The Cost of Money

Weekly Interest Rate Recap for the week ending 6/17/16
Mortgage rates decreased throughout the week last week as concerns over Great Britain leaving the European Union mounted, and due to some extremely dovish tones coming out of the Fed Meeting on Wednesday. Mortgage rates bottomed out on Friday though, however it looks like most of that was due to profit taking in the mortgage bond versus any real news events.

Per the latest polls in Great Britain, it's looking more and more likely that Brexit will occur this Thursday the 23rd. The British populous will vote on Thursday to remain in the EU, or go independent. The concern in in the equity markets is that if Great Britain pulls out of the EU, will Germany follow?... and without it's two economic cornerstones, will the EU crumble sending Europe into recession. That line of concern has money flowing out of the equity markets, and into the safe haven of investments like the US Mortgage Bond, which subsequently sends US mortgage interest rates lower.

Propelling mortgage rates even lower was interest-rate-friendly speak coming from Janet Yellen on Wednesday. Long story short, the Fed is considerably more pessimistic about US economic growth than they have been in meetings past. They downgraded 2016, 2017, and 2018 growth estimates in GDP, as well as inflation. They also reduced their target interest rates by about half a percent from previous estimates in each of those years as well. The Fed cited lack of inflation and slowing growth in the labor markets as their reasons for leaving the Fed Funds Rate unchanged for now and seemingly the near future.

In light of the Fed Meeting and Janet Yellen's ensuing speech, I want to revisit my blog from last week. In summary, I proposed that I can't see interest rates going much higher from where they are now in the foreseeable future if for no other reason than because no Fed Chair or Member wants to be the goat for sending the US Economy back into recession. Thus, they are forced to always error on the side of relaxed monetary policy - ie. Tie goes to Not-Raising-The-Federal-Funds-Rate. The irony in the Fed's reasoning for not raising the Fed Funds Rate is the very next day the Labor Department reported Initial Jobless Claims at 277,000 - this is the 66 consecutive week jobless claims have come in under 300,000, which is the longest streak since 1973. Given this, how bad can the labor markets be? Too bad to raise interest rates .25%? Crazy...

Weekly Interest Rate Recap for the week ending 6/24/16

Well, thank you Great Britain for blowing the world’s mind.  Apparently reducing immigration in hopes of saving your identity is more important than any money you may have invested or in savings.  My favorite quote from last week came from an economics professor somewhere in London (you like that detail?  J  ) – “I just suffered a 15% pay-cut over night because of this vote”.  He is referring to the fact that the British Pound is getting CRUSHED on the international equities market.  No one wants Pounds anymore.  And what happens when demand falls?  Prices fall too.  The price of the Pound is falling compared to the rest of the world’s major currencies, therefore that economics professor is simply stating that his purchasing power has fallen to the extent that he just as well have taken a 15% pay-cut pre-vote. 

Long story short, Brexit has opened the door to a TON of uncertainty.  Equity markets hate uncertainty, and so all the money is flowing out of the world’s stock markets and into the safe-haven of US mortgage bonds.  When money flows into the mortgage bond, mortgage interest rates fall. 

I’m sure things will be fine in the long run, but at least in the short run home-buyers/those looking to refinance their mortgage can enjoy slightly lower mortgage interest rates due to Brexit.  That's all for now. Have a great week!

Happy Investing!

Today's blog courtesy of Kyle Bergquist, Guild Mortgage

Federal Funds Rates

Mortgage rates are still low and forecast to remain low for the foreseeable future. Last week mortgage rates improved as traders continued to discount the probability of either a June or July rate hike from the Federal Reserve. Fed Funds are currently showing a 0% probability of a rate hike in today’s FOMC meeting and less than a 16.0% chance of a rate hike in July.

With a rather light week in terms of economic data, this coming week will be focused on the FOMC decision today and news from the UK on Brexit. Today, the focus will not be on whether or not the FOMC raises rates, as it is a forgone conclusion that they will not, but rather on any sense of timing of a future rate hike. As always, expect the FOMC statement to be a bit vague, leaving them flexibility to adjust in the future. 

Brexit will also continue to headline the markets, especially as long as polls show that the June 23 vote is too close to call.

Happy Investing!

Today's blog courtesy of Sarah Riley, Caliber Home Loans

Interest Rates Up

The Federal Reserve raised their funds rate 1/4 of one percent at their December meeting. What does this mean, and how will it affect home mortgages?

Let's give a little background on the Fed:

The Federal Reserve Board (the Fed) controls the Fed Funds Rate and the Discount Rate. These are overnight loans from bank to bank or from the Fed to member banks. The Fed adjusts the rate to influence the economy. For example, if things are going well, a rate increase may slow inflation. If the economy is struggling, a rate drop could be the boost it needs.

Two important things to remember:

- The Fed can influence, but does not directly set, consumer rates.

- The Fed's rates are short term and often do not impact longer term rates, such as mortgage loans.

Why all the fuss?

Increases in the Fed Funds rate can cause banks to raise their “prime” rates, which are often used to calculate costs of revolving credit or home equity lines of credit (HELOCs).

What about mortgages?

Mortgage loans are a different animal, so to speak. The "agencies" (Fannie Mae and Freddie Mac) pool them together and sell them as mortgage bonds. The amount investors pay for these bonds directly influences mortgage rates.

Bottom Line:

When the Fed moves, it generally provides lots of warning, and markets have already had a chance to react. Markets are constantly responding to other factors as well, from the stock market to global events to consumer spending. In the end, no one can say for certain what the reaction to Fed moves will be.

Happy Holidays! Happy Investing!

Today's blog courtesy of Cheryl Taylor, American Pacific Mortgage

Macro Economic Conditions

Expanding payrolls, solid consumption growth and housing market momentum support economic landscape. Against this backdrop, the Federal Reserve anticipates lifting its benchmark rate for the first time in more than nine years during 2015, though a move may not occur until next year. The imminent increase in the Fed Funds rate has raised questions among commercial real estate owners and investors regarding its potential effect on borrowing costs, spreads and asset valuations. However, the relationship between rising interest rates, a strong economy and continued vitality in commercial real estate seems quite compatible.
Read more here.  

In this context, where are investors finding the best real estate investment strategies? I've been told that commercial real estate follows a ten year cycle: For six years it is all about apartments and multifamily, for two years it is all about condos, and for two years, it is all about playing golf. 

I think we may be in the playing golf phase right now....What do you think, dear blog readers? Leave your thoughts and comments here at this post.

Happy Investing!