Rate update: Fed nomination is a chance to lock your rate

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Fed nomination is a chance to lock your rate
Oct 312017

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

By G. Steven Bray

If you haven’t locked your mortgage rate, this week could provide a great opportunity. Interest rates have been on a gentle path higher since early Sep. Markets generally are reacting to positive economic data and the possibility of tax reform.

This week should provide four big headlines that could move rates, and two involve the Federal Reserve.

The Fed meets this week for its next to last meeting of the year. Pretty much no one expects the Fed to change short term rates Wed, but analysts will slice and dice the post-meeting announcement to try to predict the Fed’s future actions. Of particular interest will be any reaction to persistently low inflation.

The second Fed headline is the expected nomination of the next Fed chair. Trump is expected to nominate Jerome Powell. Powell is seen as more likely to keep interest rates low and friendlier towards measured deregulation. Markets also like that he already is a Fed member, which provides some continuity. Rumors of his nomination pushed rates down Fri and Mon, but it’s quite possible the actual announcement could bump rates still lower.

The third headline is the tax reform plan, expected on Wed. Rumors are circulating that the tax cuts could be implemented in a staggered fashion over five years. While markets still will view the cuts as positive for the economy (and bad for rates), up until now they’ve been trading on expectations of an immediate economic boost. A staggered rollout would dampen their enthusiasm and could be positive for rates.

Our final headline is probably the least important, which is funny because it used to pack such a punch. Friday, we’ll get the monthly jobs report. Markets are expecting the report to show 300k jobs created in Oct. I think the report would have to miss the mark significantly for markets to even care.

All of these headlines overlay the factors we’ve discussed the last few weeks. Economic sentiment remains frothy in markets and among consumers. Inflation is minimal, and expectations are it will remain that way. Markets are mostly ignoring other news, both domestic and overseas. The takeaway is that this week’s headlines could bump rates lower, but be prepared for them to rise again once the headlines fade.

No down payment loan for hurricane victims

 Loan Programs, Residential Mortgage  Comments Off on No down payment loan for hurricane victims
Oct 302017

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

By G. Steven Bray

Government reports show Hurricane Harvey completely destroyed almost 13k homes and damaged more than 200k. As folks continue to recover from this destructive storm, some may be able to take advantage of a special FHA mortgage program specifically designed for disaster victims.

The program, called 203(h), allows a disaster victim to purchase a new home with no down payment. While the damaged home must be located in the federally declared disaster area, the new home can be anywhere. The damage to the existing home must be to such an extent that reconstruction or replacement is necessary.

As this is an FHA mortgage, it will have both up-front and monthly mortgage insurance. You can roll the up-front mortgage insurance into the loan. However, you cannot roll the closing costs into the loan. Check out my Can I Qualify video on our Web site for ideas how to cover closing costs.

The program’s guidelines provide flexibility. While you’re still responsible for any mortgage on your damaged home, we don’t have to count it when qualifying you if you provide evidence of insurance coverage. We also can ignore any late payments or other credit hiccups that resulted from the disaster as long as your credit was satisfactory before the disaster.

If this program sounds like it could help you, it’s important not to let too much time pass. You must apply for the new mortgage within 1 year of the disaster declaration date, which was 8/25. An equally important consideration is your credit. While lenders can ignore credit dings resulting from the disaster, the credit bureaus won’t, and late payments could depress your credit scores. You will find most lenders apply their standard credit score limits to the program. If you’re finding it hard to balance your finances post-disaster, it may make sense to take advantage of the program before your scores sink too low.

Rate update: New Fed chair could be unfriendly for low rates

 Interest Rates, Residential Mortgage  Comments Off on Rate update: New Fed chair could be unfriendly for low rates
Oct 252017

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

By G. Steven Bray

If you’re still floating your interest rate, you may be kicking yourself this week. Mortgage rates have risen 1/8% in the last week. While rates still are very low by historical standards, they’ve been fairly stable lately, making the rise seem rather abrupt.

