Bulls & Blogs

Rate update: Trade war vs inflation

Interest Rates, Residential Mortgage Comments Off

Jul 102018

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

By G. Steven Bray

If you’ve been waiting to lock your mortgage rate, I have good news and bad news. The good news is that you haven’t lost any ground. Rates have been remarkably flat for the last few weeks. The bad news is that if you were hoping for lower rates, your hopes went unfulfilled.

Rates seem to be caught in a tug of war. On one side, we have trade war fears. Traders have been yo-yo-ing in response to constant headlines. Now, it’s quite possible that trading partners are using the headlines to manage their bargaining positions, but this leads to uncertainty, which exerts downward pressure on rates.

On the other side, we have inflation. The Federal Reserve’s favored inflation metric, the personal consumption expenditures index, finally rose to the Fed’s target of 2% in May. Analysts attribute the rise to the robust economy. Even though last Friday’s jobs report didn’t show elevated wage inflation, it did show that job growth remains strong. A strong labor market does exert pressure on wages in some parts of the economy even if the overall inflation rate remains tame.

So, which side will win? We could find out this week. This Thurs, we get the granddaddy of inflation reports, the Consumer Price Index (CPI). Analysts predict 2.3%, which is as high as the CPI has been since the Great Recession. A higher number could pull the rope in favor of inflation, leading to a quick jump in mortgage rates. However, a number that matches expectations probably will leave rates stuck in their current range for another couple weeks – waiting for the next headline.

USDA shrinks areas eligible for RD mortgage

Loan Programs, Residential Mortgage Comments Off

Jul 012018

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

By G. Steven Bray

The USDA Rural Development loan is a great option for homebuyers in rural locations. It requires no down payment and has lower monthly mortgage insurance than an FHA loan.

The loan is only available in areas that USDA considers “rural,” but USDA’s rural includes some areas you might not expect. USDA provides an eligibility map you can use to determine if a particular property is eligible, and a new map went into effect on Jun 4th, which narrowed the eligible area just a bit.

The biggest changes I noticed in the map are around Austin. Most of the fast-growing suburbs of Hutto, Buda, Kyle, and Leander were eligible under the previous map. Now, they’re ineligible. However, more distant suburbs, like Dripping Springs, Liberty Hill, Bastrop, and Taylor remain eligible.

In the Houston area, the expansion of the ineligible areas occurred mainly to the south and southwest and around Conroe. The I-10 corridor to the west and east, and the I-69 corridor to the northeast appear unaffected.

Around the Dallas-Ft. Worth area, more of the fast-growing 380 corridor is now ineligible, but otherwise the metro escaped mostly unaffected.

In the San Antonio area, more of the 281 and I-35 corridors are ineligible as is the suburb of Boerne. However, the boundary to the west appears unchanged.

We’ve got a link to the eligibility map on our Web site or in the text version of our blog.

USDA Rural Development eligibility map

Fannie housing index shows market still strong

Real Estate Market, Residential Mortgage Comments Off

Jun 302018

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

By G. Steven Bray

Fannie Mae’s housing index rose to another record high last month despite the continued divergence of attitudes about buying and selling a home. The good-time-to-sell indicator rose 1 point last month and now stands at +46 while the good-time-to-buy indicator fell by 1 point and stands at +28. A positive reading means more consumers think it’s a good time to buy or sell than not, so both indicators still suggest strength in the housing market.

The good-time-to-sell indicator has been rising steadily over the past year and is 14 points higher year-over-year. The good-time-to-buy indicator has been relatively flat over the past year, which is good news given the increase in mortgage rates and home prices over the same period.

One possible contributor to the still positive good-time-to-buy indicator is consumers’ attitudes about renting. An overwhelming majority still say they would buy rather buy than rent if they were going to move. In addition, consumers expect rents to rise faster than home prices over the coming year, meaning waiting to buy a home could be an expensive choice.

Respondents continue to report strong personal financial conditions. Again this month they expressed an increased sense of job security, and more reported that their incomes had increased significantly in the last year. Both indicators also are higher year-over-year.

Rate update: Tariff Twitter good for rates

Interest Rates, Residential Mortgage Comments Off

Jun 192018

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

By G. Steven Bray

Rates have had it good lately:

– First up was the inflation report. It matched expectations. While this put the core rate at 2.2%, above the magic 2% mark, markets were worried it would be higher. Additionally, the Fed’s favored inflation metric, the PCE, continues to be below 2%.

