Mortgage Mike’s Daily Rate Commentary

Stocks are climbing higher this morning, as stocks rally back into the upward trading channel, they have been in for the past few weeks. Although this is a strong move for stocks, they are currently not too far from a very strong ceiling of resistance that could put an end to the rally. If they do happen to break above this level, we will likely see interest rates further deteriorate. However, it seems more likely that this ceiling will hold, which could provide some stability for mortgage interest rates.


When you look at the strength of the stock market, it seems unreasonable to see such a powerful move higher considering that the Fed is nearing the end of their balance sheet reduction, the federal shutdown is in its 2nd month, global economic slowing, and a real estate slowdown here in the US. All of this points to signs of a slowing economy heading our way, which will eventually lead to weakness in the stock market. This will eventually lead to lower mortgage interest rates. However, it’s hard to say exactly when this will happen.


Without knowing for sure if the run higher in stocks will continue, the safe play is to lock.

According to U.S. Secretary of Commerce, Wilber Ross, the U.S. and China are apparently “miles and miles away” from reaching a trade agreement. This counters President Trump’s recent comments that the two economic powerhouses are “very, very close” to a trade solution. Stock investors are using this as a reason not to continue the climb higher that stocks have made in recent weeks. With stocks just under a critical ceiling of resistance, the timing of this seems to be more of a technical reason for not advancing even higher. With stocks taking a breather, this is providing a bit of relief in the mortgage bond market, helping to soften the trend of mortgage interest rate pricing slowly ticking higher.


As the United States enters the 33rd day of a federal government shutdown, the economic exposure levels are elevating every day. Some government economists are now saying it is possible the shutdown could drop GDP numbers for the 1st quarter of 2019 down to 0% growth. With the first quarter of every year historically being the lowest for GDP growth, combining this with 800,000 federal employees and an unknown number of private contractors not receiving a paycheck, this is certain to have a great impact on the U.S. economy. Of course, once the federal shutdown comes to an end, we will see a spike in consumer purchases as full back pay is rewarded to the 800,000 federal employees. However, the economy will not escape this mess without at least a bruise.


Mortgage bonds are back to trading within the sideways channel that has held rates steady for a couple of weeks. If this channel holds, we can float.  Just be ready to lock should sentiment reverse.

As anticipated in yesterday’s market update, the US stock market hit the bottom of the upward trading channel and then bounced higher.  This has pulled money out of the mortgage bond market in early morning trading.  Stocks are currently trading just beneath a very critical ceiling of resistance.  If stocks are able to muster the strength to break above this level, we will see mortgage interest rates take a step higher.  If mortgage bonds fall beneath their 200 day moving average, this would likely lead to a strong move higher in the near term for mortgage rates.  Generally speaking, a break from the 200 DMA in either direction is generally followed by a more dramatic move.  In this case, that would not be welcomed news for potential homebuyers.


Since we are anticipating a recession within the next 12-24 months, I want to reiterate our suggestions on how to best structure a mortgage so you can take advantage of the lower interest rates that we generally see during recessionary times.  First of all, consider structuring your home loan with a no-fee mortgage.  Although the rate will be higher than if you pay closing costs, you will not have anything to lose when you refinance if rates come down.  Also, if you are in a position where you will have mortgage insurance, we favor paying monthly mortgage insurance vs doing an MI buyout.  If rates fall to a point to where you can refinance to save interest, you will not have kept your loan long enough to recoup the cost of the up-front MI buyout.  Talk to your mortgage professional before making a decision.


Given the short term pressures on the bond market, we will suggest a locking bias.

After a strong day on Friday, stocks are down sharply in early morning trading. This isn’t yet a concern, as stocks remain within a very powerful upward trading cycle. If this downward momentum is strong enough to break beneath the floor of support, then stock investors will become concerned, and rightfully so. However, this is likely nothing more than a healthy move to the bottom of the trading channel before stocks make another run higher. Investors seem to be highly focused right now on short-term gains, appearing to be oblivious to the realities of a 32-day old government shutdown and clear signs of global economic slowing.


The residential real estate market showed continued signs of slowing, as Existing Home Sales fell to a three- year low. Further, on a year over year basis, home values increased at the slowest pace since February 2012. With inventory levels also climbing higher, we can expect to see continued softening in home prices. Although they are still expected to rise in 2019, it seems likely that we are getting closer to the end of a bull housing market.


Now in its 32nd day, the government shutdown appears no closer to a resolution than it was on day one. This is becoming a terrifying experience for many of the roughly 800,000 federal employees who are not receiving a paycheck. When you consider all the mortgages, car loans, utility payments and other bills due, I can’t imagine how this will impact the families involved. Not to mention the basic needs such as food. If this shutdown continues to where federal employees miss a second paycheck, I expect to see more significant repercussions.


Although there is no need to immediately rush in to lock, we must consider that stocks are still within a strong upward trading channel and can quickly correct. If you choose to float, do so only by keeping one eye on the markets and being prepared to lock.

The slow pace of gradual losses in the mortgage bond market picked up the pace this morning, with mortgage bond prices falling sharply following positive trade news out of China. The ping-pong effect of the trade war has been so dramatic that I am now numb to the good days and the bad. Following every announcement has been a period of reaction then a reversal. So, today’s impact on the market means very little to me.


Mortgage bond prices have been pushed below two critical floors of support. This is not good news for the near-term direction of mortgage interest rates. With stocks prices continuing to advance higher, we can expect to see interest rates progressively inch higher. Unless there is news that causes investors to pause, or unless they realize the adverse impact the federal shutdown is causing, stocks have an unobstructed path up to their 100-day moving average. If this level is also broken, we can expect to see stock prices make a major advancement higher. The next couple of weeks could be interesting.


