Rate update: Wages vs oil prices

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Wages vs oil prices
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.