Company News

The Last Week in Review: Good, Bad, and Ugly Before the Fed

The Good
Last week, home loan rates hit all-time low levels despite progress and optimism on a vaccine, the economy, and the job market.
A continued tailwind for relatively low rates comes from the Eurozone, where their central bank, the ECB, left rates unchanged and refrained from adding more stimulus, despite very low inflation. This means rates in Europe, which are negative in most places, will remain lower for longer and that will help keep our rates relatively low as well.
The Bad
‘Too much of a good thing.’ The Treasury, in an effort to fund the government and pay for the enormous stimulus measures, had to sell $108 billion in Treasuries this past week. The buying demand for these new Bonds and notes was tepid. This applied upward rate pressure on the entire U.S. Bond market and limited the gains.
What will make the buying demand in auctions increase? Higher yields/rates or worse economic conditions, so that today’s low rates make for a relatively sound investment.
The Ugly
Volatility is back in Stocks. The NASDAQ lost over 10% in a 3-day span last week. Fortunately, Stocks were able to cover some of the losses before heading into the weekend.
The takeaway: Typically, when Stocks drop sharply, so do rates. That did not happen last week.
Bottom line: The backdrop for housing could not be better.

Overview

The Carrington Mortgage Services, LLC (CMS) Lock Desk will be closed on Monday, September 7, 2020 for Labor Day, which is a Federal Holiday. Normal lock hours will resume on Tuesday, September 8, 2020.
Additionally, the Lock Desk will close early on Friday, September 4, 2020 at 11:00 A.M. PST due to the early close of the financial markets.
Locks that expire on the holiday will automatically roll to the next business day.  In addition there are some important disclosure considerations associated with the holiday:

• Monday, September 7, 2020 cannot be included in the rescission period for refinance transactions.
• Monday, September 7, 2020 cannot be included in the seven (7) business day waiting period between the date the initial Loan Estimate (LE) was provided to the borrower and the consummation of the loan
• When re-disclosure of the LE is required, Monday, September 7, 2020 cannot be included in the four (4) business day waiting period between the date the revised LE was provided to the borrower and the consummation of the loan.
• When re-disclosure of the CD is required, Monday, September 7, 2020 cannot be included in the three (3) business day waiting period between the date the revised CD was provided to the borrower and the consummation of the loan.

Issues related to locks should be sent via email to lockdesk@carringtonms.com.

Contacts

Please contact your Account Executive or Account Manager with any questions.
Carrington thanks you for your business.

Last Week In Review: Markets Talking About Jackson

 
This past week, the Jackson Hole Economic Symposium took place. This annual event which started back in 1981 is attended by central bankers, finance ministers, and other officials from around the globe, to discuss and deliver speeches on important economic issues facing worldwide economies.
History has shown this event to deliver market-moving comments and major Fed policy announcements. And this past Thursday, the event didn't disappoint.
Fed Announced Big Changes at Jackson Hole
First, let's remember the Fed's role. The Fed has a dual mandate of promoting maximum employment and price stability. Currently, unemployment is too high at 10.2%, and inflation -- as defined by the Fed's favorite gauge, Core PCE -- is too low at 1.3%.
On Thursday, Fed Chairman Jerome Powell announced a major policy shift to help lift inflation, promote job growth, and make it very clear to the financial markets that rates will remain lower for longer.
The Fed is going to remove its 2% target for inflation and allow inflation to drift higher and remain there for some time before hiking rates.
In addition to allowing inflation to rise, the Fed will also allow the labor market to run "hotter" and create even more jobs before considering a rate hike.
This major policy change is the exact opposite of how the Fed previously addressed inflation and improving economic conditions, with frequent rate hikes "before" inflation and the labor market heated up.
What Does the Fed's Move Mean?
First, it means that the Fed is not likely to hike the Fed Funds Rate for years. So, short term rates like auto loans, home equity lines of credit, and credit cards will remain near current levels for quite some time. Savings accounts will also offer no meaningful interest for savers.
Next, if inflation rises like the Fed wants, home loan rates will rise -- period. Inflation is the tide that raises all boats. The good news: Inflation is currently very low and that's what's keeping home loan rates near all-time lows ... for now.
The Opportunity for Homeowners
Finally, would-be homeowners would be wise to take advantage of current mortgage rates and low inflation because if both rise, you want to be an owner and not a renter of real estate.
In an era of higher inflation and a "hot" labor market, which is what the Fed wants, wages and prices go up. One would want to lock in a mortgage at current rates and make that fixed payment with rising wages over time. Renters will be paying higher rent with higher wages.
One last benefit is that real estate is a real asset and a great hedge on inflation as home prices climb even faster with rising inflation.
Looking Ahead
Next week, we will get to see important labor market readings with the ADP and the August Jobs Report. With over 16 million Americans unemployed, a lot of work still has to be done to get unemployment to where it was in February, pre-COVID-19.
 

