Tag: interest rates

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By G. Steven Bray

Friday’s jobs report was surprisingly awful. Markets expected it to show the economy created 162k jobs last month. Instead, we got 38k. Even after factoring out some unusual effects, the report was very weak.

What does that mean for rates? Well, the small chance the Fed would hike short term rates next week seems to have evaporated, and the chances for Jul depend on stronger data during the coming month.

They also may depend on whether Great Britain votes to leave the European Union on the 23rd. Some analysts are predicting economic calamity if the “leave” side wins, and recent polls show it winning by a few percentage points. The true effect probably is closer to some market volatility, but the uncertainty should give the Fed raeson to pause.

Mortgage rates are likely to continue riding the range for now.

One cautionary note about the jobs report: Earlier in the year I mentioned that it was important to watch wage inflation. Wages ticked up again last month and now are up roughly 3% year-over-year. Rising wage inflation could cause the Fed to raise rates later this year in spite of weaker job growth.

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

By G. Steven Bray

Mortgage rates remained on the range again last week, but that may be about to change, at least temporarily. Fed governors spooked markets a couple weeks ago by suggesting that a Jun rate hike was in the cards, but it didn’t take long for an anxious calm to resume.

The Fed meets Jun 14th and 15th, and a rate hike is possible, but I don’t think it’s likely. The Fed has been watching and reacting this year to economic events overseas, and we’ve got a big one coming up. Great Britain votes on 6/23 whether it will remain in the European Union. The “remain” side is winning in polls, but by a slim margin. Some economists are predicting economic turmoil if the “leave” side wins. I suspect the chances of that will keep the Fed on hold in Jun.

However, that doesn’t mean markets will take a nap until then. This week is a jobs report week. Remember that last month’s report was disappointing, and markets have that baked into their current mood. Given the anxiousness, I think a strong report could result is a quick rate spike.

But remember the Fed doesn’t control mortgage rates directly. In fact, it controls very short-term rates. So, even if we see a spike, I think it will be short-lived unless we see additional stronger economic data. So far this year, housing is about the only area of strength.

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

By G. Steven Bray

Mortgage rates stayed on the range last week, and chances are they won’t stray too far this week. The most important economic data is the consumer price index, which was released today. The headline number spiked, and if you’ve filled up recently, you probably know why. Gas prices are rising again. But markets generally are smart enough to look past the volatile components of the index, like gas and food. The core rate rose in line with expectations. While the core rate is just over the Fed’s stated inflation goal at 2.1%, it’s been stable for the last few months.

Maybe the more important event this week is the release of the minutes from the Fed’s Apr meeting. Markets seem convinced that in private the Fed has been conjuring up ways to raise interest rates. Based on recent comments from Fed governors, I suppose it’s possible, but Fed head Yellen’s comments the other day about negative interest rates make me think otherwise. My expectations are that nervousness about the minutes will cause some volatility, but rates will remain on the range a while longer.

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

By G. Steven Bray

Mortgage rates are at 3-year lows, so should you be locking your rate, or are rates going even lower? The answer is not as straight-forward as it would seem.

Rates have been riding a range all year. Currently, we’re at the lower end of that range, which suggests that locking your rate makes sense. However, unless you’re closing soon, it may make no difference. It’s certainly possible rates will bounce towards the other end of the range soon, but I think it’s also likely they’ll revisit their current lows.

This is what I’m watching. Bond markets seem to be mostly ignoring economic data. The jobs report last Fri was disappointingly low, and markets yawned. This week’s big report is retail sales on Fri. I doubt markets will care. Markets seem convinced the Fed is backtracking on its move to raise interest rates, and one justification for that would be a weakening economy. Thus, it doesn’t matter what the reports say. The Fed hitting the pause button must signify weakness. That suggests that rates probably won’t leave the range anytime soon.

The only economic data that I think still bears watching is inflation. Core price and wage inflation are still very low. However, should the slope increase for a couple of months, I think it would catch the Fed’s attention.

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

By G. Steven Bray

Mortgage rates continue to hang out in their recent range, which is close to their all-time low. Day-to-day, week-to-week they move up a little, then down a little, but there seems to be no motivation to break the range.

Chances are good that won’t change soon. Our current low interest rates are a reflection of expectations for mediocre economic growth and very low inflation. Economic data over the last week reinforced those expectations.

But it’s the inflation expectations that really caught my eye. During the first quarter of the year, I grew concerned that two of the Fed’s favorite inflation measures, the personal consumption expenditures (PCE) index and wage growth were showing sign of life. Last week, both measures were below forecast, which should ease markets’ collective mind.

The big event this week is the jobs report on Fri; however, I’m not sure markets will really care unless it badly misses or beats expectations. At this point, I think it’s going to take a big, unexpected event to move rates out of their current comfort zone.

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

By G. Steven Bray

Mortgage rates moved very little last week and remain near 3-year lows, and I don’t expect them to move much this week either. The only US economic data of consequence is housing-related, and I suspect it would have to be really scary to perk the interest of bond traders. It’s more likely traders will focus on stock and oil prices and market fundamentals.

