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
 

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.

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.

How the shutdown will affect your loan application

 Mortgage Process, Residential Mortgage  Comments Off on How the shutdown will affect your loan application
Dec 272018
 

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

By G. Steven Bray

If you’re in the middle of the homebuying process, you may have some concerns about the government shutdown. Even though it’s only a partial shutdown, the parts of the government that are closed are kind of important to the mortgage world. However, the potential impact on your application depends on the type of loan you’re using.

If you’re using a conventional (Fannie Mae or Freddie Mac) loan, the shutdown probably won’t affect you at all. Fannie and Freddie operate independently of the government budget.

I see mixed impacts on FHA borrowers. Most borrowers will be unaffected as most FHA systems are automated, and those system remain online. However, if your situation requires human intervention, you may experience delayed processing. Additionally, FHA will not insure any reverse mortgages during the shutdown.

The VA is fully funded, and I don’t expect any impact on most VA loans.

The USDA, on the other hand, is shut down. USDA will not issue commitments during the shutdown, which means most lenders will not fund USDA loans.

If your loan requires a new flood insurance policy, expect a delay. Even though the National Flood Insurance Program is funded through May, FEMA is disallowing the issuance of new or renewal flood insurance policies during the shutdown.

Many lenders require verifications from the IRS or Social Security Administration as part of the loan process. Neither agency will process requests during the shutdown. Check with your lender as to whether this will impact your loan. Some lenders are temporarily suspending the verifications unless there’s an issue of data integrity, such as an unconfirmed Social Security number.

Finally, if you’re a government employee, and your agency is shut down, expect a delay as your lender won’t be able to verify your employment during the shutdown.

Higher FHA and VA loan limits, too

 Loan Guidelines, Residential Mortgage  Comments Off on Higher FHA and VA loan limits, too
Dec 172018
 

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

By G. Steven Bray

We found out a couple weeks ago that the conventional loan limit increased to $484,350. Over the weekend, FHA released its 2019 loan limits. By statute, the minimum FHA loan limit is 65% of the conventional limit, or $314,827 for a single-family home in 2019.

However, FHA allows higher limits in areas where 115% of the median home price exceeds the minimum. In TX, higher limits apply once again in the Austin, San Antonio, Dallas-Ft. Worth, and Houston metros, and for the first time, higher limits also apply in the Midland area and the city of Fredericksburg (Gillespie Co).

Unlike past years, the higher metropolitan area limits did not rise much this year. The DFW limit rose the most, by more than $9000, to $395,600. Austin’s limit rose about $6000 to $389,850. The limit in Houston and San Antonio remained the same at $331,200 and $359,950, respectively. Remember that these limits apply to all the counties in the metro, not just the cities themselves.

Among the new entrants to the higher limit list, Fredericksburg took the prize rising almost $30,000 to $324,300. The Midland area limit, including Midland and Martin Counties, rose $24,000, to $318,550.

The limit for the VA program mirrors the conventional loan limit at $484,350.

USDA programs shouldn’t be affected because loan size is driven by annual income limits, not median home prices.

Finally, these limits apply to single-family homes. Higher limits apply for two- to four-unit properties.

Rate update: Rate rally ran out of steam

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Rate rally ran out of steam
Dec 112018
 

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

By G. Steven Bray

The jobs report last week didn’t disappoint, but it didn’t excite either. Sure, the headline number of jobs created missed expectation, but the miss wasn’t huge by historical standards. Wage growth continued, albeit at a moderate pace. All in all the report did little to help bond markets decide whether the economy is slowing. Markets reacted as they’re wont to do in these situations – by shifting into sideways mode.

So, we keep looking for that source of market inspiration. Next up on Wed is the Consumer Price Index, the granddaddy of inflation reports. Since stoking inflation fears this summer, the report in recent months has suggested that inflation has waned once again. But like last week’s read on wage inflation, any uptick in consumer inflation could quickly erase the rate gains we’ve made since Thanksgiving.

If that report doesn’t give markets inspiration, next week’s Federal Reserve meeting might. Most analysts expect the Fed to raise short term interest rates for a fourth time this year, so doing that is unlikely to affect longer term rates like mortgage rates. Any effect is already baked in.

However, it’s what the Fed says after the meeting that probably will carry the most weight. Recent speeches by Fed governors have indicated the governors sense some risks to continued economic growth. If they translate those feelings into the post-meeting communication, rates could enter rally mode again. That said, I think a more likely outcome is an equivocal statement that leaves rate drifting through the end of the year absent something unexpected.

Rate update: Rising wages could thwart our rate rally

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Rising wages could thwart our rate rally
Dec 052018
 

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

By G. Steven Bray

It’s another jobs report week, and this could be an important one for mortgage rates. Rates have been trending down slowly for the last couple weeks aided by low oil prices and concerns about the sustainability of economic growth. It’s the latter that should be of more interest to those wanting lower interest rates.

While US economic data remains strong, market sentiment has become more equivocal. Several factors have contributed to this turn.

– The Federal Reserve has hiked short term interest rates three times this year and seems likely to hike again in a couple weeks. Markets worry that higher rates are going to choke off growth by making it harder for consumers and businesses to afford debt. An indication of their concern is the Treasury yield curve, the yield difference between short and long term Treasury bonds. The difference is as small as it’s been since the last recession and could go negative soon. A negative, or inverted yield curve has been an accurate indicator of recessions for the last half century.

– Even though the US economy appears strong, other economies have softened, and the World Bank continues to lower its estimates for global growth. Brexit and the Italian budget crisis add further uncertainty to the mix. A global slowdown should increase the appetite for US debt and reduce inflationary pressures, both of which help interest rates.

– Finally, some investors are simply worried the current economic expansion has gone on too long, and they don’t want to get caught on the wrong side of trading when it ends.

The wildcard this week is the jobs report on Friday. Watch the wage component of the report. Wage growth has moderated slightly since it jumped earlier this year. If that moderation continues, markets are likely to consider it a validation of the recent decline in rates. If the report shows elevated wage pressures, our recent holiday from higher rates could come to an end very quickly.

Higher loan limits for 2019

 Loan Guidelines, Residential Mortgage  Comments Off on Higher loan limits for 2019
Dec 032018
 

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

By G. Steven Bray

Rising home prices have prompted federal regulators to raise the loan limits for conventional loans starting in Jan. The maximum loan amount for a conforming loan on a single-family home, one eligible for acquisition by Fannie Mae or Freddie Mac, will rise to $484,350.

The Federal Housing Finance Agency (FHFA) reviews the loan limits each year as established by the Housing and Economic Recovery Act (HERA) and adjusts them as necessary to reflect changes in home prices. FHFA reported its housing price index rose 6.9% since the third quarter of last year, so it adjusted the loan limit higher by the same amount.

Higher limits apply in certain “high cost” areas where 115% of the local median home price exceeds the new limit; however, FHFA hasn’t indentified any of those “high cost” areas in TX. Higher limits also apply to two, three, and four unit properties.

For some historical perspective, conforming loan limits go back to the early 1970’s, when the single-family loan limit was $33,000. Congress set the limit to $417,000 in 2008, where it remained for several years until average home prices rebounded from the great recession.

FHA and VA set their loan limits independently of the conforming loan limit, and I’ll report those as soon as they’re available.

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.