July 21, 2020

Mortgage rates fell below 3 percent last week for the first time in 50 years. The drop has led to increased demand for refinancing of existing mortgages, as well as demand for new mortgages for those buying homes.

A quick word about these historically low interest rates. The lowest rates available almost always come at a cost of between 0.7 and 1 point (multiplied by the size of the loan and added to the cost). Often these “teaser” rates also have loan size limitations that require it be under the conforming loan limit, which is $510,400 here in the SF Bay Area. You’ll also need to have a credit score above 740 and maybe even above 760 to get access to these rates. Even then, it’s important to remember that rates can and do change every day!

Want to take cash out for home improvements, deb consolidation or put the kids through school, you can expect to see upward adjustments to your rate.

If you are buying an investment property or something other than a single family residence, there will be upward adjustments to the interest rate and there are other things that can and do add risk premium to the rates that are available to you.

So, can you get one of those mortgages that start with an interest rate in the 2’s? You sure can but you’ll need to check all of the boxes to get that super low rate. Do you have to check all those boxes? No. Are 2.5% interest rates available? Yes! Will you have to pay thousands of dollars to get that low of a rate? It’s certainly possible!

Rather than focus on rate, let me share an example: if you borrowed the conforming loan amount of $510,400 (again, here in the SF Bay Area, as that limit changes from county to county). The difference in principal and interest payment between 2.99% and 3.25% is …$71 per month. Don’t misunderstand me, saving money on your home mortgage is important but if your rate is in the high 3s or low 4s, getting a mortgage 3.25% could save you between $175 and $225 per month. NOW THAT’S WORTH FOCUSING ON!

Everyone’s situation is different, and the calculations above are only illustrations and for discussion purposes only. They’re simply designed to get you thinking about your home finance.

Need to get pre-approved for a purchase? Looking to refinance to a lower rate and to tap into your home equity for any reason? Give me a call so we can discuss your specific situation. I’m happy to run some scenarios for you so you can see for yourself where you’ll save. When you call, we can talk about why it’s unlikely you’ll hang on to your loan for the full term and why that’s important in your decision making process.

Week of July 13th, 2020 in Review

The pandemic’s impact on unemployment continues, as another 1.3 million people filed for unemployment benefits for the first time during the week ending July 11. While continuing claims did improve significantly from the previous week, the headline numbers may not be telling the whole story, as highlighted below.   

Over in the housing sector, confidence among builders was on the rise in July, per the National Association of Home Builders Housing Market Index, which increased 14 points to 72. Housing Starts and Building Permits also improved from May to June, with significant increases in both for single family homes.  

June’s Consumer Price Index showed that consumer inflation rose after three previous months of declines, but the overall trend is that inflation remains tame. Meanwhile, Retail Sales came in stronger than expected last month while May’s figure was also revised higher.

There was also some good news from the manufacturing sector, as July’s Empire State Index showed that manufacturing activity in the New York region rose from essentially flat to 17.2. This is a big improvement from the -48 reading just two months ago. Meanwhile, the Philadelphia Fed Index showed a modest slowdown for manufacturing in that region in July, after a large expansion in June. However, July’s reading was higher than expected.

Lastly, there was also some positive news from the National Federation of Independent Business, as their small business optimism index for June increased to the best level since February. The NFIB chief economist, Bill Dunkelberg, said “Small businesses are navigating the various federal and state policies in order to reopen their business and they are doing their best to adjust their business decisions accordingly. We’re starting to see positive signs of increased consumer spending, but there is still much work to be done to get back to pre-crisis levels.”

Digging Deeper Into Unemployment Figures

Another 1.3 million people filed for unemployment benefits for the first time during the week ending July 11, coming in slightly higher than expectations of 1.288 million new claims. Pennsylvania (+209K), California (+127K) and Illinois (+57K) reported the largest gains. Continuing claims, which measure people continuing to receive benefits, improved significantly from 18.06 million to 17.338 million.

But … are things really improving?

There are also PUA or Pandemic Unemployment Assistance Claims that are not captured in the headline figure, and those totaled 928,000 in the latest week. Continuing PUA Claims are now above 15 million, which is significant!

This makes the total number of people receiving some type of benefit around 32 million, meaning it’s possible that the unemployment rate is really over 20%. Because of this, unfortunately, it doesn’t appear that the situation is improving in any meaningful way when we look at the amount of people who are receiving benefits.

