Weekly Post

A Brief Guide for Making an Offer On a Home

As a follow up on yesterday’s post of negotiating a home price, today we’re offering suggestions on how to make an offer on a house (and win!). After you’ve found a home that you love and have all of your finances in order, you may have reached the point where you feel ready to make…

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Tips For Receiving Down Payment Assistance

  When it comes to home buying, one of the primary pieces of advice that mortgage advisors will offer involves the importance of down payments. You have likely heard that the more you are able to put down up front, the less you’ll be paying in the long run on interest. For many people looking…

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The Market Moving Forward

As recently discussed on our blog, the market currently lies in favor of sellers as opposed to buyers, an analysis which is likely to change as buyers may have the opportunity to step forward later this year. News of mortgage rates and home prices increasing by mid 2019 gives potential homebuyers the chance to reconsider…

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Ideas for Brightening Your Summer Space!

  What better time to brighten up your outdoor space than during the summer? Here are some simple and exciting tips to not only brighten up your backyard, but your Monday too! Often times, homeowners may think that making a space feel new can only be achieved through costly renovations. We challenge this today beginning…

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Rates Increase Due to Growth Expectations from Tax Cuts

Mortgage interest rates increased slightly this past week on expectations that tax cuts will increase wages and consumer spending potentially leading to higher inflation.  The December Consumer Price Index (CPI) was up 0.1%, as expected, and up 2.1% year over year.  December Core CPI, excluding the food and energy components, was up 0.3% and year…

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Mortgage Credit News

Financial markets are in a most peculiar place: standstill. This last week extended the June freeze: the 10-year T-note this week traded between 2.19% and 2.14%, mortgages not moving at all, very close to 4.00%; and the S&P500 stayed between 2435 and 2447.

The period of exceptionally low volatility goes all the way back to March. Are markets stalled because there is no news, or is there no news because markets are stalled?

Financial markets change prices to reflect changed facts and expectations, usually economic ones but also local politics and geopolitics — and of course the old, mindless force of rebalancing more buyers than sellers or vice-versa. That’s a lot of nuthin’ happenin’.

We must look back eight months to find at the last big action, the huge jump in long-term interest rates which coincided with the election, the 10-year T-note in just six weeks from 1.78% to 2.60%, mortgages from 3.75% to 4.375%. That move peaked again in March and has slowly fizzled since. Stocks have had no fizzle, just a seemingly endless succession of new-record highs until the recent flats.

Long quiet periods are almost always an illusion that nothing is happening. Tension always builds during quiet markets, whether we can see it or not. Fabled market advisor Bob Farrell articulated ten rules of trading, one of the few sets of wisdom quoted too often. Farrell’s Rule #4: “Rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways.”

If we don’t know why we have gone flat, it’s a reach to guess at the next move, up or down — but it will be one of the two, and the longer we stay flat, the more violent.

Instead of predicting, or embracing boom or doom and then finding supporting evidence, ask “What has changed?” In what ways did the world or nation change to create flatness, and see if shedding that light provides hints for what’s coming.

Start big. As a global economic matter, nothing substantial has happened since last fall with the possible exception of soft prices for oil, which in itself has little net effect, hurting some, benefiting others. Since US frackers are the swing producers, oil can’t crash below the frackers’ minimum price, which is close to $40/bbl and where we are. Nothing is underway to hurt oil demand.

Global politics break into direct economic impact, and “geopolitics,” the all-time euphemism for risk of war. Seven-and-a-half billion people are busy with all sorts of things, but in the last year only two big changes: the potential for Brexit chaos, and the sudden weakness in Britain’s government. These twin uncertainties are enough to freeze anything. 

Nothing much has changed in Asia. Japan festers on, China tries to rationalize its economy via top-down control but nothing new.

Geo-political risks are rising in the Middle East as the US reduces its hyper-exposure. The muscle-flexing by an economically deteriorating Saudi Arabia is unsettling, but all actors in the area still suppress big conflicts in favor of noise. Smart, too. Russia’s ambitions are limited by economic distress, and the embarrassing exposure of its mischief-making.

So far, so good. Dull markets reflect a dull outside world.

The action is here in the US. In utmost political delicacy, trying not to offend: US government has moved from nearly 20 years of gridlock to something like decapitation. It may last, and it may not. Lasting: each political party is split, radical wings preventing bi-partisan action, and the Republican majority too thin to act while the party is so divided. The wild card is of course the president, ineffective in the first six months but capable of dramatic action at any time. Possible: the government moves on without the president, in limited ways but enough to keep the trains running on time.

The agenda is in the hands of the White House and the Republican leaders in Congress. They have been stalled, entangled in in trivia like the travel ban and off-point upsets in the Oval Office, and the agenda itself is prone to stall because it has only minority national public support. Congress may become un-stuck at any moment. The most immediate marker: health care. If Congress cannot deliver a substitute for Obamacare, it will have even more trouble with the other big items, tax reform, tax cuts, infrastructure, and regulatory relief.

Decapitation causes no particular economic harm, but an open-ended stall would tend to unwind the post-election market moves, especially belief in economic stimulus. Much as I believe in basic US economic health, and the Fed’s intention to raise interest rates (modestly), if health care fails in Congress next week the market reaction will be down, more likely mortgages and long-term interest rates than stocks. 

If Congress and the White House suddenly begin to find traction, that will support both rates and stocks.

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The 10-year T-note in the last year. Hardly moving at all, but the movement is down:

The 2-year T-note has stopped its rise, halting expectations of the next Fed hike:

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