Mortgage Mike’s Daily Rate Commentary

When Bitcoin is doing well, everyone thinks it’s the way of the future. But when Bitcoin loses four straight playoff games in a row despite the best player on the Clippers being hurt… NO ONE wants to talk about.


Bitcoin investors realized they are not Warren Buffet over the last few months and have been pretty quiet. Following a number of blows including the Chinese ban on crypto mining, the Fed telling the country they are going to take their foot off the stimulus pedal and Elon Musk claiming that Bitcoin prices “seem high”, the price has tanked over 50% from its April peak and formed a Death Cross.


Death Cross… How Ominous  

A death cross is a trading pattern that can be identified in any security from Mortgage Backed Securities to crypto that signals of rough times ahead. It happens when a short-term average trendline breaks below a long-term trendline telling investors that the security is losing steam. This happened to Bitcoin yesterday as its 50 DMA fell below its 200 DMA. So, what do we do now? Your guess is as good as ours. If this year taught traders anything, it’s that trading on technical signals is a thing of the past.


On to the Rates…

Mortgage Backed Securities are in the middle of a massive trading range and have made up about half of last weeks selloff. Last week, we talked about the Taper Tantrum of 2013 and how we are in an eerily similar situation today. There is big tension in the MBS market because the Fed has a number of ways to taper stimulus but many believe its first cut will be MBS spending. So, we can expect to see extra volatility in the mortgage market. We are carefully floating but will lock if we fall towards the bottom of our current trading range.

Let’s take a trip back to #Summer2k13. We had the Harlem Shake, selfie was the word of the year, and T-Bills and MBS were being thrown around like a rag doll.


The Need to Know:

After the 2008 crash, the US economy was in a horrible place. Unemployment was at all time highs, thousands of businesses across the country were shutting their doors and the housing market was… pretty much the opposite as the past year in every way. So, the Fed decided to implement QE (quantitative easing) to stimulate the market and increase business spending. (QE is essentially the Fed slamming a shot of adrenaline into the chest of the economy) The Fed was buying up T bills and MBS to help provide some liquidity to the market and decrease rates. And it worked – really, really well. By 2013 the market was starting to stand on its own and the Fed though that it was time to start tapering down their investments and let the baby bird fly. So, they made an announcement that they would decrease QE spending at some time in the future. It’s important to know that they didn’t actually decrease spending… just said they planned to at some point. This caused absolute pandemonium in the T-Bill and MBS markets.  Mortgage Backed securities plummeted and mortgage rates did the opposite. This sent a shock wave of fear through the market and investors pulled their money out. This panic is known as the Taper Tantrum.


TBT (Throw Back Thursday):

Today the economy looks eerily familiar. The Fed has been pumping trillions of dollars in through MBS investments as well as other securities for over a year. That investment led to the housing market boom and pushed the longest stock market bull run on another year to record highs.

Then yesterday, the Fed announced that they will start tapering investments in 2023, earlier than most thought. Immediately, MBS pricing dropped over 50 points and the Fed meeting is the biggest topic across the market. We do not know exactly what to expect but were having a bit of déjà vu. We can only hope that the market does not panic like it did in 2013.


The Rates:

MBS pricing is up 11 points from yesterdays plunge. We could see a bounce in the market and see that investors learned their lesson 8 years ago or they could continue to sell off. We are now in the middle of a wide trading range with a strong floor. We are carefully floating in hopes for a bounce but will lock if we start to touch the floor.


Go Jazz!

What does Doge Coin and lumber have in common? They both skyrocketed in May to record highs and have since come crashing down.

And when I say crashing, I mean crashing. From their peaks last month, Doge is down 53% and lumber is down 41%. Now the question is, how is a commodity behaving as volatile as a meme crypto?

The main reason was because most did not see the construction boom happening during the pandemic – least of all sawmills who cut production by over 30% in Q2 of 2020. This lead to the biggest lumber shortage in the US at the same time as one of the biggest housing booms. The other reason is that amateur traders thought they could get into lumber futures contracts and ride them to the moon. If you’re an OG lumber Robinhood investor, you may have landed and gotten out. But those who were late got burned. Sawmills are back at capacity and lumber futures contracts had their largest weekly price drop ever last week.

