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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. 

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. 

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.

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.

Overview

During the holiday season Carrington Mortgage Services, LLC (CMS) offices, including the Lock Desk, will observe the following schedule:

• Monday, December 24, 2018 – Closed for the Christmas holiday
• Tuesday, December 25, 2018 – Closed for the Christmas holiday
• Tuesday, January 1, 2019 – Closed for New Year’s Day holiday

In addition, due to the New Year’s Day holiday, the Lock Desk will close early Monday, December 31, 2018 at 11:00 AM PST (early market closure of 2:00 PM EST). Normal Lock Desk hours will resume December 26, 2018 and January 2, 2019.

Rate Locks that expire on the holidays will automatically roll to the next business day. In addition, there are some important disclosure considerations associated with the holidays:

• Tuesday, December 25, 2018 and Tuesday January 1, 2019 cannot be included in the rescission period for refinances.
• Tuesday, December 25, 2018 and Tuesday January 1, 2019 cannot be included in the seven (7) business day waiting period between the 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, Tuesday, December 25, 2018 and Tuesday January 1, 2019 cannot be included in the three (3) day business 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, Tuesday, December 25, 2018 and Tuesday January 1, 2019 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.

As a Nation, we pause to mourn the passing of George Herbert Walker Bush, the forty-first President of the United States, on November 30, 2018.
His storied life was filled with accomplishment. When he volunteered for duty in the Second World War, George Bush was the youngest aviator in the U.S. Navy. He flew 58 combat missions while defending our country’s freedom. After returning home and completing his education, raising a family, and starting a business, his life of public service resumed. First, as a member of Congress, then as Ambassador to the United Nations, Chief of the United States Liaison Office in China, Director of Central Intelligence, Vice President, and, finally, as President of the United States.
George Bush brought to the White House a devotion to American values and a steadfast determination to guide the United States toward becoming “a kinder, gentler nation.” In his Inaugural Address, he pledged to use American strength as “a force for good.” He was true to his word. With his steady leadership, George Bush guided our country through the successful and peaceful end of the Cold War and into the period of prosperity that followed.
In honor of his life of dedication, Wednesday, December 5, 2018, has been declared a National Day of Mourning throughout the United States. On that day, Carrington offices in the U.S. will be closed for a paid holiday, that we might ponder the remarkable legacy and pay our respects to the memory of President George H.W. Bush. We invite Carrington Associates to join the many millions of people around the world who share our grief in this solemn observance.

 
Overview
The Carrington Mortgage Services (CMS) Lock Desk will be closed in observance of President George H.W. Bush’s death on Wednesday, December 5, 2018 which has been designated as a National Day of Mourning. The financial markets will be closed and no rate sheets will be produced and no rate locks will be allowed. Normal Lock Desk hours will resume Thursday, December 6, 2018.
CMS will be staffed to carry out substantially all of our business functions on Wednesday, December 5, 2018; therefore, it should be treated as a normal business day as follows:

• Wednesday, December 5, 2018 will be included in the rescission period for refinance transactions.
• Wednesday, December 5, 2018 will 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, Wednesday, December 5, 2018 will 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 Closing Disclosure (CD) is required, Wednesday, December 5, 2018 will 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.
• Disclosures mail fulfilled on Wednesday, December 5, 2018 will be considered “sent” on December 6, 2018 due to the Post Office being closed on December 5, 2018. Users must update Sent Date within the Disclosure Tracking Record.

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

Last Week in Review:
Soothing Words Helps Rates Improve
We heard doves cry this week, when Fed Chairman Jerome Powell spoke in NYC on Wednesday. Doves are people who offer peaceful polices, so upon Mr. Powell's soothing speech both Stocks and Bonds moved nicely higher, with home loan rates hitting their best levels in nearly two months.
Some of Mr. Powell's market-comforting words included:

• We know that moving too fast (hiking rates) will risk expansion
• It may take a year or more to fully realize the effects of hikes
• The Fed doesn't see "dangerous excesses" in the stock market
• The policy rate (Fed Funds Rate) is "just below" neutral

The Fed is still very likely to raise the Fed Funds Rate in December, but the markets took the speech as signs the Fed will not hike rates three times in 2019, which was the Fed's own forecast.
Fed Fund Futures, which represent market opinion on the future of the Fed Funds Rate now suggest there will be only one rate hike in 2019.
The incoming data and more specifically, inflation, will determine whether we see more hikes in 2019.
Bottom line - the present low inflationary environment and slower global growth is helping keep home loan rates historically low.

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.

Last Week in Review: Eurodrama drives "safe-haven" trade.

The long-awaited Brexit agreement was dealt a big blow this past Thursday when two top Brexit officials and four Jr Ministers quit - citing the deal Prime Minister Theresa May reached with the EU was no good.

What does it mean for housing?
The U.S. Dollar, U.S. Bonds and home loan rates benefitted from the Brexit chaos as global investors parked their money in the relative safety of U.S. Dollar denominated assets (currency and Bonds) in what is called a "safe-haven" trade.
The U.S. Dollar had already been rising in value versus other global currencies and there are a couple of effects worth following:

1. A strong U.S. Dollar tamps down inflation as it lowers commodity prices like oil. Have you noticed the recent price decline of gas at the pump? This is like a tax cut for the consumer looking to purchase a home.
2. It makes U.S. imports cheaper. This along with lower oil keeps inflation down, which is good for long-term rates like mortgages.
3. If the U.S. dollar strengthens further, the Fed may not raise rates as expected in 2019 because more hikes would further suppress inflation, which is already tame - again, good for home loan rates.

Bottom line - rates have improved from the worst levels of the year and it is quite possible that the highest rates of the year are behind us.