Jun 012019
 

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

By G. Steven Bray

Interest rates have had an impressive rally the last couple weeks as investor sentiment has become decidedly dour. The rally began in earnest when the Chinese blew up the trade deal, but it’s taken on renewed life as talking heads have started tossing around the “R” word again.

Unfortunately for economic growth, now they have something on which to hang their hats. While employment growth and consumer sentiment still appear strong, some economic activity indicators are pulling back.

This may be a manifestation of the trade war, which means it could reverse if negotiators are able to craft a deal soon. However, other economies, particularly those of China and Germany, are slowing even more quickly. We may already be past the point of no return in terms of the next recession overseas.

So, what does this mean for mortgage rates? If you like lower rates, it’s all positive. It’s quite likely we haven’t seen the lowest rates of the year yet.

That said, it may take a while before that happens. It’s long-term Treasury rates, which readily respond to economic conditions, that have fallen so much recently. Mortgage rates are lagging behind for reasons that aren’t likely to change soon.

Even so, investor sentiment is such that traders may ignore a positive economic report, such as next week’s jobs report, and keep rates in their current, lower range, and over time, mortgage rates will catch up.

3 reasons the next recession won’t lead to a housing collapse

 Real Estate Market  Comments Off on 3 reasons the next recession won’t lead to a housing collapse
May 132019
 

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

By G. Steven Bray

Some pundits have suggested we’re staring at the beginnings of a new recession fueled by the housing market. Not so, says Ralph DeFranco, Global Chief Economist for Arch Capital Services. He says current housing trends bare no resemblance to conditions that existed prior to the Great Recession.

A recession is inevitable at some point in the future, but DeFranco says it should be less severe for the housing market than the 2008 recession due to three factors:

  • He estimates the current market is underbuilt by 1 million homes;
  • Homebuyers are more cautious; and
  • The quality of loans originated since the Great Recession is much higher.

Conditions were exactly opposite before the Great Recession.

DeFranco also noted that big price drops during recessions are the exception rather than the norm. In the five recessions since 1975, home values have declined only once. Moreover, the current housing inventory shortage likely would soften the effects of a recession on the housing market.

Rate update: Stuck in the middle again

 Interest Rates, Real Estate Market  Comments Off on Rate update: Stuck in the middle again
Apr 122019
 

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

By G. Steven Bray

After a quick move lower following last month’s Federal Reserve meeting, mortgage rates have moderated a bit. Concerns of a global recession prompted the move lower, and the Fed seemed to add fuel to that concern with the changes to its policy stance, announcing what is in a sense version 5 of quantitative easing, which has helped keep rates low for years.

Rates rebounded a bit when investors realized the US economy certainly isn’t circling the drain. We’ve had two strong jobs reports, and retail sales rebounded after the government shutdown. The data isn’t as strong as it was last year, but it certainly doesn’t seem to indicate an imminent recession.

Overseas is another story. At its meeting this week, the head of the European Central Bank all but predicted a recession in Europe, and European economic data continues to weaken. Britain still hasn’t figured out how it’s going to leave the European Union, which breeds uncertainty, a close friend of low interest rates. And China’s economy also is slowing, and analysts worry that a resolution to the trade dispute may not be enough to stop the slide.

So, that’s the bad news – the news that’s pressuring rates lower. But investors see a US economy that seems to be chugging along. Thus, rates are stuck in the middle – not sure which force is going to be stronger. And they’re liable to stay that way until new headlines tip the scales.

Among the predictable headlines I’m watching right now are the Chinese trade talks and inflation data. I still believe a good trade deal penned in the next couple months will put some upward pressure on rates. However, it has to happen before the Chinese economy slips too far. On the inflation front, recent reports show inflation sliding lower again, which makes the Fed nervous. Receding inflation should put downward pressure on rates.

No need to fear another recession

 Real Estate Market  Comments Off on No need to fear another recession
Mar 252019
 

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

By G. Steven Bray

What I call the “recession whisperers” have been active of late, which may be making you nervous about the housing market. Whether you’re a homeowner now or want to be one in the future, the pain associated with falling home prices probably is fresh in your mind given what happened during the Great Recession ten years ago.

According to Ralph Mclaughlin at Corelogic, that worry may be for naught. The housing market generally does pretty well during a recession. Of the last five recessions, three saw home prices continue to rise. Of the other two, prices dipped only 1.9% in 1991, but they fell almost 20% in the Great Recession, and that’s a very recent memory.

However, Mclaughlin cites two other statistics that suggest the housing market is well-positioned to weather any downturn. First, housing inventory is close to a record low. Based on US Census data, the nation has only 15.7 housing units per 1000 households. This compares to almost 35 units per 1000 just before the Great Recession. Thus, even in the event of another recession, it’s unlikely we’d have a glut of unsold homes as we did ten years ago.

Second, demographic factors are favorable for continued home price growth. Currently, 46% of the US population is under age 35, and the Harvard Joint Center for Housing Studies estimates Millennial households will increase by 32 million in the next twenty years. That points to a lot of demand for housing.

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.