Feb 192019
 

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

By G. Steven Bray

Do know which day is the best day to buy a home? Well, according to ATTOM Data Solutions, a national property data warehouse, it’s the day after Christmas. ATTOM studied closings for the last 5 years and determined that buyers who closed on Dec 26th realized the greatest discount from market value.

The purchase price for buyers on that day averaged 1.3% below what ATTOM considered the market value. To determine market value, it used a computer-based valuation model, which can have laughably inaccurate results. However, ATTOM analyzed more than 18 million transactions, so you’d expect the laughable outliers would average out.

But why that day? It might be because in order to close on Dec 26, a buyer would be submitting an offer around Thanksgiving. Those sellers who wanted to sell before the end of the year probably were getting a little more motivated to cut a deal.

Interestingly, ATTOM’s analysis showed only 10 days during the year when buyers had the upper hand getting a below market price. That’s probably a testament to the strength of the recent seller’s market. Seven of those days occurred in Dec with one day in each of Feb, Oct, and Nov.

Feb 122019
 

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

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

By G. Steven Bray

The Federal Reserve gave rate watchers a great gift a couple weeks ago – assurances that it’s well aware of the potential for slowing economic growth. Markets reacted with a big rally, and analysts now predict the chances of the Fed lowering rates before the end of the year as high as the chances it will raise rates again.

However, lost in the excitement was the Fed’s reiteration that it will tweak its plans based on economic data. Two days after the Fed meeting, the Jan jobs report crushed expectations, and other economic reports showed the economy still seems to be humming along.

Investors still have other concerns: the government funding deal, the Chinese trade dispute, and weakening global growth. All have created uncertainty that’s counteracting the good news on the economy, and that seems to be keeping rates trapped in a very narrow range.

So, what to watch? Personally, I don’t think anyone in Washington wants another shutdown, and I think markets already expect the compromise to pass. Chinese trade, on the other hand, could be a market mover. As long as a trade deal remains elusive, I think rates will remain capped. If a trade deal happens, watch out for higher rates. Even then, I think global growth concerns will remain background uncertainty that keeps rates from rising too fast.

We have one other issue to watch. The Fed meets again in mid-Mar. Based on the Fed’s last post-meeting announcement and press conference, markets seem convinced the Fed has hit the pause button on tighter monetary policy. If the Fed’s dot plot in Mar continues to show more rate hikes, or if Fed governors over the next month backtrack on their earlier caution, look for rates to rise again.

Rate update: Rates couldn’t care less about the shutdown

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Rates couldn’t care less about the shutdown
Jan 282019
 

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

By G. Steven Bray

The end of the government shutdown removed one element of uncertainty for markets, but clearly it wasn’t a critical one as interest rates barely moved in response. I half expected a little volatility today, the first trading day after the government reopened. Instead, the day passed quietly. I suspect that’s because more important events await us this week.

First up is the Federal Reserve meeting, which ends on Wed. No one expects the Fed to change interest rates at this meeting, but pretty much everyone expects the Fed to soften its attitude towards future rate hikes. It also will be interesting to see what the Fed says about the effects of the shutdown. I suspect markets already have priced in a more dovish Fed. Thus, if the attitude, as reflected in the post-meeting announcement, hasn’t changed, watch out for higher rates.

Friday brings the Jan jobs report. No one knows exactly how the shutdown effected employment. While furloughed government workers were counted among the employed, employees of contractors that were sidelined by the funding lapse may have been counted as unemployed.

Analysts are predicting employers created about half as many jobs in Jan as in Dec; however, count me among the skeptics about whether analysts have captured the extent of the shutdown effect. One thing is likely: if the actual number of jobs differs significantly from the predictions, talking heads will do what they do best – talk – and markets will be choppy.

Finally, keep an eye on the China trade talks. Markets have been reacting to pretty much every headline the past couple weeks. That partly may have been because the shutdown bottled up economic data investors use to make trading decisions. However, I suspect markets would have been reacting anyway. Chinese economic data seems to show the trade war has significantly affected its economy. Positive headlines allow investors to think maybe the world’s economy isn’t really slowing, and equity markets rally in response. That’s been a negative for interest rates, and I suspect more positive headlines will bring more of the same.