With bond prices remaining under pressure, we will maintain a locking bias.

After last night’s interview on CNN with President Trump’s personal attorney, Rudy Giuliani, it seems that it is no longer a question as to whether there was collusion between the Trump campaign and Russia, it’s merely a question as to whether President Trump was aware of the collusion or personally involved. Rudy has a history of announcing information to the public just before it is brought out through the media. This may be a “soft landing” approach to news that it will be released in the days to come. The concern is what will happen to the stock market if information regarding collusion is released. It will almost certainly move democrats to push for impeachment, which could cause a lot of investors to become nervous about the direction of the stock market going forward.


Mortgage bond pricing has slowly been fading lower. The good side to this is that it has not been in one dramatic move, but rather in tiny steps taken each day. This is causing mortgage interest rate pricing to inch higher, albeit at a slow pace. We seem to be in more of a sideways trading pattern, which if this is true, we are not at the bottom of the sideways trading channel. This means we will either see slight improvements in the days to come as bond prices bounce off the floor and make a run higher, or we will see pricing break beneath the floor. If the floor is broken, we can expect a more dramatic move to the downside.


I feel the risk of floating does not outweigh the downside potential. I will maintain a locking bias.

The U.S. stock market continues to climb higher once again this morning, as what seems to be more of a technical rally higher continues. When you look at the current economic environment, it’s surprising that we haven’t yet seen a significant flight to safety where investors sell stocks and flee to the safe- haven of the bond market. Between Brexit falling apart, significant economic weakness in China, and a federal government shutdown that is now in its 25th day, there is significant reason for investors to panic. The fact that they seem to be shrugging off all of this negative information tells me that the stock rally is highly influenced by the technical.


According to Redfin, Home Sales slumped in the month of December and price growth fell to a 6-year low. Of course, the month of December is always slow, so that can be explained away. The concern will be the potential correlation between home values and the U.S. stock market. When stock prices fall dramatically, it causes many people to reconsider making large purchases. If we see a more dramatic downward move in stocks in 2019, how will this impact the housing market? Many are starting to realize that a recession isn’t far away. This needs to be considered for those making the decision to upgrade. Downgrading a home makes more sense during a recession. Buy low and sell high.


There is very little reason not to lock at the moment.  Therefore, we will maintain a locking bias.

Unfortunately for mortgage interest rates, the stock market turned a negative technical signal and proved its strength this morning by making a powerful rally higher. This confirms the stock market is still in a strong upward trading channel, which has now broken above the 50% correction level. If this recovery continues, and stocks close above the 50% level at the close of trading today, it could spell trouble for mortgage interest rates in the near term as stocks would likely take another step higher. With plenty of room for bonds to move in either direction before hitting the next levels of significant resistance, anything can happen at this point. Let’s hope bonds find the strength to at least hold on where they currently sit while they build strength to make another move higher.


As the federal government shutdown moves into its 25th day, stock investors seem to largely be ignoring the longer-term consequences this will have on the broader economic outlook for the United States. With no resolution in sight, both parties seem to have their heels dug in as they prepare for this shutdown to continue into the foreseeable future. With 800,000 federal employees essentially out of work, or at least a paycheck, many will soon face significant personal financial repercussions. At some point, something will have to give.


With stocks climbing higher, we will maintain a locking bias.

With the Federal government shutdown now exceeding the longest shut down in U.S. history, Republican and Democratic leaders appear no closer to a resolve than before the shutdown occurred.

As President Trump considers bypassing the system by using emergency powers to theoretically fund the wall, many are saying that will only end up being challenged in the courts and will not lead to the wall being funded. This outcome is being echoed by republicans as well as democrats. With federal employees’ livelihoods remaining in the balance, there will hopefully be a mutual agreement made here soon. The challenge is that both sides have said there is no chance of them backing down. Without a compromise, the U.S. economy will soon experience major challenges as the shutdown continues. The positive for mortgage interest rates is that the longer the shutdown lasts, we should see mortgage rates continue to soften.


The stock market is falling this morning, creating a negative technical outlook that could lead to further losses in the near term. The interesting thing about the charts is that stocks have recovered approximately half of the massive losses they took in November and December. This means that the correction could just be a healthy part of a broader bearish market move in the stock market. If that is in fact the case, we will see signs of more losses to come in the coming days. I will keep you posted each day as this unfolds. Of course, that would mean good news for mortgage interest rates, which generally benefit during times of a struggling stock market.


Although we may see improvements in the days to come, it’s too early to make that call. We will maintain our locking bias for now.

Many Federal employees are likely busy this morning canceling autopay on bills such as their mortgage and car payments, as they woke this morning to find that their regular scheduled paychecks were not deposited into their bank accounts. This is the turning point where tension over the shutdown will likely get real. You can rest assured that many federal employees will be calling their state representatives to demand a solution. Once families’ livelihoods are truly at stake, the intensity behind the arguments will heat up. So be prepared for whatever that brings. At this point, both sides have dug in so deep that it would appear weak for one to back down. As a result, we can plan that President Trump will act unilaterally by declaring a national emergency. That will most certainly lead to lawsuits. However, it could put an end to the shutdown and allow federal employees to get back on track financially.


This morning’s news headlines are surrounding the release of December’s Consumer Price Index (CPI) report, which showed that consumer inflation continued to tame. This has been one of the ongoing struggles the Federal Reserve has faced. The stubbornly low levels of inflationary growth keep the Fed in somewhat of a double bind where they need to increase short term interest rates but risk creating a deflationary environment if they push too high too quickly. Given continued advancements in technology, I’m not sure we will ever face massive inflationary concerns. However, with two of the greatest economic risks being inflation and deflation, it’s a difficult balance for the Fed to maintain.


With stocks remaining in a strong upward trading channel, we will maintain our locking bias.