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.

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.

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.