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Yellen for More Stimulus

January 25, 2021jordanreedNews

Last Week in Review: Yellen for More Stimulus

This past week, we watched stocks soar to record highs as Treasury Secretary nominee, Janet Yellen’s Senate confirmation began. Ms. Yellen is being embraced by the stock markets because:

  1. She is well known, having been Fed Chair for several years.
  2. Having been Fed Chair, she knows the inner workings of the Fed. This will help on the stimulus front.
  3. Speaking of stimulus, she is very dovish, as evidenced by her “act big” comment regarding an enormous stimulus package.

What do rates think of “acting big?”

Mortgage-backed security (MBS) prices have been unable to push higher, leaving home loan rates elevated on the year. The 10-year yield, a proxy for long-term rates in the U.S., is seeing its yield at 1.11%, also elevated on the year.

Stimulus does three things MBS and long-term bonds don’t like:

  1. It increases bond issuance, which must get sold into the market. The additional issuance to pay for previous stimulus measures is one reason why yields are creeping higher. More stimulus means more bonds, weight on price, and upwards pressure on rates.
  2. It lifts inflation expectations. MBS prices are the instrument that provides mortgage rates, and market forces/inflation are the main drivers. If inflation goes up, rates go up and vice versa.
  3. It helps revive and stimulate the economy. This is good news, and bonds generally hate good news.

Fed Safety Net

At the moment, the Fed continues to purchase $120B in Treasurys and MBS each month to help pin down long-term rates. Should rates continue to tick up, there will be a point where the Fed would likely jump back into the market and do more by purchasing more MBS and Treasurys to keep rates from rising. If this sounds like the Fed is keeping rates artificially low, they are. They also recently said they will buy “at least” $120B each month, so the door is open to do more if called upon.

Bottom line: With only a couple weeks into 2021, we are already seeing a shift towards slightly higher rates. 

Rates and Inflation on the Rise

January 19, 2021jordanreedNews

Last Week in Review: Rates and Inflation on the Rise

The Federal Reserve has been very clear on their communications over the past 18 months. They want to see inflation run hotter before even thinking about raising interest rates. And when we say interest rates, the only interest rates the Fed can control are short-term interest rates, by hiking or cutting the Fed Funds Rate. Long-term rates, like mortgages, are driven by the financial markets and inflation expectations. Yes, the Fed is buying bonds to manipulate long-term rates — more on that below.

If inflation is rising, it puts upward pressure on long-term rates, which is exactly what has happened over the last two weeks as inflation expectations rose to the highest level in two years and the 10-year yield spiked to 1.19%, the highest level since last March.

The Quandary?

More stimulus is on the way. The incoming Biden administration has put forth a plan to spend trillions of dollars to help revive and stimulate the economy, and this is a major reason why inflation expectations, real asset, and commodity prices are rising, thereby causing the spike to be higher in long-term rates.

The incoming huge stimulus and rising inflation expectations would normally give the Fed reason to stop buying bonds every month. Remember, the Fed is currently purchasing at least $120B in Treasurys and mortgage-backed securities (MBS) each month to artificially help keep long-term rates relatively low. So, with inflation rising, does the Fed stop buying bonds and let market conditions dictate the real pricing of interest rates? Not any time soon.

And while some Fed members were out talking about “tapering” purchases, Fed Chair Powell spoke on Thursday and told the markets they will continue the present bond-buying program.

This means we may see a continued uptick in inflation expectations, and the Fed may be pressured to do even more, like buy additional bonds to help keep long-term rates low.

Bottom line: With only a couple weeks into 2021, we are already seeing a shift towards slightly higher rates. 

Inflation – The Problem and Opportunity

January 11, 2021jordanreedNews

Last Week in Review: Inflation – The Problem and Opportunity

This past week we watched stocks and rates move higher with the former hitting all-time highs and the 10-year yield crossing above 1.00% for the first time since March. At the same time, mortgage-backed securities (MBS) traded lower, causing home loan rates to tick up just slightly from the lowest levels ever.

What was the main driver for these market moves? Inflation.