Last Week in Review: New Home Prices to Climb this Fall

No Progress From Congress
This week we watched rates modestly improve as uncertainty climbed. The main culprit is the ongoing "debate" in Congress on what a fourth stimulus bill will look like. History has shown that Congress will likely get something done, things will just remain uncertain until they do.
Takeaway: Upon passage of a fresh stimulus plan, the removal of uncertainty could apply some pressure on rates.
Home Builders Are Feeling Good
The National Association of Home Builders reported Builder Confidence in single-family homes rose to 78. Anything above 50 is positive. This is the highest reading in the 35-year history of the index.
Buyer-traffic, people visiting new home developments, also hit the highest levels on record.
The tailwinds in housing — low interest rates, value of owning versus renting, continued economic improvement, household formation, migration from big cities, and work from home — should continue to propel the sector for some time.
New Home Prices Will Cost More This Fall
A perfect storm is likely to cause new home prices to climb this fall, and possibly beyond. The incredible housing demand just discussed has caused a surge in the need of lumber. At the same time, lumber mills were shut down in April and May, causing a shortage.
The law of supply and demand reminds us big demand and a shortage means higher prices.
What else causes higher prices? Inflation. On June 10, 2020, the Federal Reserve reaffirmed the financial markets that they will keep the Fed Funds Rate at the current level for a long time. This has caused virtually every asset to move higher: Stocks, precious metals like gold and silver, and finally — lumber.
Since that Fed meeting, lumber prices have more than doubled. This means for a 2,000 square foot new home, the cost of lumber went from $10,000 to over $20,000. With demand for new homes soaring, we should expect homebuyers to pay more this fall.
Looking Ahead
Next week, the economic calendar delivers a few potentially market-moving releases like New Home Sales, Q2 GDP, Consumer Confidence, Durable Goods, and the inflation reading Core PCE.
Also helping to shape market direction will be another round of Treasury auctions to pay for all of the economic stimulus. The recent uptick in 10-year Note yield came on the heels of weak buying demand in 20- and 30-year Bond auctions.
However, the big story to follow is what the next round of stimulus will look like and how the markets will react.

Last Week in Review: The Return of Inflation and Opportunity


"Inflation is when you pay fifteen dollars for the ten-dollar haircut you used to get for five dollars when you had hair."
-- Sam Ewing
This past week, home loan rates ticked up from the best levels ever, and the 10-year Note yield moved sharply higher week-over-week from .50% to nearly .70%.
Why? One major reason: inflation may be on the rise.
Mortgage-backed securities are the drivers of home loan rates, and inflation largely determines whether their prices/rates go up and down.
This past Wednesday, the Core Consumer Price Index (CPI), a reading on consumer prices, rose 0.6% in July -- the fastest monthly rate in nearly 30 years!
One number doesn't make a trend, but if we see higher inflation readings in the months ahead then long-term interest rates, like mortgage rates, will also be higher than today.
Ultra-low interest rates, quantitative easing (where the Fed purchases Bonds daily), and a trillion dollars in stimulus can all serve to stoke higher inflation in the future.
The opportunity:
If, for all the reasons above, we see higher inflation in the future, one would want to be a homeowner rather than a renter. Why?
Inflation drives real asset prices, like homes, higher. It also drives wages and rent higher. This means new homeowners can lock in today's low rates, and as prices and wages increase, they can pay down the mortgage with ever-increasing pay. At the same time, their home price will increase even further in price.
For renters, wages will rise with inflation, but so will rent, meaning the increase in wages may be required to keep up with the increase in rent.
What happens if inflation doesn't rise?
If inflation doesn't rise much, home prices will still rise over time as they have for centuries. Just this week, home prices hit an all-time median high of $311,000. Homeowners, on average, accumulate more wealth over time than renters.
Looking ahead:
Next week we will see more economic reports centered on housing, which has been a bright spot in the economy. Initial Jobless Claims, which determines the length of the unemployment line, will be reported next Thursday. This past week, we saw continued improvement in the labor market with Initial Claims falling beneath 1 million the first time in 20 weeks.