At least the cost of building homes will come down.


Lies, Damned Lies and Statistics

It’s all about being first with the big headline – the shock and awe. We saw it with record year over year inflation headlines when we had negative inflation last year and we are seeing the same thing now with foreclosure readings. Todays big headline is that ATTOM Data found that foreclosures are up 23% from last year! Let’s scroll back our feed to last year. What was being implemented? MORTGAGE FORBEARANCES. Of course foreclosures are up from last year, people who could not afford to make their mortgage payment didn’t have to so there was almost no reason to foreclose a home. And of course the headlines leave out the fact that foreclosures are actually down 8% from last month… that statistic does not get clicks.

Many will say that a ton of people have gotten used to not making a payment and will go into foreclosure as soon as their forbearance is over. This is a valid concern; however, over 25% of people in forbearance across the country continued to make their payment.


The Rates

Mortgage Backed Securities broke through their 50 DMA and are now in a vulnerable position with only one floor of support nearby. We are holding a locking bias.

The past 2 years have proved that there are 2 unstoppable forces. Mike Tyson and the US housing market. JK….kind of.


This morning’s CoreLogic report showed that those who purchased a home in Q1 2020 have already accumulated 20% equity – that’s a lot of $dough$!


What Should I do About It?

If you’re Mike Tyson, you go straight to the dark web and pick out the cutest baby tiger you can find. But if you’re looking to make the best financial decision and you have more than 20% equity in your home, you’ve got some options.

  1. Consolidate some debt
    If you have any consumer debt with an interest rate of 4%+, there is the option to do a cash out refinance to pay off that debt and consolidate to a rate in the 3s. This will increase your monthly cash flow.
  2. Home improvements
    You love your new pad, but you could love it more… You can further increase the value of your home by doing a cash out refinance to invest money back into it.
  3. Get rid of mortgage insurance and drop your rate

If you are currently paying mortgage insurance because of the loan type you are in or because you did not have 20% equity when you took out your loan, you may be able to get rid of it and potentially drop your rate.


Our loan officers would love to give you some options on how to use your new found dough… give them a call at 801-501-7950.


Now To The Rates

Mortgage Backed Securities are slightly down today. However, there has not been much of an impact on our pricing. In fact, our low fee option has gotten much better. Today, on our average scenario of a 300k loan, 740 credit and 75% loan to value, we are able to pay our clients fees at closing at 2.999%. This means they come to the table with no out of pocket cash. So, if you or someone you know has a rate in the 3s, call us to see what your options are. We are locking going into the weekend.


Have an awesome weekend!

We have said that record inflation is coming at us like a train. Well, the trains at the station. The CPI core inflation came in this morning at 3.8% while total inflation came in at 5%, the highest reading since we were blessed with the movie Wayne’s World (1992).


Like we have said, this record inflation is exaggerated by deflation that we saw a year ago. However, the record inflation is real in many industries. Namely, those who were whipsawed by the plummeted demand during the Covid shutdown and then mass demand during the recovery. Vehicle sales, retail, travel, and dining are some of the industries leading this inflation surge.


What does this mean for rates?

Well, the answer depends on the year you are living in. If you live in any year pre Covid vaccination, it means that mortgage rates are about to skyrocket. If inflation is at 3.8%, it means that whoever is servicing your mortgages that are in the 2’s or 3’s is losing a TON of money. However, if you live in the years post vaccination, it does not mean a whole lot… Other than the Fed will increase its billions of weekly Mortgage Backed Security spending to keep mortgage rates stable.


Now, that’s the big question. How long is too long for the Fed to keep the housing industry propped up? How high can the housing industry climb before it is unable to stand on its own?


These questions are set to be the topic of discussion at the Fed’s Jackson Hole meeting this fall. Unfortunately for the housing market, rumor has it that many Fed members think we are about there. If that is the case, we can expect rates to have a more natural response to a 3.8% inflation reading.


