Central Banks See Continued Support

Mortgage rates improved again this week and are now near their best levels of the year. Again the improvement resulted from statements by central bankers. The economic data had little effect.

Statements by the heads of the International Monetary Fund (IMF), the European Central Bank (ECB), and the U.S. Fed shared the same sentiment, the global economy needs support. IMF Managing Director Lagarde described economic growth in Europe as "too slow, too fragile". ECB President Draghi said the ECB will do what ever it takes to stimulate growth and raise inflation. Inflation in the eurozone is now -0.1%. The target is 2.0%. The minutes from the U.S. Fed meeting on March 16th supported recent comments that the Fed will take a gradual approach to raising the federal funds rate. These dovish comments were well received by the bond markets, including U.S. mortgage-backed securities.

The economic data released this week shows that the U.S. economy is on far better footing than the overall global economy. The JOLTS report, which measures job openings and labor turnover rates, showed that job openings rose and voluntary quits increased. Both are signs of an improving labor market.

The ISM Services index measures expansion or contraction in the services sector of the economy. Readings above 50 indicate expansion. The index for March, at 54.5, shows that the service sector expanded again and did so at a better pace than the previous two months.

Looking ahead, the Retail Sales report will be released on Wednesday. Consumer spending accounts for about 70% of economic output in the U.S., and the retail sales data is a key indicator. The consumer price index (CPI) will come out on Thursday. CPI is a widely followed monthly inflation report that looks at the price change for goods and services which are sold to consumers. Industrial production, another important indicator of economic activity, will be released on Friday.

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Who knew? The Federal Reserve raised its funds rate barely two months ago, and all that worry about higher interest rates for mortgage borrowers ended up being positively unwarranted. The average rate on the popular 30-year fixed mortgage began a free fall, reacting to financial markets overseas rather than monetary policy here at home.

"Mortgage rates are going down again, and it's good for borrowers, but is it really good for the housing market and the broader economy? The answer is no," said Guy Cecala, CEO and publisher of Inside Mortgage Finance.

Mortgage rates are falling because investors are flooding the U.S. bond market. Mortgage rates follow the yield on bonds that loosely follow the 10-year Treasury. Investors are buying bonds as a safety play in a highly volatile and largely negative stock market. Signs of weakness in the U.S. economy, in addition to trouble in overseas markets, pushed the yield on the 10-year Treasury to its lowest level since 2012, and mortgage rates followed south.

"If stocks are selling, and if people are generally pretty panicked about the state of the global economy, bond markets are a natural safe haven," said Matthew Graham, chief operating officer of Mortgage News Daily. "Popular opinion about rates moving higher only helped. Too many people were on one side of that trade, and it almost always makes sense to root for the underdog in those scenarios."

Lower mortgage rates certainly offer homebuyers lower monthly payments and at the same time help them to qualify for larger loans, so they can buy more expensive homes. The latter is particularly pertinent this spring, as home prices are rising due to record low supply of homes for sale. On the flip side, a weaker economy, stock market losses and general unease about the fate of employment and wage growth all hurt housing. 

"Frankly, a healthier economy would be mortgage rates in the 5 percent range, but that's also assuming you could get 2 percent in your checking account," Cecala said.

Read MoreWhat negative rates mean for average investors

Now not only are mortgage rates nearing their record lows set in 2012, there is new talk of the Federal Reserve moving to a negative interest rate policy. Fed Chair Janet Yellen said Thursday it was not out of the realm of possibility.

This would not, however, translate to negative mortgage rates. That is impossible. Lenders only lend if they can make money.

"As far as the connection to mortgage rates, it's no different than it was," said Graham. "The Fed rate is only loosely connected over longer time horizons. Whether the Fed hikes or cuts below zero, the global economic panic will be good for rates."

Wealthy borrowers behind 9.3% jump in newmortgages

It could, however, push rates into the 2 percent range, which would have a significant impact on borrowers. It would help those on the low end but could hurt jumbo loan borrowers. Banks, which generally hold these larger loans on their own books, would not want to lend in that environment,

"We would go back to a situation where conforming government mortgages are considerably cheaper than private jumbo," said Cecala. "All you're doing is asking them [banks] to shrink their margin and get nothing in return because there is no way to lower their cost of funds from 0 to 0."