Of more interest may be the European Central Bank meeting this week and Federal Reserve meeting next week. Neither is expected to announce any changes to current benchmark rates or programs. And that’s where things could get interesting if either drops a surprise. However, I think that’s very unlikely. The following week, the first week of May, is another jobs report week, which always is a potential market mover.

So, should you lock or float your rate? Locking certainly is a reasonable choice given our closeness to recent lows and given the inability of the market to move lower. However, floating is not an unreasonable strategy given the market’s lack of conviction to move rates higher. If you do choose to float, I suggest you choose your maximum pain point, the rate at which you’ll lock if the market moves against you.

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

By G. Steven Bray

Bond markets have reacted favorably to Fed Chair Yellen’s dovish comments about interest rate hikes and the current state of the economy. Markets, both bond and stock, rallied, then rallied some more. Even a fairly strong jobs report last Fri couldn’t dissuade them.

On that note, let’s review some of the factors in play.

– Fed members cut their rate hike expectations for 2016 from 4 to 2. That wasn’t the surprise. The surprise was Yellen’s comments suggesting the Fed could consider a rate drop.

– European economic data remains pretty lousy, and German bond rates are near record lows. Low German rates exert downward pressure on US rates.

– Most economists have lowered their predictions for 1st quarter GDP, some to near zero. Remember that this is backward looking data, but it does suggest some inertia the economy must overcome to generate growth.

– Recent US manufacturing data is showing a rebound in that sector. That might suggest growth in the 2nd quarter.

– Wage growth exceeded expectations in last week’s jobs report. That could foretell budding inflationary pressures, which could force the Fed to raise rates more quickly.

On balance, I can make a case for optimism or pessimism concerning interest rates. In the short term, I think rates are likely to follow the lead of the stock market. The pullback from recent highs is helping rates, and weak earnings reports could accelerate the downtrend.

I’ll leave you with one note of caution. The Fed releases the minutes from its Mar meeting tomorrow. If other Fed members didn’t share Yellen’s dovish outlook, it could snuff out our rate rally. Personally, I think that’s unlikely.

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

By G. Steven Bray

The Federal Reserve, last week, seemingly surprised no one and everyone at the same time. On the one hand, the Fed backed off its Dec projection that it would raise short term rates 4 times this year. Now, they project 2 increases, which was the consensus of most analysts. No surprise here, but on the other hand, the Fed’s post-meeting commentary did surprise markets by acknowledging significant risks to continued economic strength. Markets have been in glass-half-full mode for the last month, mostly ignoring still-mixed economic reports.

The result was a small relaxation of interest rates. Now, we seem to be drifting again. I don’t see any real momentum for rates to move lower or higher at the moment, and it may stay that way until at least the next jobs report.

Or … keep your eye on inflation data. Remember that inflation is the enemy of low interest rates, and consumer inflation has been creeping up recently. I wouldn’t call it a trend yet, and wage inflation still seems negligible, but a couple more rising data points could spook rates higher.

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

By G. Steven Bray

Mortgage rates hardly budged last week. This consolidation trend is a nice breather for folks who haven’t locked their mortgage rate, but it will end, and that end may come in the next couple weeks.

Remember that we’ve been saying non-existent inflation and weakening global growth are fueling low interest rates. Last week, a couple economic data points indicated inflation may be rearing its head. This week, we get the jobs report and several other important economic reports. Analysts are predicting just south of 200k jobs created last month. A much higher number typically would unnerve rate markets.

However, times are not typical. While the US economy hobbles along, the rest of the world is in the dumps. But this hasn’t changed in the last couple months, so why aren’t rates and stock prices still falling? I think it’s blind hope. Central banks from Japan to China to Europe have promised to create ever more stimulus programs to prop up their sagging economies. Even though none of the previous programs has salved the wounds, there’s no shortage of snake oil.

To that end, the European Central Bank meets next week. Markets may wait to break their current trend until they see what magic its wand wields. If it’s not satisfying, the market swoon may begin again.

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

By G. Steven Bray

The end of Feb tends to be good for interest rates, but I’m feeling a little cautious at the moment. Rates this year have been following stock and oil prices down based primarily on fears about the global economy.

However that sentiment seems to have waned in the last week or so. Stock markets have responded with sizeable gains, and oil prices have stabilized a bit. Interest rates are off their recent lows, but they’ve refused to follow stock prices higher – so far. While I don’t think rates are in a hurry to head higher, the change in sentiment has arrested our downtrend.

Interestingly, most economic data still suggests a weakening picture. However, one report last week caught my attention. Inflation at both the producer and consumer levels ticked up last month. While the increase was fractional, and one month does not make a trend, inflation is the enemy of low interest rates. Markets barely reacted to the report, but it bears watching.

That aside, if you’re floating your interest rate, any down day for rates this week may be a good opportunity to lock. I think the risks outweigh the rewards at the moment.