Mar 132019
 

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

By G. Steven Bray

Still riding the range. It’s not a bad place to be when mortgage rates are the lowest they’ve been in a year. This range has held for an unusually long time, and we’ve been looking towards this month as the time when the range finally might break down. There’s no sign of that yet, but let’s review some events that could make it happen.

US economic data probably carries the greatest weight. Most of the data this year has shown continued economic strength – until the Feb jobs report. The report didn’t just miss expectations, it was anemic. Could it be an outlier due to the government shutdown or seasonal factors? Possibly. The Jan number was oddly high. Regardless, the weak jobs report combined with this week’s tame inflation reports have bond buyers in a frisky mood, and that’s good for interest rates. Any additional weak economic data likely will get the recession whisperers going again, and rates could break lower.

The other elephant in the room is the ongoing Chinese trade talks. I still think a trade deal is likely to pump up rates a bit as it not only will remove impediments to economic growth, it will remove the uncertainty that acts like a weight on rates.

Foreign economic uncertainty carries less weight, but its pervasiveness at the moment may be giving it an over-sized effect. Brexit talks continue to flounder, and a no-deal divorce between Britain and the EU is full of unknowns. The European Central Bank last week again lowered its growth estimates and discussed stimulus measures to shore up the European economy. Chinese growth has cooled significantly, and recent data shows its manufacturing sector in contraction.

Finally, we have the Federal Reserve meeting next week. The Fed had a large part in setting up the current range with its about-face on rate hikes following its Dec meeting. Markets currently see little chance of the Fed raising interest rates soon. Should the Fed’s post-meeting announcement suggest otherwise, rates could make a quick jump higher.

Feb 262019
 

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

By G. Steven Bray

Mortgage rates remain range-bound, and fortunately for us the range is a pretty nice place to be. Rates are the best they’ve been since last summer. At some point, the range is going to break, so let’s look at the factors that may influence that break.

Rates hit their recent peak and started heading lower last Nov in response to stock market losses and concerns about the economy. The stock market has rebounded, and recent US economic data looks pretty rosy, so we don’t have those factors working for us anymore.

Trade concerns, especially the ongoing tariff battle with China, added uncertainty to the market, which put downward pressure on rates. However, it’s looking increasing possible that China and the US will resolve their trade issues and remove that as a factor.

Concerns about global economic growth have been a factor for a while, and those concerns seem to be intensifying. Recent data from Europe, China, and Japan have indicated weakening economies, and Europe still has its Brexit headache. Remember that slowing economies lead to less demand for money, which leads to lower rates.

But I’d say the biggest factor affecting rates right now is the Federal Reserve. It was the Fed meeting in Dec that put the exclamation point on the stock market swoon, and it was the Fed’s reaction to the swoon at its last meeting that solidified the current rate range. More recently, the Fed has hinted it may start buying bonds again, which would put more downward pressure on rates.

Despite those hints, Fed head Powell has been clear that the Fed is keenly interested in economic data (both US and global) and will respond accordingly. Most of the US data released this month was polluted by the government shutdown, and it won’t be until mid-Mar until that pollution clears – which could be the time rates finally leave the range.

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.

Rate update: The case for lower rates

 Interest Rates, Residential Mortgage  Comments Off on Rate update: The case for lower rates
May 092018
 

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

By G. Steven Bray

Mortgage rates seem to have plateaued again – waiting for the another source of inspiration to set them on a new course higher or lower. Which course is more likely?

The mainstream narrative is that higher rates are inevitable because of the factors we discussed a couple weeks ago, namely more government borrowing, less Federal Reserve accommodation, and continued economic growth.

These factors are undeniable. What we don’t know is the extent to which the market already has priced them in. Maybe rates have plateaued because they already reflect the risks associated with these factors. If that’s true, markets may increasingly pay attention to other factors that could lead to lower rates.

Consider the following:

– While the Fed’s favored measure of inflation, the PCE, moved higher, close to the Fed’s 2% target, it did so because very low inflation readings from last year are dropping out of the calculation. Moreover, transitory factors, hospital costs and oil prices, seem to be causing much of the recent rise.

– While the unemployment rate dropped below 4% for the first time since 2000, employment growth missed expectations for the second straight month, and wage growth also was below expectations.

– The economic expansion is long in the tooth. Talking heads increasingly are warning of a downturn just because it’s been so long since the last one. European economies already look softer.

– Global headlines are starting to grab market attention again. Israel is warning of imminent war in the Middle East, and the President’s withdrawal from the Iranian nuclear deal adds some uncertainty to the region. On the other side of the continent, while a trade war with China still seems unlikely, talk of it creates uncertainty, and uncertainty exerts downward pressure on rates.

– Finally, it’s probably not too soon for markets to start thinking about the effects of the mid-term elections.

I still think the upward forces on rates will remain stronger in the short term. However, absent some additional positive momentum, the chances are increasing that the next significant move for rates could be lower.