FEMA and IRS rescue shutdown victims

 Residential Mortgage  Comments Off on FEMA and IRS rescue shutdown victims
Jan 112019
 

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

By G. Steven Bray

As the government shutdown lingers, let’s do a quick update on the effects it’s having on the mortgage world.

As I reported before, the mortgage products experiencing the greatest impact are those offered through the USDA. USDA will not issue commitments during the shutdown, meaning if you’re using a USDA loan, you’ll probably experience a delay.

But we have some positive developments. Under intense pressure, FEMA reversed its position on new flood insurance policies. The new guidance means insurers can sell new policies and renew existing ones during the shutdown. Given that the ban on new policies lasted only a few days and over Christmas, it’s unlikely it created any significant backlog. If the property you’re buying requires flood insurance, you shouldn’t experience any shutdown-related delay.

Note that despite the reversal, the National Flood Insurance Program still is living on life support – a temporary extension that expires in May.

Another positive announcement came from the IRS. As I reported before, lenders often verify an applicant’s income tax return with the IRS during the loan process. The IRS previously stated it would not process any verification requests during the shutdown. On Monday, however, the IRS announced it would resume processing requests. The IRS says it has a significant backlog, so if your loan requires an IRS verification, you still may experience a delay.

Rate update: Will party poopers spoil our lower rates

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Will party poopers spoil our lower rates
Jan 092019
 

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

By G. Steven Bray

Last Friday’s jobs report was strong. How strong? Well, the number of jobs created was the most for a Dec in 20 years. Average hourly earnings growth remained above 3% for the third consecutive month, and average hours worked also ticked higher. Revisions to previous months also were positive.

It would seem that the report would confirm market fear that the Federal Reserve will continue its rate-hiking campaign unabated. As we discussed last week, markets fear the Fed will choke off economic growth with rate hikes.

However, a couple other economic headliners also attended the party. First was last week’s ISM manufacturing report, which measures the strength of the manufacturing sector. It showed the greatest one month decline since the Great Recession. While the report’s index still shows good sector growth, the report is a leading indicator of economic activity. The jobs report, on the other hand, is a lagging indicator. So, even though the job market is very healthy, the ISM report could portend a coming economic slowdown.

The second headliner was a speech by Fed head Powell. Apparently, he wrote the speech before he saw the jobs report because it was very dovish. Basically, Powell said the Fed will be sensitive to market signals in setting its future rate policy. Well, the stock market loved this and went on a tear. Bond markets, which sank after the jobs report, sank further as investors sold bonds to buy equities. (Selling bonds raises interest rates.)

The question for rates is which version of reality is the correct one: a strong economy inviting further Fed tightening or a slowing economy leading to Fed restraint? Which version markets believe is likely to dictate whether we can hold the rate gains made over the holidays.

So far this week, markets seem to be leaning towards the slowing economy with a hedge. They’ve given up about a quarter of the rate gains and have leveled off waiting for further inspiration. That inspiration may come from this Friday’s inflation report. An elevated reading will likely send rates higher again, but a tame reading – in the 2% range – probably wouldn’t elicit any response.

I see one wildcard that could push rates either way – the China trade talks. I still think positive progress could make markets overlook the ISM reports and lay bets on a stronger economy again.

Rate update: The reason rates are rallying

 Interest Rates, Residential Mortgage  Comments Off on Rate update: The reason rates are rallying
Jan 032019
 

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

By G. Steven Bray

The Christmas rate rally so far has extended into the new year. Mortgage rates are the lowest they’ve been since last spring. Let’s try to understand why so that we might predict if the lower rates will last – or might get even better.

The Christmas rate rally so far has extended into the new year. Mortgage rates are the lowest they’ve been since last spring. Let’s try to understand why so that we might predict if the lower rates will last – or might get even better.

The recent rally has coincided with a swoon in the stock market, and most pundits agree that the two markets are connected at this time. Money is moving out of stocks and into bonds. So, the source of these movements should be able to explain both markets.

The movement seemed to start over a month ago based on general concerns about the strength of the global economy. It gained momentum after the Dec Federal Reserve meeting at which the Fed raised short term rates for the fourth time in 2018. Markets expected that rate hike, but apparently they were expecting the Fed to acknowledge more forcefully rising risks to the global economy. The main concern is the Fed will miss market signals and hike rates too high too fast and choke the economy. The momentum accelerated this week with the release of US and Chinese economic data showing both economies may be slowing.