Home Builders Feeling Optimistic

The NAHB Housing Market Index, which is a real time gauge of builder confidence, increased 14 points, rising from 58 in June to 72 in July. All three components of the index increased, with current sales rising 16 points to 79 and sales expectations up 7 points to 75. It was especially encouraging to see buyer traffic jump 15 points to 58, moving from contraction territory (below 50) to expansion (above 50).

Housing Starts, which measure the start of construction on new homes, rose 17.3% in June. This was in line with estimates and a nice move higher. Housing Starts are now down only 4% on an annual basis, which is significantly improved from down 23% in the

previous report. The gain was pretty much all in starts on single-family homes, which were up 17.2%.

Building Permits also saw an improvement from May to June, up 2.1%, though they are down 2.5% when compared to June of last year. Permits for single family homes also saw a big jump in June, up 11.8% from May.

The Latest on Consumer Inflation and Retail Sales

The Consumer Price Index (CPI), which measures inflation on the consumer level, came in at 0.6% in the month of June. While this increase ended three months of declines, the overall trend is that inflation remains tame. Of note, gasoline prices rose 12.3% in June, which was a big reason for the overall gain in inflation. The year-over-year reading increased from 0.1% to 0.6%.

Core CPI, which strips out food and energy prices, increased by 0.2% from May to June, while the annual reading remained stable at 1.2%. Within the reports, rents are rising 3.2% across the US, which is down from 3.5%.

There was some good news for retailers as sales increased by 7.5% in June, better than the expected 5.2% gain, while May’s sales figure was revised higher by 0.5% to 18.2%. Sales at clothing and accessory stores shut up a whopping 105.1% in June, while sales at electronics and appliance stores, and furniture and home furnishing stores also saw nice gains. 

What to Look for This Week

The second half of the week heats up with key housing reports. First up, the Federal Housing Finance Agency’s House Price Index for May and June’s Existing Home Sales will be released on Wednesday, followed by June’s New Home Sales on Friday. And as usual, weekly Initial and Continuing Jobless Claims will be important to monitor when the latest figures are reported on Thursday.

Technical Picture

Mortgage Rates Fall Below Three Percent!

July 16, 2020

Mortgage rates fell below 3 percent for the first time in 50 years. The drop has led to increased demand for refinancing of existing mortgages, as well as demand for new mortgages for those buying homes.

A quick word about these historically low interest rates. The lowest rates available almost always come at a cost of between 0.7 and 1 point. Often these “teaser” rates also have loan size limitations that require it be under the conforming loan limit, which is $510,400 here in the SF Bay Area. You’ll also need to have a credit score above 740 and maybe even above 760 to get access to these rates. Even then, it’s important to remember that rates can and do change every day!

Want to take cash out for home improvements, deb consolidation or put the kids through school, you can expect to see upward adjustments to your rate.

If you are buying an investment property or something other than a single family residence, there will be upward adjustments to the interest rate.

So, can you get one of those mortgages that start with an interest rate in the 2’s? You sure can but you’ll need to check all of the boxes to get that super low rate.

By way of example, if you borrowed the conforming loan amount of $510,400 (again, here in the SF Bay Area, as that limit changes from county to county). The difference in principal and interest payment between 2.99% and 3.25% is …$71 per month. Don’t misunderstand me, saving money on your home mortgage is important but if your rate is in the high 3s or low 4s, getting a mortgage 3.25% could save you between $175 and $225 per month. NOW THAT’S WORTH FOCUSING ON!

Everyone’s situation is different, and the calculations above are only illustrations and for discussion purposes only. They’re simply designed to get you thinking about your home finance.

Need to get pre-approved for a purchase? Looking to refinance to a lower rate and to tap into your home equity for any reason? Give me a call so we can discuss your specific situation. I’m happy to run some scenarios for you so you can see for yourself where you’ll save. When you call, we can talk about why it’s unlikely you’ll hang on to your loan for the full term and why that’s important in your decision making process.

Week of July 13th, 2020 in Review

The pandemic’s impact on unemployment continues, as another 1.3 million people filed for unemployment benefits for the first time during the week ending July 11. While continuing claims did improve significantly from the previous week, the headline numbers may not be telling the whole story, as highlighted below.   

Over in the housing sector, confidence among builders was on the rise in July, per the National Association of Home Builders Housing Market Index, which increased 14 points to 72. Housing Starts and Building Permits also improved from May to June, with significant increases in both for single family homes.  

June’s Consumer Price Index showed that consumer inflation rose after three previous months of declines, but the overall trend is that inflation remains tame. Meanwhile, Retail Sales came in stronger than expected last month while May’s figure was also revised higher.