So far today, the MBS market is up 5 bps and are pressed up against their 100 DMA. That has been a strong ceiling and they will likely bounce lower. We are holding a locking bias.

Leading up to this years G7 Summit, ministers from all over the world are showing support for an overhaul of today’s multinational corporate tax laws. (The G7 is an event for the biggest leaders in the world… and their finance nerds)

The problem: For years and years, it has been common practice for multinational corporations to evade taxes. The most common way is by funneling money through countries with lax financial regulation or low corporate tax rates. If you have ever seen Ozark, you know about ‘shell’ companies and how they are essentially business skeletons that are good for nothing other than passing money through. Across the world, it is estimated that 40% of foreign direct investment is “phantom” – money that is passing through empty corporate shells with no real business purpose. Luxembourg, for example, is a country of 600k people with the same amount of foreign direct investment as the United States… smells a little fishy.

In an attempt to make companies pay their fair share of taxes, leaders of the G7 are showing support of a minimum 15% global corporate tax rate. Meaning that regardless of what country money is “earned in”, the company will pay a minimum 15% corporate tax on it. You would think that most would recognize that its in the best interest of the economy and the people of each country to make this change, right? WRONG!

Unfortunately, politicians all over the world are having their pockets lined with money from corporations who are not a big fan of the corporate tax rates increasing. Many of these companies have teams devoted to finding tax loopholes. This is why something of this nature has not passed in the past and why it will be such a groundbreaking achievement if implemented successfully.  But, in addition to politicians and business leaders, there are some countries who would gladly forego the tax benefit, like Ireland. Ireland has taken advantage of the companies around the world who are looking to pay less in taxes by allowing them to pay 12%. This sparked a massive increase in Irish remote workers as well as generated billions in tax revenue.

We will see what comes of the G7 but in the past, it has shown that these multinational companies have a lot stronger hold on politicians that we would like to believe.

The Rates

Mortgage Backed Securities closed yesterday at the same place that they did on Friday. This morning they are up 8 bps. However, we believe they will take a dive on Thursday after the CPI reading comes out showing inflation. We have been talking about this for months – year over year inflation readings are exaggerated due to the economic shutdown last year. But for some reason, the market continues to act blindsided when these numbers come out. We are expecting to see core inflation at 3.5% or above on Thursday – 75% over the Feds “target”. Remember that the Fed’s target is an annualized rate so you cannot just look at one month. Just like last month, the market will likely overreact. We are holding a locking bias going into Thursday’s reading.

Last year it was toilet paper but this year’s shortage is of a slightly more necessary resource, WATER.

As you may have seen, Utah’s Governor Cox has asked all Utahns to pray for rain. Stating that the state needs divine intervention to get us out of this drought. But it’s not just Utah that is facing this problem. A massive amount of the country is experiencing an abnormally dry start to the Summer.

California for example has placed 41 counties in a state of emergency as it is worried about recreating last years wild fires. As many of you know, California was in a similar water shortage last year where they had 5 of the 6 largest wildfires in modern state history.

Bottom line, a large portion of the country is going to be in some trouble if we don’t get some rain.

Rates – We Didn’t Learn Our Lesson

If there’s one thing that we learned in the craziness that was the 2020-2021 economy, it’s that technical indicators mean nothing in the face of intervention from the government (or massive groups of online day traders). There are a lot of inflationary things happening. The jobs report came in this morning slightly under expectations but still strong, unemployment fell from 6.1-5.8% and the big one is that wages have increased by over 1.5% in the past 2 months. If you think about the Fed’s 2% inflation target, the US seems to be the fast track. In addition, early next week we will be getting inflation numbers and like last month, it’s coming in hot. Last May’s inflation reading was negative due to the economic shutdown. So when you look at a year over year number, it looks a lot higher than it “actually” is.

All of these inflationary things should clearly drive mortgage rates up, right?  WRONG.