Last Week in Review: Fed Pushes Everything Higher, Except Rates

"We're not even thinking about thinking about thinking about raising rates." -- Fed Chairman Jerome Powell, August, 2020
This recent quote by Fed Chair Powell says it all.
Coronavirus has caused the largest shock to the U.S. economy in living memory. Second Quarter GDP declined at a 33% annual rate -- the worst reading in American history.
What has also been unprecedented?
The policy response. The Federal Reserve, Treasury, and administration have responded with trillions of dollars in stimulus measures to help underwrite, or carry, the economy through this temporary nightmare -- and more is coming.
As the Fed eluded in the quote above, they will be keeping the overnight Fed Funds Rate at zero for years. This means rates on short-term loans like autos, home equity lines of credit, and credit cards will remain historically low for a long time.
Additionally, the Fed said they will do "whatever it takes" to keep long-term rates relatively low. They are doing this through an open-ended quantitative easing program where they purchase both Treasuries and mortgage-backed securities. These "buying operations" will continue to keep long-term rates, like mortgages, relatively low.
They also have other "tools" they can use to pin down rates, including Yield Curve Control. We shall see if they use this in the months ahead to further "tell" the markets they are committed to keeping rates lower for longer.
How have the markets responded?
This week, virtually everything traded higher. Stocks were nicely higher, with the NASDAQ hitting all-time highs. Precious metals like gold and silver were sharply higher, and Bonds traded higher causing yields to fall to historic lows. The 10-year Note yield entered the weekend at .51% -- the lowest "closing" yield since George Washington crossed the Delaware River.
Bottom line:
Stocks are at all-time highs creating a positive wealth effect for millions of Americans. States and economies continue to re-open with millions of Americans back to work. The economic damage caused by the coronavirus will take a while to repair, so expect even more policy response with the Fed leading the charge.
Looking ahead:
Next week will be interesting and could disrupt the good vibes seen in the market this past week. The Treasury "supersized" next week's Treasury auctions by adding billions in Treasuries to be sold. It will be important to follow the buying appetite for all of this new Bond supply with rates at historic lows. On the economic calendar front, we do have some inflation readings to follow. Inflation is a concern down the road as the economy makes progress, but not today. If inflation does rise, home loan rates will rise too.

Last Week in Review: The Good, The Bad, The Ugly


The path of the economy will depend significantly on the course of the virus." -- Fed Monetary Policy Statement, July 29, 2020
The Good:
This past week, home loan rates hovered at all-time lows in response to uncertainty surrounding the economic impact of COVID-19 and the realization that the Fed will keep rates low for a very long time.
The 10-year Note yield has moved convincingly beneath .60% for the first time since March 9th and that could lead to a further decline in yield in the days, and potentially weeks, ahead. This means that mortgage-backed securities, the driver of home loan rates, will have room to improve even further.
Housing continues to be the bright spot in the U.S. economy. Pending Home Sales soared this week and the real estate community has boosted their sales forecasts for 2020, suggesting the good times in housing will continue for the foreseeable future.
The Bad:
Stocks hate and Bonds love uncertainty. There was plenty of it this past week.
On Thursday, President Trump issued a tweet suggesting the election will be delayed until people can vote in person safely.
Technology shares, which have risen sharply since the lows in late March, experienced sharp price losses midweek as CEOs from Apple, Google, Amazon, and Facebook were gathered for an antitrust hearing and "grilled" by lawmakers on Capitol Hill. The hearings elevated fears that further regulation, and potentially the breakup of some very large companies like Amazon and Google, are in the future. Come Thursday, the argument that these firms are too big might have become stronger as each firm posted very strong corporate earnings and guidance, sending their Stock shares to all-time highs heading into the weekend.
Congress, which can never seem to agree on anything, is at it again this week as both sides are not even close to coming up with a new stimulus measure to further help the economic recovery. There is likely to be a resolution, but it's unclear as to when and how significant it will be.
The Ugly:
Gross Domestic Product (GDP), which measures U.S. economic output, came in at -32.9% for the second quarter. This was the worst quarterly economic decline in U.S. history. The markets were expecting an ugly number so the market reaction to this backward-looking data was a bit muted.
On a brighter note, it appears the recession ended in the second quarter while the third quarter is likely to show the largest increase in GDP in U.S. history. This is also expected as the economy improves sharply from what essentially was a shutdown for most of the U.S. economy.
Looking Ahead:
Next week will provide a look into the labor market with the ADP report on Wednesday and the Jobs Report on Friday. At the moment, unemployment is too high, and inflation is too low, so the Fed is not likely to raise rates for years.
Bottom line: Housing continues to shine, and unemployment continues to decline, but at a slower pace due to COVID-19. Rates are at a historic low with a chance to move even lower, and the Fed just told us they are likely to remain low for the foreseeable future.