– Next came the Federal Reserve. While the Fed raised short term rates as expected and increased the chances of a 4th rate hike this year, Chairman Powell said that he wasn’t concerned at all with inflation getting out of control and, maybe more importantly, that we’re getting closer to a “neutral Fed funds rate.” Analysts concluded that the trajectory of Fed policy is about as tight as it’s going to get, and bond markets sighed in relief.

– The next day brought the European Central Bank meeting. The ECB did announce it will end its asset purchase program by the end of the year, a negative for rates. However, it also said it doesn’t expect to hike rates until the end of next summer, and the ECB president made a case for economic weakness during his press conference. Bond markets cheered.

– Finally, we were treated to tariff Twitter. Markets don’t really care about the imbalances caused by prior administations’ trade policy. More important is the uncertain effects of the various proposed tariffs. I still say a full-blown trade war is unlikely. The targets of the tariffs have more to lose, and negotiation is the most likely outcome. However, the uncertainty may keep a lid on rates for now.

Rate update: The Quitaly effect

Interest Rates, Residential Mortgage Comments Off

Jun 052018

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

By G. Steven Bray

As expected, the Italian drama was temporary, and interest rates moved back up last week. Fortunately, markets seem unconvinced that anxiety won’t return. Rates have leveled out for now during a fairly quiet week for economic data.

Next week could be a very different story. Both the Federal Reserve and European Central Bank meet, and output from those meetings has a high potential to affect the direction of rates. While it seems almost certain the Fed will raise short term rates again at this meeting, it’s Fed head Powell’s post-meeting press conference and the dot-plot that probably will garner the most market attention. Any suggestion that the Fed will be more aggressive could push rates back up to their recent highs.

I think the ECB has a greater chance to push rates the other way. It’s been hinting it will end it’s easy money policy in the near future. Confirmation of that is probably more likely than denial, but the ECB has been cagey in its responses to the rumors. It still could dissipate market energy without an outright denial.

Turning to economic data, we’ve been watching inflation lately. The PCE index, the Fed’s favored measure, continues to show tame inflation with the core reading still below the magic 2% mark. However, the jobs report showed wage inflation ticked up slightly. Other measures show even faster wage growth. As long as the PCE doesn’t accelerate, I suspect the Fed won’t change its rate hike trajectory, which is neutral for rates. However, if the Consumer Price Index starts to rise, it’s likely to change consumer and investor inflation expectations, and that would be bad for rates.

Rate update: Watch Italy if you want lower mortgage rates

Interest Rates, Residential Mortgage Comments Off

May 232018

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

By G. Steven Bray

Last time we discussed the case for lower mortgage rates and the fact that unexpected headlines could put some downward pressure on rates. Well, that seems to be the case this week. In addition to news about trade negotiations with China, the Korean and Iranian nuclear deals, and the political drama in Washington, markets had to digest political headlines out of Italy.

Italian headlines affecting US mortgage rates? There’s a good reason for it, and one possible outcome could lead to significantly lower rates.

Italy recently held parliamentary elections with no party taking a majority. However, populist parties that generally oppose Italy’s membership in the European Union had strong showings, and two of them agreed to form a coalition government.

From a market standpoint, the EU represents stability. Much as the Brexit vote caused rates to plummet, an EU breakup could do the same. Italy is the third largest economy in the EU, and while it probably could survive Italy’s departure, that departure could cause other, smaller countries opposed to EU reforms to bolt as well.

For now, I think it would be smart to take advantage of the dip in rates as I think it will be temporary (absent more headlines). The coalition parties have pared back some of their more radical proposals, and it would take many months for them to implement the ones that remain. However, it’s another drip in the bucket trying to pull rates back down from their 7-year highs.

Cool map helps you decide whether to rent or buy

Real Estate Market, Residential Mortgage Comments Off

May 192018

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

By G. Steven Bray

For many, the decision whether to rent or buy can be a confusing one. I’ve found a multitude of surveys and tools that claim to help you with the decision, but with so much information, analyzing your own situation can be overwhelming.

I came across an interesting Web site the other day that analyzes the rent vs buy data in an easy-to-digest format – a US map using shading to indicate whether buying or renting makes more sense. The map presents the results on a county-by-county basis, and you can zoom in to see the specific results for your county.

The map also allows you to choose a breakeven point – the point at which buying and renting are equally advantageous. Set this to the number of years you think you would live in the same location, and the map resets the shading to show you areas where buying or renting is better.