Last week I recommended caution if you’re watching rates, and I’ll reiterate that this week. I don’t believe the forces pushing rates higher have subsided just yet. Sentiment still seems frothy, which negates the effects of factors that would limit rate increases, such as persistently low inflation.

In addition, we’ve added a couple other factors that seemingly work against lower rates. First is the nomination for Chair of the Federal Reserve. Trump is said to be seriously considering two individuals: John Taylor and Jay Powell. Markets consider Taylor to be less friendly towards low rates. Trump said he is “very, very close” to deciding, and it was reported he asked senators at lunch Tues if they approved of Taylor. The response from senators was positive, and markets took notice.

The second factor is a pending announcement from the European Central Bank. The ECB previously promised it would let us know about its plans to taper its bond buying program after tomorrow’s meeting. ECB bond buying is akin to the Fed’s quantitative easing, which led to record low interest rates. It’s not certain what if anything the ECB will announce, but markets are hedging for the worst.

Rate update: Low inflation checks interest rates

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Low inflation checks interest rates
Oct 172017

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

By G. Steven Bray

Interest rates received a nice surprise from inflation data last Fri. Last week, we discussed that several inflation metrics are showing budding inflation, especially at the producer level. We also discussed how producer inflation doesn’t always translate into consumer inflation, and that’s what we saw last week.

The consumer price index, the godfather of inflation measures, showed that core inflation actually rose at half the expected rate and stubbornly remains below the Fed’s target rate of 2%. Maybe just as important, consumer’s expectations for future inflation fell significantly, and this was despite the hurricane-induced increase in gasoline prices.

Well, bond markets liked this news enough to stop their march towards higher interest rates, but it wasn’t enough to ignite a new rally. Economic optimism is fairly pervasive at the moment, and with the White House and Congress singing Kumbaya together around the campfire, I think it would take a surprise event to deflate that optimism.

Short term I still recommend caution. There’s less friction for rates to move higher than lower. In other words, a less significant event, such as progress on tax reform or another hot inflation report, could move rates quickly higher.

Longer term, I think the chances for low rates still are good. The prospects of rising inflation and stronger economic growth helped lift rates off their recent lows, but they’re still only prospects. Most economists are predicting mediocre growth and low inflation for the coming year, and that would support our current low rates.

Rate update: Budding inflation leading to higher rates

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Budding inflation leading to higher rates
Oct 102017

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

By G. Steven Bray

Bond markets got spooked last week, and interest rates moved higher. The media blamed the move on many things, but I think the underlying motivation is fear of inflation. While the Fed’s favored inflation metric, the PCE, continues to show negligible inflation, some other measures are beginning to show pricing pressure.

The first hint was the consumer price index a couple weeks ago, which showed consumer inflation approaching 2% again. Some analysts discounted the reading due to potential effects of Hurricane Harvey; however, the rise was greater than expected.

Very strong Manufacturing and Non-manufacturing surveys followed last week. The internals of both reports showed businesses reporting significantly higher input prices. While these pricing pressures don’t always percolate up to consumer prices, the magnitude of the increases was disconcerting.

The topper was the jobs report last Fri. The headline numbers were contradictory. The business survey showed the economy lost 33k jobs, but the household survey showed it gained about 900k. But what caught my eye was the impressive 0.5% monthly wage growth. Economists have been predicting low unemployment would push wage growth for years now, and we finally may be seeing it.

But, as I’ve said before, one month doesn’t make a trend, so it will be interesting to see if the readings remain higher once the effects of the hurricanes dissipate. It also will be interesting to see if consumer sentiment surveys begin to show expectations of higher inflation. If expectations start to align with economic reports, higher inflation could get locked into place.

Could rates move lower again? Sure they could, especially given all the potentially explosive issues facing the world. But I suggest you stay defensive unless and until you see rates heading down again.