Mortgage Market Update – January 22nd, 2019

Recent Events Recap

Well, we are about 3 weeks into the new year, and Christmas Eve feels like a distant memory. I’m not talking here about the warm glow of the holidays, but the dramatic bludgeoning of stock prices that saw the Dow close lower by nearly 3%. Since then, risk assets have recovered nicely as investors have grown optimistic that representatives from the US and China are making some real headway on trade negotiations. As stock prices have risen, so to have Treasury yields. After a brief dalliance in the 2.50s, the 10yr Treasury yield is now about 20 basis points higher, behaving as one would expect in a risk-on environment.

Global Economy

So does the outlook for the global economy warrant this sanguine tone? I don’t know. Maybe I’m missing something, but I’m just not feeling it. China just released its GDP growth rate over the weekend and it came in at the lowest level in nearly 30 years. Of course, you could argue that this is just a function of the tariffs, and once the trade dispute is resolved the green shoots will return. But it’s not just China that is struggling. The International Monetary Fund recently lowered its growth outlook globally. Add to that the growing uncertainty around Brexit and the impact of this protracted government shutdown domestically, and at least for me, the optimism is risk markets seems a bit misplaced.

The Fed

Economic releases will be light this week given that many come from government agencies currently closed due to the shutdown. We won’t be hearing anything out of Fed officials either since they are in blackout mode ahead of next week’s FOMC meeting. Incidentally, nobody expects them to raise fed funds at this meeting. I believe Treasury yields are poised to move lower, absent a big positive headline on trade. However, the rally in equities has removed one of the more technically bearish scenarios for stock indices and may perhaps temper a positive turn in Treasuries. Mortgage rates should still look really good here and sets us up well for a strong start to the spring season. Even though it is 19 degrees outside, it’ll be here before you know it. Have a good one, folks.

Hance Thurston
Head of Capital Markets, Southern Trust Mortgage

Have questions about the mortgage market or looking to start the homebuying journey? Get started by contacting a local Southern Trust expert. We are standing by to help!

Mortgage Market Update – January 8th, 2019

Recent Events Recap

Happy 2019 everyone! Trust you all had a nice season of holidays with friends and family. For those that happened to monitor financial news, you know that markets ended 2018 with a high degree of volatility, both in risk assets as well as rates A lot of this had to do with illiquidity that is typical around the holidays, but desks were pretty much fully staffed by the end of last week and the crazy price movements showed no signs of moderating. While there are quite a few cross-currents, market participants are really trying to wrap their heads around two competing themes. The first is the prospect of a global growth slowdown, exacerbated by trade tensions between the United States and China. Economic data in Asia and the Eurozone have supported this idea with indications of weakness starting to pop up in the manufacturing sectors. There has been some fear that this slowdown—particularly in China—will metastasize and potentially push the domestic economy towards recession. Last week’s significant downside miss of the Institute of Supply Managements manufacturing data dumped some fuel on those concerns and equities experienced one of their larger days of losses.

Employment and Earnings

On the other hand, a case remains for those that favor risk. The employment picture has long been a rosy one in the United States and Friday’s payrolls report was resoundingly solid—many more jobs were added to both non-farm as well as private payrolls than expected, folks that had been out of the workforce moved back in, and Average Hourly Earnings got a boost.

The Fed

Meanwhile, the Fed is trying to thread the needle with its monetary policy. Market participants have been pushing for a pause to this cycle of rate hikes and getting more aggressive in their appeal as stock prices have fallen. It wasn’t too long ago that 3 more 25 basis point hikes in 2019 was the consensus view, but that steadily faded. Now Fed fund futures are suggesting that not only will there be no hikes in 2019, but there could actually be a rate cut.

Treasuries and Rates

The 10yr Treasury yield is kicking the year off in the mid 2.60s—over 60 basis points lower than where we were just 2 short months ago. Mortgage rates have moved down in conjunction with Treasuries, though not quite to the same degree. The average 30yr mortgage rate last week was around 4.84% or about 32 basis points off the highs. Treasuries are probably due for some consolidation, and that should help mortgages catch up. Clearly, a lot going on out there folks, so communication will be key as we serve the financial needs of our valuable clients and customers. Let us know how we can help. Have a great week.

Hance Thurston
Head of Capital Markets, Southern Trust Mortgage

Have questions about the mortgage market or looking to start the homebuying journey? Get started by contacting a local Southern Trust expert. We are standing by to help!