Rate update: Reasons for optimism for lower rates

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Reasons for optimism for lower rates
Nov 292016
 

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

By G. Steven Bray

Mortgage rates are finally catching a break this week despite recent positive economic data. The improvement also comes despite the prevailing wisdom in the popular press that the election of Trump has somehow rubbed the magic inflation bottle, and prices and rates are going to roar higher in coming months.

I think the sell-off in the bond market and resultant increase in rates was a bit overdone, and I suspect the numerous uncertainties that remain in the world will keep a lid on US rates in the new year.

One of those uncertainties, a constitutional referendum in Italy, will be resolved this weekend. It appears now that the referendum will fail, and talking heads have opined that this could lead to Italy leaving the European Union. Probably not, but a no-vote could lead to another silly season like we had after the Brexit vote when rates dropped nicely.

In the US, we have a jobs report this Fri. I don’t think the jobs number will matter much unless it really misses expectations. What will interest me more is the wage inflation number. Wage inflation shot up a couple months ago. If it bests expectations again, it will give the inflation genie more power.

I think floating your rate this week is reasonable, but it’s also risky. Prevailing sentiment still seems to favor higher rates even if fundamentals don’t support them. Choose a bail-out point at which you’ll lock if rates start to zip higher again.

Rate update: What to do if your rate is not locked

 Interest Rates, Residential Mortgage  Comments Off on Rate update: What to do if your rate is not locked
Nov 142016
 

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

By G. Steven Bray

What a difference a week makes. Before the election, market analysts were virtually unanimous that a Trump victory would scare markets, resulting in temporarily lower rates. The spookiness lasted less than 12 hours. By the time the nation awoke Wed morning, markets had reversed their Tues night collapse. Market momentum kept bond buyers sidelined and pushed rates up.

If you search for reasons for the sell-off, you’ll probably find references to Trump’s policies igniting inflation. I’m calling BS. While that could be an outcome, the assumptions some analysts made – that he’ll tear up NAFTA, impose tariffs on foreign goods, and shut off immigration – are overblown and even if anything like them comes to pass, are many months, if not years, in the future. Tax cuts and infrastructure spending could boost the economy, but we don’t even have concrete proposals yet.

I suspect the reaction had more to do with the elimination of election uncertainty combined with concern that the European Central Bank will start closing the money spigot in Dec. Market sentiment started edging towards higher rates a couple months ago. The election just gave bond sellers a push, especially if they needed funds to jump on the stock market rally.

So, what do you do if you didn’t lock your rate before the election? I suspect we’re doing to be stuck with these higher rates for a while. That said, a big market move like this one increases the chances of a temporary reversal. Investors will see bonds as cheap and start buying, which will push rates down. However, such a reversal is not a certain outcome. I suggest you pick you maximum pain point, and if rates keep rising, lock if they reach that point.

Rate update: Election will determine direction of rates

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Election will determine direction of rates
Nov 082016
 

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

By G. Steven Bray

Rates have one thing on their mind: today’s presidential election results. Last week’s jobs report came and went with little more than a blink.

Financial markets are happiest when the world is calm and predictable, and this election season has offered little of either. That said, markets are likely to react differently based on the who wins the presidency.

Hillary Clinton represents the status quo. Markets think they know what they’re going to get. It may not be to their liking or supportive of robust growth, for example higher taxes and greater regulation. However, it is predictable, and investors are likely to react with a relief rally that will lift stock prices and interest rates.

Donald Trump represents change and based on his rhetoric potentially dramatic change. Investors are likely to react cautiously, buying gold and sovereign debt at the expense on stocks. The result would be temporarily lower interest rates.

Eventually, markets may focus on last week’s jobs report, which provided some interesting data. We’ll take a look at that later in the week.