Bulls & Blogs

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

By G. Steven Bray

The Fed spoke last Fri, and it seems like no one cared. Fed Head Yellen said the case for raising short term interest rates is stronger. That was followed by two other Fed officials who said the case was compelling, and markets should be prepared for a Sep rate hike. The market reaction was quick and negative, and interest rates moved higher. That was predictable. However, yesterday, rates slipped back into that familiar range of the last couple months. That leaves me scratching my head.

It’s possible markets already have priced in a Sep rate hike. The Fed has been hinting at it for a while, and US economic data, especially consumer data, has been positive the last couple months. It’s possible, but I doubt it.

It’s possible markets believed Yellen and friends didn’t break any new ground, and they’re waiting for this week’s jobs report to give them direction. Fed officials said a rate hike depends on continued positive economic data. But I suggest it would take a pretty disappointing jobs report to sway the Fed. Several Fed officials let slip that 150k jobs would be plenty. The market consensus is last month produced 180k jobs.

Finally, it’s possible that month-end forces are keeping a lid on rates for the moment. If that’s true, rates could rise heading into the end of the week.

Regardless, I would suggest a defensive posture at this point. Rates still are close to their all-time lows. If you choose to float your rate, choose a bail-out point when you’ll lock. When rates start moving up, they may not head down again for a while.

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

By G. Steven Bray

Last Friday’s economic data was scary enough to push rates down to 1-month lows, but that’s just the bottom of the same range they been riding for the last few months. The problem is the economic data is conflicting. Jobs and housing to a large degree seem healthy, but spending and investment are anemic, and inflation is quite low despite all the Fed’s stimulus actions. In this environment, rates lack motivation to move one way or the other. That said, we could be just one big data point away from a move that escapes the range.

That seems unlikely this week. The most significant economic event is the release of the Fed meeting minutes. I don’t expect the minutes will contain any surprises, but it’s always possible market analysts will parse some phrase to suggest the Fed’s future course of action.

At some point the range will be broken, even if only temporarily. Given our closeness to all-time lows, and given the strength of the job market, a break higher seems more likely than a break lower. Locking when rates are at the bottom of the current range is a logical choice. If you choose to float, choose a bail-out point. If rates start to move up, you could lose ground quickly.

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

By G. Steven Bray

Just as markets were getting comfortable with the idea of a stronger US economy, last week’s 2nd quarter GDP report was a bucket of cold water. The economy grew at an anemic 1% for the first half of this year. In response, bond markets rallied and mortgage rates dropped.

Once again, we’re within reach of record lows. Whether we challenge them in the near term probably depends on this week’s jobs report. Remember that last month’s report was really strong and started a conversation that maybe the economy was heading up. A stronger than expected inflation report provided additional cover for statements from Fed governors that further rate hikes this year seem appropriate.

Another strong jobs report this week won’t guarantee a rate hike, but it’s hard to argue that a stronger job market won’t result in higher growth in the second half of this year. Stronger second half growth is probably just what the Fed needs to start raising short-term rates again, and that will put pressure on mortgage rates. A weaker report could send rates to new record lows.

For now, we’re likely to see the usual push and pull of market forces, like today’s huge corporate bond issue that pushed rates up a little, but absent something extraordinary, rates are likely to hang in the current range until Friday’s jobs report.

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

By G. Steven Bray

Markets have a laser focus on whether Great Britain will vote tomorrow to leave the European Union. Right now, the vote is too close to call, and markets seem to be holding their breath. If you believe the talking heads, a vote to leave will result in economic calamity. What rubbish. I think this is a case of hype before facts. When people like George Soros start predicting a currency collapse, I tune out. It’s hard to believe people who could make money by influencing the vote.

In the longer term it probably won’t matter much what Brits decide. If they vote to leave, it will take years to disentangle Great Britain from the EU. In that time, other economic edifices will arise to address any fallout.

But, it’s the short term that will be interesting. If Brits vote to leave, expect rates to fall. If they vote to remain, expect rates to rise. I think neither effect will be lasting, but if you’re closing in the next few weeks, it behooves you to make a reasoned decision about your rate lock. You can justify locking or floating, but it’s very likely mortgage rates Fri morning will be quite different from Thurs afternoon.

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

By G. Steven Bray

Mortgage rates have continued to improve mainly due to global growth concerns. The poster child for that concern right now is the potential exit of Great Britain from the European Union or “Brexit.” Brits vote next week, and the “leave” side is leading in the polls.

I think the threat to the global economy of a Brexit is fairly minor in the short term. Markets are probably overreacting a bit to the notion that if Great Britain exits the EU, others would follow, and the EU could collapse. That scenario would take years to develop.

In our short term, we have a Fed meeting this week. The Fed also is eyeing the Brexit vote, and it’s highly likely the Fed will leave interest rates at current levels tomorrow. However, Fed governors continue to indicate they’re itching to hike rates again and soon. Assuming the effects of the Brexit vote are minimal, look for the Fed to start talking rate hikes again.

So, that leaves us with slight downward pressure on rates until the Brexit vote (or until the polls change). Locking or floating your rate is a reasonable decision at this point, but keep in mind that there is less market inertia for rates to rise than for rates to fall. In particular, if the Brexit vote fails, rates could snap upwards rather quickly.