what homebuyers can afford.

Corelogic did that through its Market Conditions Indicator, which considers both home prices and average incomes. When rising home prices outpace incomes for a metropolitan area, the index labels the area overvalued. According to this index, about one-third of US metros currently are overvalued. This includes most Texas metros, including Austin, San Antonio, DFW, and Houston.

So, what does this mean? According to Corelogic, it probably doesn’t indicate a bubble yet. Before the last crash, two-thirds of metros nationally were overvalued. Market forces could be equilibrate metros if home prices stabilize. However, if for the next couple of years we experience additional price growth, we could enter bubble territory again.

Rate update: Good reason for rising rates

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Good reason for rising rates
Nov 052018
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

A strong jobs report last Fri shot rates back up to their recent highs. Not only was the number of jobs created greater than expected, wage growth was at its highest since before the recession. Both stoked concerns about inflation, bad news for interest rates.

This week could be an interesting one for rates. First, this week’s Treasury auctions will debut newly increased auction amounts. It will be interesting to see if the current higher rates will be able to attract enough buyers or if even higher rates are needed to clear the auctions.

Later in the week, we have a Federal Reserve meeting. However, the chairman won’t have a post-meeting press conference, and no one expects the Fed to change its stance regarding interest rates at this meeting.

The wildcard this week is the election. It’s very likely markets have priced in the most likely outcome: Democrats take over the House and Republicans increase their numbers a little in the Senate. If we wake up Wed with different results, you can expect market volatility. Common wisdom suggests a bad night for Republicans could be good for lower rates as it would jeopardize the current trajectory of the economy.

If you’re floating your interest rate, I suggest caution. Rates are currently at the higher end of their recent range. Most pundits believe that if we break above that range, rates will move higher quickly.

Fannie housing index says it’s a good time to buy

 Real Estate Market  Comments Off on Fannie housing index says it’s a good time to buy
Oct 312018
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Fannie Mae’s housing index fell slightly last month, but it remains on trend, suggesting the housing market continues to strengthen slowly. The good-time-to-buy component of the index rebounded strongly last month, gaining 5 points. Apparently, the strong economy has buoyed homebuyer sentiment enough to overcome rising interest rates. However, the component still is significantly lower than earlier in the year and is down year-over-year.

The good-time-to-sell component remained flat last month; however, it’s still trending higher and is well within reach of its recent all-time high.

Surprisingly, the components that measure personal finances both fell last month. The net share of respondents who said their income is significantly higher than last year fell by 4 points, and the net share who feel confident about job security fell 1 point. However, this last component is strongly positive (+79%), so the decrease probably isn’t meaningful. The right track/wrong track component widened to 21 points in favor of the economy being on the right track, and that could explain the strength of the good-time-to-buy component.

Neither the home price nor mortgage rate component of the index showed any surprises. Respondents still overwhelming expect home prices and mortgage rates to rise in the next year, and the net share expecting a rise increased for both components last month.

A funny thing happened on the way to higher interest rates

 Interest Rates, Residential Mortgage  Comments Off on A funny thing happened on the way to higher interest rates
Oct 292018
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

A funny thing happened on the way to higher interest rates.

The sell-off in the equities market last week put a pause on rising interest rates as all of that cash from stock sales needed somewhere to go, and some of it found its way into the bond market. The pause was a welcome respite, but it still leaves mortgage rates near 7-year highs. But with all the turmoil in equities, the question is why aren’t rate doing better?

Market sentiment of late seems to have focused on two things: continued strength in the US economy and continued monetary tightening from the Federal Reserve. Both support higher interest rates, and with rising inflation metrics this summer, most investors were betting rates would move even higher.

But this week, the punch wore off, and investors realized higher rates might dampen US economic growth. At least, that’s what the talking heads said. Personally, I’m not convinced it was just higher rates that caused the market turmoil. Investors have been piling on the side of higher rates for months now, and with the relaxation of global uncertainties last month, I think investors grew complacent about the risks to the global economy. But the world is still a scary place. Some of those uncertainties have reared their heads again, which balanced the scales – at least momentarily.

This coming week is a big one for US economic data. Strong data could stoke rates higher again. The inflation scare from this summer has subsided a bit, but I suspect all eyes will be on this Friday’s jobs report, especially the wage component. Unless we get a big surprise earlier in the week, I’m betting markets will keep rates in a narrow range waiting for Friday.

Rate update: Rates simply ran out of crises

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Rates simply ran out of crises
Sep 182018
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

We were hoping last week’s inflation report would keep a lid on interest rates. Unfortunately, that lid didn’t hold, and we’re looking at the highest mortgage rates in about 5 years. Granted, rates still are historically low, but for some folks “rates in the 4’s” are now in the rear-view mirror.

So, what’s going on? We’re looking at a variety of factors.

– Even though last week’s inflation report was tame, inflation still is elevated compared to last year and supports the idea of additional Fed rate hikes.

– The Fed will again reduce its bond buying on Oct 1st as part of its efforts to shrink its balance sheet.

– Economic activity and consumer confidence have reached short-term highs, and a healthy economy tends to put pressure on rates.

– Wages finally seem to be rising, and rising wages typically filter through to higher consumer inflation and higher economic growth.

– Government borrowing to fund deficit spending means a greater supply of bonds as the Fed is tapering its demand.

Against this backdrop, we’ve had a series of mini-crises this year that kept investors on edge. Trade fears probably have been the most pervasive, but even the fear of with a trade war seems to be dissipating. The apocalyptic predictions didn’t pan out, and investors seem to be viewing the posturing as negotiating tactics rather than a real threat to the global economy.

Other threats still exist, and I think those will keeps rates from rising too much too fast. However, for now, if rates take a temporary dip, it probably makes sense to lock.