Last Week in Review: Stocks and Bonds are Getting Along, for Now

This past week, Freddie Mac reported the average 30-year mortgage is at an all-time low of 3.01%
At the same time, the NASDAQ and Stocks overall are hovering right near all-time highs. Typically, when Stocks move higher, so do rates. Not this time around. So, what's happening?
Bond prices are moving higher and rates lower in response to fear and uncertainty surrounding COVID-19, along with the reality that inflation will remain low and unemployment will remain elevated for the foreseeable future. Also, helping Bonds and rates is the daily buying of Treasuries and mortgage-backed securities from the Federal Reserve.
Stocks are hovering near all-time highs due to state and economy re-openings, positive economic data, along with an overwhelming monetary response from the Federal Reserve and Treasury.
It's very likely that both Stocks and Bonds will continue to remain elevated in price, with rates remaining low, as we work through COVID-19 while monetary response remains in place.
Once we move past COVID-19 -- and we will -- the monetary response will ratchet down significantly and the next directional move in Stocks, Bonds, and rates will be determined by the health of the economy, inflation, corporate earnings, and the relative performance of the U.S. versus the globe.
Bottom line: Home loan rates will likely remain historically low for quite some time as it will take a while to fully repair the economic damage caused by COVID-19.

Last Week in Review: Home Builders and Homebuyers Feeling Really Good
This past week, the National Association of Home Builders (NAHB) reported that their Sentiment Index for June rose sharply to 72, thereby lifting the index to exactly where it was in March, prior to COVID-19.

Within the report there were sharp increases in the following three components:

1. Sales conditions
2. Sales expectations
3. Buyer traffic

Builders in the Northeast and Midwest are seeing a surge in demand after being sidelined from COVID-19.
One of the interesting parts of the report came from Robert Dietz, NAHB's chief economist, who shared this, "Nonetheless, the important story of the changing geography of housing demand is benefiting new construction. New home demand is improving in lower density markets, including small metro areas, rural markets, and large metro exurbs, as people seek out larger homes and anticipate more flexibility for telework in the years ahead. Flight to the suburbs is real."
On top of this great housing story, Freddie Mac reported that the average 30-year mortgage hit an all-time low of 2.98%, making homebuyers feel very good.
Bottom line: Housing will continue to shine for the foreseeable future as low rates, household formation, migration to suburbs, and flexibility to work remotely provide a tailwind.

Last Week in Review: Low Rates Plus Buying Demand Equals Good News

This past week, Freddie Mac reported mortgage rates hit an all-time low of 3.03%. What is most impressive with the improvement in mortgage-backed security prices and rates, is it happened as Stocks enjoyed nice gains, with the NASDAQ hitting all-time record highs.
Typically, when Stocks improve in price, it is at the expense of Bonds and rates, but not this week.
On Wednesday, the markets received a signal suggesting rates will remain low for quite some time and they might even go lower.
Every couple of weeks the Treasury Department sells or auctions off Treasury Notes and Bonds to help fund our government. Now, with the unprecedented amount of stimulus, the Treasury will be selling even more Bonds for a long time to cover the tab.
The good news? The buying appetite for the 10-year Note auction was the best ever -- with the yield hitting a record low .65% in the auction.
This means investors continue to seek the "safe haven" of the 10-year Note from other markets, and even though investors are only receiving a paltry .65% yield, it far outweighs other yield options around the globe where negative rates are common.
This past weekend, the 10-year Note yield had dropped further and beneath .60% for the first time in months and only did so a couple of times. This is important to follow as a sustained move beneath .60% would help push mortgage-backed securities higher and pull home loan rates lower.
Bottom line: Interest rates are going to remain relatively low for a long time, which will help many families restructure their debt while providing a tailwind for housing for the foreseeable future.