All of this is overlooked by the fact that the NY Fed Chairman talked about how far away the US is from sustaining itself without massive Fed intervention in this mornings Fed meeting. This means more Fed stimulus and MBS purchases which is good for mortgage rates. MBS’ are up 28 bps so far this morning. We are recommending locking in those massive gains as we approach next week’s inflation reading.

Jobs numbers are interesting because there are two measurements that come out one after another. Tomorrow, we get the BLS reading, the most highly regarded jobs reading. But today we go the ADP Employment Report and it’s looking good… just not for mortgage bonds. The Employment Report showed that 978k jobs were created in May – a small 378k over the estimate! The reason that this is not good for mortgage bonds is because as unemployment falls and inflation rises, the Fed will start to spend less and less in MBS purchases which is keeping mortgage rates so low. Now, most economists think that this is a ways away, but this jobs number is a step in that direction.

On the other side of the coin, the US still has a record number of people on government assistance. While initial jobless claims for May was the lowest since the beginning of the pandemic, it was still at 385k. In addition, continuous jobless claims (people who were collecting unemployment last month and continue to this month) actually grew by 169k to over 3.7m. Then when you add back in Pandemic Assistance and other Relief, there are over 15m people collecting government assistance. So, while the ADP report looks promising, the country still has a long way to go when it comes to unemployment.

Tomorrow’s jobs report will be taken more seriously by the market but the MBS market is not optimistic. MBS’ are down 19 bps today and are sitting on top of their 50 DMA that could easily be broken with a strong jobs report tomorrow. We are holding a strong locking bias going into tomorrow’s report.

Welcome back to another week of record breaking housing appreciation.

Let’s start with CoreLogic, one of the largest real estate data aggregators on the planet, who despite having all of the necessary resources, continues to miss the ball on home appreciation. If we go back a year ago, people were split. Many though the housing market was tapped out and would see minimal growth and others thought the near decade long climb would continue. Not only did CoreLogic think the market would slow, they projected -6.6% appreciation across the housing market. Well, we know we saw 13%+ appreciation in the past year, making their projection off somewhere near 20%. This month, they are holding onto their pessimistic housing beliefs.

CoreLogic is forecasting 2.8% appreciation over the next 12 months projecting 1.1% of that appreciation to come in June alone. Now, they forecasted that same 1.1% in May, but actual appreciation came in over 2% – close to the projected appreciation for the next year. Nobody has a crystal ball to see where this crazy housing market is going, but a company like CoreLogic should see that the housing market has enough pend up demand and lack of supply to prevent a 50% reduction in appreciation over the next 30 days.

Mortgage Backed Securities are down 9 bps from Friday. On the bright side, they do have a strong floor of support below them. We are carefully floating if you are able to watch the market. However, if this floor of support is broken, we will immediately lock.

Have a great day everyone!

Solar, the faster growing energy source in the world is facing a bit of a bit of dilemma which could cause 2021 to be the first year of negative growth in 17 years.

The years and years of declining solar costs that recently made it a great investment for many are coming to a screeching halt. Over the past 10 years, solar module production costs have dropped 90%. So far this year, prices have climbed 18% driven by a 400% increase in the cost of one of the key ingredients, polysilicon.

What makes the problem even worse is that the reason prices of polysilicon are soaring is similar to why Doge coin shot up, people are pumping and dumping. Toward the end of 2020, it was becoming clear that demand was outweighing supply. To capitalize, traders all over the world bought up polysilicon. Currently, at least 20% of the polysilicon is held by speculative traders hoarding the material and contracts.

This massive increase in price could not have come at a worse time for countries like America and Canada who have recently dumped massive investments into solar. Many think this is temporary, but any 18% increase feels like an eternity when there is this much money involved.

Mortgage Backed Securities are up 9 bps this morning and a fourth consecutive day in the green after the sell off two weeks ago. They have broken above their 25 DMA and broke through a strong Fibonacci level this morning. At the same time, the 10 year fell below the 1.60 floor that was so strong earlier this year. This is all good news for mortgage rates as you can see in the rate table below! We are holding a floating bias if you are able to monitor the market.