Inflation is not a threat

Last Week in Review: No rate hikes in 2019. Who wins?

Stocks continued to react positively to Fed Chair Powell’s Jan 4th speech, where he essentially said, “we have your back”…meaning that the Fed will be flexible and may not raise rates at all in 2019. 

There is an old saying in the financial markets – “don’t fight the Fed.” This means that if the Fed is saying or doing something (hinting no rate hikes) that helps Stocks, that theme will continue until the story changes. 

Typically, when stocks move higher, so do long-term rates, like home loans. And this past week, we saw the recent nice trend of lower rates get disrupted. 

Even though the recent trend of lower rates, the lowest since the Spring, is very much at risk – we should not expect long-term rates to move too high. Why? Inflation is not a threat. 

Fed President Bullard, also said he expects inflation to be near current levels for the next FIVE years. If that is the case, home loan rates will remain relatively attractive for longer than most expect. 

Apple helps home loan rates

Last Week in Review:
Apple, Congress negate solid jobs numbers

I-Phone maker, Apple, was a downer this week as the company announced a surprise weak sales and earnings forecast for the first quarter of 2019. 

Stocks and interest rates fell on the bad news, concerned that Apple, the first big tech firm to report weak growth in 2019, is the canary in the coalmine and that more companies will report weaker sales and earnings. 

Regardless of Apple’s current woes, the U.S. economy is still humming along as was evident in Friday’s Jobs Report which showed an eye-popping 312,000 jobs created in December. 

Adding to the good news in the Jobs Report was a 3.2% hike in wage gains year over year – the highest level in a decade. 

Remember, jobs buy houses, not rates, so the positive jobs numbers and wage growth are great for housing. 

But while we are on the subject of rates, the bad Apple news helped rates improve again this week to the lowest levels in nearly a year. 

Rates have been steadily improving since early November. What happened in early November? Congress became divided. Bonds and home loan rates love uncertainty, chaos, stalemates and bad news – Congress can provide plenty of it from time to time. 

Stocks Rally

Last Week in Review:
Headline Risk Highlights Christmas Week.

The financial markets had plenty to cheer about this week. On Wednesday, Stocks rallied a stunning 1,000+ points, enjoying their best one-day gain in history and then rallied over 800 points higher intraday on Thursday, erasing a huge midday loss. All in all, a great and welcome week in what was otherwise a miserable December for Stocks. 

Typically, higher stock prices mean higher home loan rates but that wasn’t the case this holiday week. Yes, Bonds moved slightly lower and home loan rates slightly higher in response to the swift Stock rally, but rates ended the week and head into 2019 near the best levels since spring. 

The high volatility in the markets is likely to continue well into 2019 as Stocks and Bonds continue to bounce around in response to the U.S. government shutdown, U.S./China tariffs, China slowdown, European issues and uncertainty around the Fed. 

Is this good news for home loan rates and housing? Inflation is in line with the Fed’s expectations and bond yields in other parts of the world remain low due to slower economic growth which means that home loan rates should remain relatively low for the foreseeable future.

Best home loan rates since April

Last Week in Review:
Spring rates revisited.

It was all about the Fed this past week. On Wednesday, they hiked the Fed Funds Rate by 25 basis points (0.25 percent). That rate affects short-term loans like auto and credit cards – what it doesn’t affect are home loan rates. 

Home loan rates actually improved to the best levels since April. Why? 

The Fed Statement suggested that inflation is moderating and remains beneath the Fed’s target of 2 percent year over year.

If Inflation remains low, long term rates – like mortgages, will also remain relatively low. 

Also helping home loan rates improve was a big sell-off in Stocks. The Stock market hated the Fed Monetary Policy Statement which suggested more hikes next year, despite acknowledging low inflation and slowing economic conditions around the globe. 

Stocks don’t like Fed rate hikes as they weigh on economic growth due to added costs of financing. 

Bottom line – home loan rates moved nicely lower this past week representing the best time since spring to either purchase or refinance a home.

Low Rates Return

December 10, 2018jordanreedBulletins


Last Week in Review:
 
Summer Rates Return

As it pertains to low rates, be careful what you ask for – it will likely take pain, chaos, fear and uncertainty to get them. 

This past Thursday, thanks to uncertainty around the U.S. and China trade deal, fear of slowing global economic growth, a roughed-up Stock market and the likelihood of fewer Fed rate hikes, the Bond market and home loan rates hit their best levels in three months. 

On Friday, the Labor Department reported that 155,000 jobs were created in November, a bit less than expectations of 189,000. The labor market remains incredibly strong and wages are rising at fastest pace in a decade. 

Low rates coupled with a solid labor market and rising wages make for great home purchase conditions.

It appears the highest home loan rates for 2018 are behind us and with low inflation and low bond yields in Europe and Asia, our home loan rates should not go too high for the foreseeable future. That is great news as we head into 2019. 

Have home loan rates found a bottom?

Last Week in Review:
Stocks crumble, yet rates go unchanged.

 

The old adage of “Stocks go down, Rates go down” didn’t work this past week.

Stocks started the week with the Dow Jones Industrial Average falling nearly 1,000 points through Tuesday.

Typically, as Stocks decline, we see home loan rates improve as the investment dollars find their way into Bonds. That was not the case this week. Bonds and home loan rates hardly moved.