Finally, it’s important to consider the assumptions used to produce the map. The producers used US Census data to determine average rents and home prices. For the “buy” scenario, the producers assumed a 20% down payment, a 4.5% mortgage rate, and $2000 in closing costs. The last two could be a bit low depending on your situation, and unfortunately, many folks don’t have 20% for a down payment. Give me a call if you want me to calculate the breakeven point for your specific situation.

Record number say good time to sell a home

Real Estate Market, Residential Mortgage Comments Off

May 182018

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

Fannie Mae’s housing index soared to a record high last month despite a negative reading from one of the index’s key components. The net share of respondents who said now is a good time to sell a home increased 6 points from last month to 45%. This good-time-to-sell sentiment has been on a steady rise for the last couple years, but unfortunately it doesn’t seem to have resulted in additional home inventory for sale, which remains very low.

Respondents also reported stronger personal financial conditions. They expressed an increased sense of job security, and more reported that their incomes had increased significantly in the last year.

The net share of respondents who think home prices will continue to rise jumped 7 points this month, and the average expected increase was 3.9%. While that might seem a negative for homebuyers, respondents said they expect rents to rise an average 5.7% over the same period.

The one black mark in the survey was the net share of respondents who think now is a good time to buy. That component fell 3 points last month. It’s likely the combination of higher prices, higher mortgage rates, and fewer homes for sale contributed to the fall. However, these same factors may increase buyers’ sense of urgency even if they don’t think it’s a good time to buy.

Rate update: The case for lower rates

Interest Rates, Residential Mortgage Comments Off

May 092018

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

By G. Steven Bray

Mortgage rates seem to have plateaued again – waiting for the another source of inspiration to set them on a new course higher or lower. Which course is more likely?

The mainstream narrative is that higher rates are inevitable because of the factors we discussed a couple weeks ago, namely more government borrowing, less Federal Reserve accommodation, and continued economic growth.

These factors are undeniable. What we don’t know is the extent to which the market already has priced them in. Maybe rates have plateaued because they already reflect the risks associated with these factors. If that’s true, markets may increasingly pay attention to other factors that could lead to lower rates.

Consider the following:

– While the Fed’s favored measure of inflation, the PCE, moved higher, close to the Fed’s 2% target, it did so because very low inflation readings from last year are dropping out of the calculation. Moreover, transitory factors, hospital costs and oil prices, seem to be causing much of the recent rise.

– While the unemployment rate dropped below 4% for the first time since 2000, employment growth missed expectations for the second straight month, and wage growth also was below expectations.

– The economic expansion is long in the tooth. Talking heads increasingly are warning of a downturn just because it’s been so long since the last one. European economies already look softer.

– Global headlines are starting to grab market attention again. Israel is warning of imminent war in the Middle East, and the President’s withdrawal from the Iranian nuclear deal adds some uncertainty to the region. On the other side of the continent, while a trade war with China still seems unlikely, talk of it creates uncertainty, and uncertainty exerts downward pressure on rates.

– Finally, it’s probably not too soon for markets to start thinking about the effects of the mid-term elections.

I still think the upward forces on rates will remain stronger in the short term. However, absent some additional positive momentum, the chances are increasing that the next significant move for rates could be lower.

The main reason homeowners won’t sell their homes

Real Estate Market, Residential Mortgage Comments Off

May 012018

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

By G. Steven Bray

Survey after survey recently has shown that homeowners think it’s a good time to sell their homes. Recently, we reported an all-time high, 65% of respondents, ascribed to that sentiment in a Fannie Mae survey. A recent ValuedInsured survey said the percentage is 79%. So, if it’s such a good time to sell, why aren’t more homes for sale?

Pundits have speculated about many reasons, but one of the top suggestions has been the interest rate effect. Most homeowners have been able to finance or refinance their homes at very low interest rates. Now that rates are higher, they don’t want to trade in that low mortgage payment for a higher one.

This may be a valid concern for some folks, but in the ValueInsured survey, only 18% of respondents cited it. The overwhelming majority, 79%, said they weren’t selling because of the price they’d end up paying for a new home. In the same survey, 61% of respondents said they’re waiting for home prices to become more “reasonable” before moving.

I can see why homeowners would be nervous given reports of bidding wars and nearly double-digit yearly price increases in some markets. Unfortunately, when everyone feels nervous at the same time, it exacerbates the home inventory shortage, which leads to more price increases and more bidding wars.

This “time the market” argument seems like a serious hurdle to seeing more homes for sale. However, I suspect just a moderation of home price increases could calm nerves a bit. If homeowners could predict the price of their replacement homes, we could see an easing of the shortage.

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