Bulls & Blogs

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

By G. Steven Bray

Did you catch the dip in mortgage rates last week? It was sweet while it lasted. Rates bumped back up at the end of the week.

If you didn’t catch it, let’s see what the crystal ball holds for rates going forward. Markets seem focused on two issues:

– The first is inflation. Despite the unprecedented efforts of the Federal Reserve, inflation has been virtually non-existent throughout this recovery. The Fed has a target rate of 2%, and the Fed’s favored measure, the PCE, hasn’t been that high in a long time.

This morning, we got the Oct Consumer Price Index. While this isn’t the one the Fed watches, it has historical significance, and markets pay attention. Several other inflation metrics recently have indicated budding pricing pressure, but the CPI remained pretty tame with core inflation still under 2%. So, while markets wait for the next inflation report, they’ll probably turn their full attention to the second issue.

– And that is tax reform. Given the current positive momentum, rates are feeling an updraft. Granted the House and Senate plans differ, but I don’t think markets are particularly concerned about which plan wins. They only care about the boost that lower tax rates will give the economy. And an economic boost should pressure interest rates higher.

Of course, one scary headline could quickly deflate this momentum. But absent that, I suggest you remain defensive for higher rates.

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

By G. Steven Bray

If you haven’t locked your mortgage rate, this week could provide a great opportunity. Interest rates have been on a gentle path higher since early Sep. Markets generally are reacting to positive economic data and the possibility of tax reform.

This week should provide four big headlines that could move rates, and two involve the Federal Reserve.

The Fed meets this week for its next to last meeting of the year. Pretty much no one expects the Fed to change short term rates Wed, but analysts will slice and dice the post-meeting announcement to try to predict the Fed’s future actions. Of particular interest will be any reaction to persistently low inflation.

The second Fed headline is the expected nomination of the next Fed chair. Trump is expected to nominate Jerome Powell. Powell is seen as more likely to keep interest rates low and friendlier towards measured deregulation. Markets also like that he already is a Fed member, which provides some continuity. Rumors of his nomination pushed rates down Fri and Mon, but it’s quite possible the actual announcement could bump rates still lower.

The third headline is the tax reform plan, expected on Wed. Rumors are circulating that the tax cuts could be implemented in a staggered fashion over five years. While markets still will view the cuts as positive for the economy (and bad for rates), up until now they’ve been trading on expectations of an immediate economic boost. A staggered rollout would dampen their enthusiasm and could be positive for rates.

Our final headline is probably the least important, which is funny because it used to pack such a punch. Friday, we’ll get the monthly jobs report. Markets are expecting the report to show 300k jobs created in Oct. I think the report would have to miss the mark significantly for markets to even care.

All of these headlines overlay the factors we’ve discussed the last few weeks. Economic sentiment remains frothy in markets and among consumers. Inflation is minimal, and expectations are it will remain that way. Markets are mostly ignoring other news, both domestic and overseas. The takeaway is that this week’s headlines could bump rates lower, but be prepared for them to rise again once the headlines fade.

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

By G. Steven Bray

If you’re still floating your interest rate, you may be kicking yourself this week. Mortgage rates have risen 1/8% in the last week. While rates still are very low by historical standards, they’ve been fairly stable lately, making the rise seem rather abrupt.

Last week I recommended caution if you’re watching rates, and I’ll reiterate that this week. I don’t believe the forces pushing rates higher have subsided just yet. Sentiment still seems frothy, which negates the effects of factors that would limit rate increases, such as persistently low inflation.

In addition, we’ve added a couple other factors that seemingly work against lower rates. First is the nomination for Chair of the Federal Reserve. Trump is said to be seriously considering two individuals: John Taylor and Jay Powell. Markets consider Taylor to be less friendly towards low rates. Trump said he is “very, very close” to deciding, and it was reported he asked senators at lunch Tues if they approved of Taylor. The response from senators was positive, and markets took notice.

The second factor is a pending announcement from the European Central Bank. The ECB previously promised it would let us know about its plans to taper its bond buying program after tomorrow’s meeting. ECB bond buying is akin to the Fed’s quantitative easing, which led to record low interest rates. It’s not certain what if anything the ECB will announce, but markets are hedging for the worst.

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

By G. Steven Bray

Bond markets got spooked last week, and interest rates moved higher. The media blamed the move on many things, but I think the underlying motivation is fear of inflation. While the Fed’s favored inflation metric, the PCE, continues to show negligible inflation, some other measures are beginning to show pricing pressure.

The first hint was the consumer price index a couple weeks ago, which showed consumer inflation approaching 2% again. Some analysts discounted the reading due to potential effects of Hurricane Harvey; however, the rise was greater than expected.

Very strong Manufacturing and Non-manufacturing surveys followed last week. The internals of both reports showed businesses reporting significantly higher input prices. While these pricing pressures don’t always percolate up to consumer prices, the magnitude of the increases was disconcerting.

The topper was the jobs report last Fri. The headline numbers were contradictory. The business survey showed the economy lost 33k jobs, but the household survey showed it gained about 900k. But what caught my eye was the impressive 0.5% monthly wage growth. Economists have been predicting low unemployment would push wage growth for years now, and we finally may be seeing it.

But, as I’ve said before, one month doesn’t make a trend, so it will be interesting to see if the readings remain higher once the effects of the hurricanes dissipate. It also will be interesting to see if consumer sentiment surveys begin to show expectations of higher inflation. If expectations start to align with economic reports, higher inflation could get locked into place.

Could rates move lower again? Sure they could, especially given all the potentially explosive issues facing the world. But I suggest you stay defensive unless and until you see rates heading down again.