Okay, so let’s dig a little deeper and try to predict the future of rates. The movement seems predicated on a slowing economy, or dare I say, a pending recession. So far, US economic data shows slowing growth, but the data still is decidedly positive. About the only negative signals so far come from the housing market, which never fully recovered from the Great Recession and is suffering from a severe inventory shortage.

That said, business and consumer confidence are off their recent highs, and the stock market swoon could further erode confidence. A continuing government shutdown could exacerbate this situation. Remember that confidence reflects expectations, and expectations influence actions. If consumers and businesses start to have doubts about the direction of the economy, weakness could become a self-fulfilling prophecy.

On the global stage, it seems clear that growth is slowing, but it’s unclear how much of this slowing reflects the ongoing trade dispute between the US and China. Should the countries resolve the dispute in the next few months, it could buoy market sentiment and put a quick end to our rally.

How the shutdown will affect your loan application

 Mortgage Process, Residential Mortgage  Comments Off on How the shutdown will affect your loan application
Dec 272018
 

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

By G. Steven Bray

If you’re in the middle of the homebuying process, you may have some concerns about the government shutdown. Even though it’s only a partial shutdown, the parts of the government that are closed are kind of important to the mortgage world. However, the potential impact on your application depends on the type of loan you’re using.

If you’re using a conventional (Fannie Mae or Freddie Mac) loan, the shutdown probably won’t affect you at all. Fannie and Freddie operate independently of the government budget.

I see mixed impacts on FHA borrowers. Most borrowers will be unaffected as most FHA systems are automated, and those system remain online. However, if your situation requires human intervention, you may experience delayed processing. Additionally, FHA will not insure any reverse mortgages during the shutdown.

The VA is fully funded, and I don’t expect any impact on most VA loans.

The USDA, on the other hand, is shut down. USDA will not issue commitments during the shutdown, which means most lenders will not fund USDA loans.

If your loan requires a new flood insurance policy, expect a delay. Even though the National Flood Insurance Program is funded through May, FEMA is disallowing the issuance of new or renewal flood insurance policies during the shutdown.

Many lenders require verifications from the IRS or Social Security Administration as part of the loan process. Neither agency will process requests during the shutdown. Check with your lender as to whether this will impact your loan. Some lenders are temporarily suspending the verifications unless there’s an issue of data integrity, such as an unconfirmed Social Security number.

Finally, if you’re a government employee, and your agency is shut down, expect a delay as your lender won’t be able to verify your employment during the shutdown.

Higher FHA and VA loan limits, too

 Loan Guidelines, Residential Mortgage  Comments Off on Higher FHA and VA loan limits, too
Dec 172018
 

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

By G. Steven Bray

We found out a couple weeks ago that the conventional loan limit increased to $484,350. Over the weekend, FHA released its 2019 loan limits. By statute, the minimum FHA loan limit is 65% of the conventional limit, or $314,827 for a single-family home in 2019.

However, FHA allows higher limits in areas where 115% of the median home price exceeds the minimum. In TX, higher limits apply once again in the Austin, San Antonio, Dallas-Ft. Worth, and Houston metros, and for the first time, higher limits also apply in the Midland area and the city of Fredericksburg (Gillespie Co).

Unlike past years, the higher metropolitan area limits did not rise much this year. The DFW limit rose the most, by more than $9000, to $395,600. Austin’s limit rose about $6000 to $389,850. The limit in Houston and San Antonio remained the same at $331,200 and $359,950, respectively. Remember that these limits apply to all the counties in the metro, not just the cities themselves.

Among the new entrants to the higher limit list, Fredericksburg took the prize rising almost $30,000 to $324,300. The Midland area limit, including Midland and Martin Counties, rose $24,000, to $318,550.

The limit for the VA program mirrors the conventional loan limit at $484,350.

USDA programs shouldn’t be affected because loan size is driven by annual income limits, not median home prices.

Finally, these limits apply to single-family homes. Higher limits apply for two- to four-unit properties.

Rate update: Rate rally ran out of steam

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Rate rally ran out of steam
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.

Rate update: Rising wages could thwart our rate rally

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Rising wages could thwart our rate rally
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.