Cecala does not expect the Fed to move rates lower. He cites the fact that the nation went through one of the worst recessions in history, and the Fed never moved below zero. The bigger issue is that most lenders have stopped hedging for rate drops, so, Cecala added, "It may to cause a lot of losses and shake up things."

For entire article follow the link below

http://www.cnbc.com/2016/02/12/mortgage-rates-could-cross-a-record-low.html

Mortgage Rates Lower With Help From Central Bank

Wishing You A Happy Holidays and A Fantastic New Year !!!!

Ron and Julie Wish You A Happy Thanksgiving !!!

October Financial Updates From Ron Black and Julie Bailey

By Louis S. Barnes                                                      

This week an exercise in perspective, stocks versus bonds and mortgages, and here versus over there.

     In a week with little new US data (apartments hot, single family not), bonds and mortgages stayed the same -- which is remarkable given the performance of stocks. The 10-year T-note could not break below 2.00%, mortgages just under 4.00%, but unchanged all through October while the Dow rocketed 500 points in the last two days.

     These two markets usually trade opposite each other, stocks up on good economic news, bonds down in price and up in yield, and vice-versa on bad news. Good news should help corporate earnings and stocks, but any good news brings fear to bonds that the Fed will do something awful.

     I have worked in or near credit markets for forty years, and like all colleagues regard the stock market as cognitively impaired and bi-polar, heavily overweighted to the manic side. Those people reciprocate, viewing us as depressed and void of imagination. How could these two pathologies join minds this week?

     The first stock up-burst coincided with ECB chief Mario Draghi’s suggestion that he would expand its QE and perhaps drive euro-zone rates more deeply negative. The German 10-year fell in yield from 0.63% to 0.51%, pulling downward on US 10s. Meanwhile stocks interpreted more central bank easing as economic stimulus good for them. Then today, the People’s Bank of China cut by surprise its overnight and reserve rates -- more glee for stocks, but bonds holding.

     Who is right here? My bias declared, of course bonds are right, and stocks don’t get it. In a normal world, big central bank stimulus would be good news for stocks, but this world is not at all normal. Unprecedented, fantastic stimulus by the ECB, PBOC, and BOJ has done nothing more than to hold up the economic floor and to buy time.

     Europe is caught in its own wire and trenches, the euro a proxy for the Western Front in 1917. Germany profiteers and the weak cannot recover while the ECB merely maintains the meat-grinder -- a situation unique to Europe, but real recovery impossible no matter what the ECB does.

     China is different. It has hit its head on the ceiling of investment-led growth, and reforms attempted in the last year have all backfired. On Monday it reported Q3 growth slipping below its imaginary 7%, to 6.9%. Other indicators suggest a far deeper slowdown: as of September, industrial production is down 5.7% year-over-year, and fixed investment is off 6.8%.

     More to the story: unadjusted for inflation, reported China growth was only 6.2%. China is in deflation, an upside-down adjuster. Factory prices have fallen there for 43-straight months. As China in some desperation tries to keep the machine going, it holds its export volume (down only 3.7% YTD) by predatory pricing, exporting its deflation and unemployment to the world while constricting its imports. Double damage.

     Stocks misinterpret China stimulus even more than European. The weaker China becomes internally, the more harm it can do to the rest of us. I do hope that more people will understand that ongoing global economic mire has far more to do with the rise of China and its misbehavior than the financial crisis.

     Okay, if it’s that ugly, why didn’t bonds and mortgages do better instead of just holding? Because of the great disconnect of our time: were it not for the rest of the world’s self-entanglement, the US would be rocking. Fed-haters here include automatically in their screeds: “The Fed’s stimulus has failed to produce economic growth.” Horsefeathers. We have been growing so well that the Fed fears overheating, its leadership dying for an excuse to lift off, and might even be right.

     Take some credit. No, not the Fed -- take credit for US flexibility, and endurance of pain. We have recovered from the Great Recession as nowhere else, our government dysfunctional throughout, because we alone could inflict millions of foreclosures and job losses, adjust and move forward. The rest of the world is politically and culturally stuck.

Mortgage Time From Ron Black and Julie Bailey