Mar 132019
 

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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.

Mar 052019
 

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By G. Steven Bray

Recent data from ATTOM Data Solutions, a national property data warehouse, shows that the total number of homes and condos flipped last fall reached a 3.5-year low. The total of almost 46,000 was a 12% decrease from a year earlier.

ATTOM’s senior vice-president Daren Bloomquist suggested this could indicate a cooliing housing market as home flips are quick transactions and provide almost real-time data on the state of the market. Last fall was the third consecutive quarter of year-over-year decreases for flips. Bloomquist said the last time that happened was in 2014 after mortgage rates jumped.

For some context, flips decreased for eleven consecutive quarters preceding the housing crash, so it’s unlikely this trend is indicative of an echo crash. Like 2014, the recent swoon may be a reaction to rising interest rates, and it will be interesting to see whether flipping activity picked up this winter when rates retreated.

The report contained a wealth of interesting data on home flipping. The average gain-on-sale for home flips was $63,000, a slight decrease from a year ago when it was $65,000. This represented a 42.6% return on investment, which was a 6.5 year low and was lower than the 48.1% ROI a year earlier.

Almost half of all flips in the quarter sold for less than $200k, with most of those flips having a gross ROI of 50% or better. However, the highest ROI occurered for flips with a sales price north of $5 million.

The highest rate of home flipping occurred in AZ, TN, and NV, and the highest gross returns were in PA, OH, and KY.

ATTOM’s summary of the report

Feb 262019
 

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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.

Big rebound in housing sentiment

 Real Estate Market, Residential Mortgage  Comments Off on Big rebound in housing sentiment
Feb 252019
 

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By G. Steven Bray

Fannie Mae’s housing index rebounded in Jan after Dec’s big drop in sentiment. Most of the gain was the result of consumers’ confidence about their personal finances. Thirty-four percent of respondents reported their income is higher this year while only seven percent said their income has fallen. This is an 11 point improvement from the index a year ago.

The overall index, which measures how consumers feel about the housing market, rose 1.2 points in Jan. However, the index is down almost 5 points from the same time last year, a negative trend that started last summer.

Three other components of the index stood out. The net share of respondents who thinks home prices will rise fell one percent, declining for the fourth consecutive month. This component is down 22 points from the same time last year.

The net share of respondents saying mortgage rates will fall increased three points. However, this component hasn’t changed much in the last year, and the overwhelming majority of consumers still think rates will rise.

Finally, the net share who thinks now is a good time to buy a home rose four points last month to 15%. It was this component that caused the Dec index to sink.

Taken together, the positive improvements in the index may signal that consumers are sensing improving home affordability, and that could portend an active spring homebuying season.

The best day to buy a home

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Feb 192019
 

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By G. Steven Bray

Do know which day is the best day to buy a home? Well, according to ATTOM Data Solutions, a national property data warehouse, it’s the day after Christmas. ATTOM studied closings for the last 5 years and determined that buyers who closed on Dec 26th realized the greatest discount from market value.

The purchase price for buyers on that day averaged 1.3% below what ATTOM considered the market value. To determine market value, it used a computer-based valuation model, which can have laughably inaccurate results. However, ATTOM analyzed more than 18 million transactions, so you’d expect the laughable outliers would average out.

But why that day? It might be because in order to close on Dec 26, a buyer would be submitting an offer around Thanksgiving. Those sellers who wanted to sell before the end of the year probably were getting a little more motivated to cut a deal.

Interestingly, ATTOM’s analysis showed only 10 days during the year when buyers had the upper hand getting a below market price. That’s probably a testament to the strength of the recent seller’s market. Seven of those days occurred in Dec with one day in each of Feb, Oct, and Nov.

Rate update: Investors think Fed is done raising rates

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Investors think Fed is done raising rates
Feb 122019
 

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

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

By G. Steven Bray

The Federal Reserve gave rate watchers a great gift a couple weeks ago – assurances that it’s well aware of the potential for slowing economic growth. Markets reacted with a big rally, and analysts now predict the chances of the Fed lowering rates before the end of the year as high as the chances it will raise rates again.

However, lost in the excitement was the Fed’s reiteration that it will tweak its plans based on economic data. Two days after the Fed meeting, the Jan jobs report crushed expectations, and other economic reports showed the economy still seems to be humming along.

Investors still have other concerns: the government funding deal, the Chinese trade dispute, and weakening global growth. All have created uncertainty that’s counteracting the good news on the economy, and that seems to be keeping rates trapped in a very narrow range.

So, what to watch? Personally, I don’t think anyone in Washington wants another shutdown, and I think markets already expect the compromise to pass. Chinese trade, on the other hand, could be a market mover. As long as a trade deal remains elusive, I think rates will remain capped. If a trade deal happens, watch out for higher rates. Even then, I think global growth concerns will remain background uncertainty that keeps rates from rising too fast.

We have one other issue to watch. The Fed meets again in mid-Mar. Based on the Fed’s last post-meeting announcement and press conference, markets seem convinced the Fed has hit the pause button on tighter monetary policy. If the Fed’s dot plot in Mar continues to show more rate hikes, or if Fed governors over the next month backtrack on their earlier caution, look for rates to rise again.

Rate update: Rates couldn’t care less about the shutdown

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Jan 282019
 

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

By G. Steven Bray

The end of the government shutdown removed one element of uncertainty for markets, but clearly it wasn’t a critical one as interest rates barely moved in response. I half expected a little volatility today, the first trading day after the government reopened. Instead, the day passed quietly. I suspect that’s because more important events await us this week.

First up is the Federal Reserve meeting, which ends on Wed. No one expects the Fed to change interest rates at this meeting, but pretty much everyone expects the Fed to soften its attitude towards future rate hikes. It also will be interesting to see what the Fed says about the effects of the shutdown. I suspect markets already have priced in a more dovish Fed. Thus, if the attitude, as reflected in the post-meeting announcement, hasn’t changed, watch out for higher rates.

Friday brings the Jan jobs report. No one knows exactly how the shutdown effected employment. While furloughed government workers were counted among the employed, employees of contractors that were sidelined by the funding lapse may have been counted as unemployed.

Analysts are predicting employers created about half as many jobs in Jan as in Dec; however, count me among the skeptics about whether analysts have captured the extent of the shutdown effect. One thing is likely: if the actual number of jobs differs significantly from the predictions, talking heads will do what they do best – talk – and markets will be choppy.

Finally, keep an eye on the China trade talks. Markets have been reacting to pretty much every headline the past couple weeks. That partly may have been because the shutdown bottled up economic data investors use to make trading decisions. However, I suspect markets would have been reacting anyway. Chinese economic data seems to show the trade war has significantly affected its economy. Positive headlines allow investors to think maybe the world’s economy isn’t really slowing, and equity markets rally in response. That’s been a negative for interest rates, and I suspect more positive headlines will bring more of the same.

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.

Rate update: Will party poopers spoil our lower rates

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Will party poopers spoil our lower rates
Jan 092019
 

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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.

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.