There was also some good news from the manufacturing sector, as July’s Empire State Index showed that manufacturing activity in the New York region rose from essentially flat to 17.2. This is a big improvement from the -48 reading just two months ago. Meanwhile, the Philadelphia Fed Index showed a modest slowdown for manufacturing in that region in July, after a large expansion in June. However, July’s reading was higher than expected.

Lastly, there was also some positive news from the National Federation of Independent Business, as their small business optimism index for June increased to the best level since February. The NFIB chief economist, Bill Dunkelberg, said “Small businesses are navigating the various federal and state policies in order to reopen their business and they are doing their best to adjust their business decisions accordingly. We’re starting to see positive signs of increased consumer spending, but there is still much work to be done to get back to pre-crisis levels.”

Digging Deeper Into Unemployment Figures

Another 1.3 million people filed for unemployment benefits for the first time during the week ending July 11, coming in slightly higher than expectations of 1.288 million new claims. Pennsylvania (+209K), California (+127K) and Illinois (+57K) reported the largest gains. Continuing claims, which measure people continuing to receive benefits, improved significantly from 18.06 million to 17.338 million.

But … are things really improving?

There are also PUA or Pandemic Unemployment Assistance Claims that are not captured in the headline figure, and those totaled 928,000 in the latest week. Continuing PUA Claims are now above 15 million, which is significant!

This makes the total number of people receiving some type of benefit around 32 million, meaning it’s possible that the unemployment rate is really over 20%. Because of this, unfortunately, it doesn’t appear that the situation is improving in any meaningful way when we look at the amount of people who are receiving benefits.

Home Builders Feeling Optimistic

The NAHB Housing Market Index, which is a real time gauge of builder confidence, increased 14 points, rising from 58 in June to 72 in July. All three components of the index increased, with current sales rising 16 points to 79 and sales expectations up 7 points to 75. It was especially encouraging to see buyer traffic jump 15 points to 58, moving from contraction territory (below 50) to expansion (above 50).

Housing Starts, which measure the start of construction on new homes, rose 17.3% in June. This was in line with estimates and a nice move higher. Housing Starts are now down only 4% on an annual basis, which is significantly improved from down 23% in the

previous report. The gain was pretty much all in starts on single-family homes, which were up 17.2%.

Building Permits also saw an improvement from May to June, up 2.1%, though they are down 2.5% when compared to June of last year. Permits for single family homes also saw a big jump in June, up 11.8% from May.

The Latest on Consumer Inflation and Retail Sales

The Consumer Price Index (CPI), which measures inflation on the consumer level, came in at 0.6% in the month of June. While this increase ended three months of declines, the overall trend is that inflation remains tame. Of note, gasoline prices rose 12.3% in June, which was a big reason for the overall gain in inflation. The year-over-year reading increased from 0.1% to 0.6%.

Core CPI, which strips out food and energy prices, increased by 0.2% from May to June, while the annual reading remained stable at 1.2%. Within the reports, rents are rising 3.2% across the US, which is down from 3.5%.

There was some good news for retailers as sales increased by 7.5% in June, better than the expected 5.2% gain, while May’s sales figure was revised higher by 0.5% to 18.2%. Sales at clothing and accessory stores shut up a whopping 105.1% in June, while sales at electronics and appliance stores, and furniture and home furnishing stores also saw nice gains. 

What to Look for This Week

The second half of the week heats up with key housing reports. First up, the Federal Housing Finance Agency’s House Price Index for May and June’s Existing Home Sales will be released on Wednesday, followed by June’s New Home Sales on Friday. And as usual, weekly Initial and Continuing Jobless Claims will be important to monitor when the latest figures are reported on Thursday.

Technical Picture

The Fed’s ongoing purchases of Mortgage Backed Securities remain a stabilizing force in the markets. Mortgage Bonds continue to trade in the middle of the range between support at the 25-day Moving Average and overhead resistance at 103.219. This is a wide range, which means there can be significant price fluctuations as we have seen over the past week. However, there is also a rising trend line that Bonds are attempting to remain above, which should provide some near support.

The Fed’s ongoing purchases of Mortgage Backed Securities remain a stabilizing force in the markets. Mortgage Bonds continue to trade in the middle of the range between support at the 25-day Moving Average and overhead resistance at 103.219. This is a wide range, which means there can be significant price fluctuations as we have seen over the past week. However, there is also a rising trend line that Bonds are attempting to remain above, which should provide some near support.