Why? Despite the bad selloff in Stocks, nothing in the U.S. economy has changed, the labor market remains tight, wages are rising, and consumer confidence is high – these are headwinds to further improvement in rates. Remember, rates like bad news.

So, while we have seen home loan rates improve over the past few weeks, the gains may have reached their near-term limit.

Now we are going to watch whether Stocks enjoy a “Santa Clause Rally” to finish the year or if they continue to fall. If Stocks decline another leg lower, we will likely see some modest improvement in rates.

However, should Stocks bounce higher from here, it will likely be at the expense of Bonds and home loan rates could move higher quickly.

Bottom line: Home loan rates have improved nicely the past few weeks and while historically attractive, they are hovering at a near-term bottom.

Home Loan Rates Improve

Last Week in Review:
Home loan rates modestly improve amidst rout in Stocks.

Folks didn’t receive that memo this past week as the threat of rising rates and some not-so-rosy outlooks from firms like Amazon definitely frightened investors, who fled from Stocks.

All three major Stock indices – the Dow Jones, S&P 500 and Nasdaq sold off hard this week and are now flat-to-negative for the year.

Even a better than expected 3rd Quarter GDP reading of 3.5% along with a stellar consumer spending reading on Friday could not help Stocks avoid a selloff at the open.

The Bond market welcomed some of the money from the Stock selloff, thus helping home loan rates improve slightly.

Bottom line:

  • The markets are very volatile and the improvement in home loan rates this week is relatively modest when considering the magnitude of the stock market decline.
  • With home loan rates off the highest levels of 2018 – now is a wonderful time to secure financing.

Rates Hit a Seven Year High

Last Week in Review: 
Rates hit seven-year highs midweek on the heels of a confusing Fed message.

Market_Trends_2018-10-22

Our Federal Reserve has a dual mandate – to maintain price stability (inflation) and maximum employment. They also have a 3rd “unstated” mandate, which is to maintain market calm.

This past week, the Fed came up a bit short on that “unstated” mandate and created quite a bit of confusion and market turmoil midweek upon releasing the Minutes from the Sept 26th Fed meeting.

In that meeting we learned there is a group of “hawkish” Fed Members that want to hike the Fed Funds Rate more aggressively into 2019. At the same time, there were other Fed members who think the current Fed Funds Rates is “about right” – meaning no more hikes for now. The Fed talking out of both sides of their mouth was a source of confusion for the markets and home loan rates.

Adding to the confusion is the Fed’s very own inflation forecast which suggests inflation will remain close to current levels through 2021. If we recall the Fed mandate to maintain price stability, one could argue there is no need to raise the Fed Funds Rate if inflation is not rising.

Food for thought – If the Fed’s modest inflation forecast comes to pass, we will likely see home loan rates remain near historically attractive levels.

Consumer Price Index lower than expectations

Last Week in Review:
Rates were higher early in the week – but improved on the heels of a soft Consumer Inflation reading and rout in Stocks.

Market_Trends_2018-10-15

When following the direction of interest rates, one only has to follow the direction of inflation. If inflation is moving higher, rates are going higher. The opposite is also true.

Lately, there has been a growing fear that inflation is threatening to rise due to our tight labor market, strong economy and rising wages. It was this fear that pushed rates higher over the past month, culminating with rates hitting their highest level in over 7 years this past Tuesday.

But come Thursday – the bond market had reason to breathe a sigh of relief and rejoice when the September Consumer Price Index (CPI) was reported lower than expectations. Remember – low inflation is good for the bond market and home loan rates.

It was just last month that Fed Chairman Jerome Powell and the Fed forecasted consumer inflation to remain near current levels through 2021. If this comes to pass, long-term rates like home loan rates can’t rise too much.

Also helping rates improve from the worst levels of the week was a 1,400+ point selloff in Stocks between Wednesday and Thursday. Generally speaking, when investors sell Stocks they park some of those investment dollars into Bonds.

Bottom line – home loan rates, while elevated since earlier this year, remain historically low…especially when you consider how well our economy is performing.

August Housing Starts Rise

Last Week in Review:
August brought mixed results on new home construction and sales of existing homes.

August Housing Starts rose 9.2 percent from July to a seasonally adjusted annual rate of 1.282 million units, above the 1.229 million expected. Single-family starts, which make up the largest share of the residential housing market, were up 1.9 percent while multi-family starts surged 27.3 percent. Housing Starts were flat in the Northeast, but the Midwest, South and West all saw positive gains. Housing Starts were also 9.4 percent higher than August of last year.

Building Permits, a sign of future construction, didn’t fare as well, an unfortunate development for would-be buyers struggling with limited inventory in many areas of the country. From July to August, Building Permits decreased 5.7 percent. They are also 5.5 percent lower than August 2017.

Market_Trends_2018-09-24Existing Home Sales managed to stabilize in August after four straight months of declines, the National Association of REALTORS® reported. Existing Home Sales were unchanged in August from July at an annual rate of 5.34 million units, below the 5.37 million expected. Flat sales were due to a balance of gains in the Northeast and Midwest and losses in the South and West. Unsold inventory of existing homes was at a 4.3-month supply, still well below the 6-month supply considered normal. Sales were also down 1.5 percent when compared to August 2017.

Mortgage Bonds have struggled in the latest week due in part to positive gains in Stocks. Home loan rates have ticked higher but remain attractive.

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