The Georgia Senate runoff ended with one party in power of all three branches of government. The market’s knee-jerk reaction is we will see endless stimulus measures, and this has sent inflation expectations to the highest levels in over 2 years!!!

The Problem:
MBS are the bonds which determine mortgage rates, and inflation is one of the main drivers. If inflation rises, rates rise – period!

Fortunately, the daily Fed bond buying has offset some of the selling pressure caused by the rising inflation fears. Looking ahead, if inflation expectations continue to rise, the Fed will be forced to do more to pin down long-term rates, like more bond buying or some sort of yield curve control (YCC).

The Opportunity:
Millennials made up more than 1/3 of home purchases in 2020. One thing they have no experience with is inflation. The last time we had serious inflation, many of them were not even born. It is an opportunity for mortgage and housing professionals to educate them on the problem above and the screaming opportunity. In an era of higher inflation, you want to own real assets, like real estate which is a wonderful hedge against higher inflation. Moreover, when inflation rises, wages rise. So millennials today can lock in an “artificially” low mortgage rate thanks to the Fed bond buying, and more easily pay down that mortgage over time with ever increasing wages seen in an inflationary environment.

Bottom line: This past week we may be seeing a shift towards slightly higher rates in 2021.

The Fed and the Unsaid

December 18, 2020jordanreedNews

Last Week in Review: The Fed and the Unsaid

Last week stocks climbed to all-time highs, and rates were able to hold steady near all-time lows. The big news of the week was the Fed Meeting.

It is important to follow Fed activities as they are the most powerful central bank on the planet, and what they say and do can cause seismic shifts in the financial markets. The dual mandate of the Fed is to promote maximum employment and price stability (inflation). At the moment, unemployment is too high and inflation is too low, so the Fed said they are “committed to using its full range of tools to support the U.S. economy in this challenging time.” What the Fed didn’t say limited the improvement in both stocks and rates.

When it came to the Federal Reserve’s bond-buying program, the financial markets were hoping the Fed would “up” their Bond purchases to help further pin down long-term rates like mortgages, but this didn’t happen. Instead, the Fed said it will “continue to increase its holdings of Treasury securities by at least $80 billion per month and agency mortgage-backed securities by at least $40 billion per month. The Fed will continue this program until substantial further progress has been made toward the current pace to sustain the Committee’s maximum employment and price stability goals”.

The takeaway — the Fed will continue to purchase at least $120 billion worth of Bonds until we see unemployment sharply lower and inflation solidly higher. This means home loan rates should remain relatively low for a long time.

Bottom line: Even with the Fed bond-buying, rates have ticked up slightly from the recent all-time lows. With vaccine distribution and more stimulus on the way, it may be difficult to see rates improve much, if at all. 


To Stimulate or Not to Stimulate

December 14, 2020jordanreedNews

Last Week in Review: To Stimulate or Not to Stimulate

Last week, a few market-moving events caused turbulence in the financial markets. Stocks and rates bounced up and down before heading into the weekend at elevated levels. The Dow Jones Industrial Average hovers near 30,000 and the 10-Year Note Yield near 1.00%.

Here are three things that caused volatility in the financial markets. Following these stories is important as they will have a big effect on the direction of both Stocks and rates in the days, weeks, and months ahead.

1.) No Stimulus Agreement: Congress has until December 21 to agree on a stimulus plan before heading into Congressional Recess. While there was previously high hopes and optimism that a deal would get done, things “got off to a bad start” on Wednesday, when Senate Majority Leader Mitch McConnell spoke and led the markets to believe both sides are far from agreement. OUCH! In response, Stocks, which were rallying on Wednesday and hit all-time highs, quickly reversed lower with the tech-laden NASDAQ experiencing sharp losses. Typically, when Stocks go lower, rates go lower.

That was not so much the case — likely because the Bond market is smarter and senses a stimulus bill will be passed. Let’s hope so. With 10 million + people still unemployed and more shutdowns causing more economic harm, we need stimulus, and we need it now.

2.) Vaccine Distribution: Margaret Keenan, a 90-year old U.K. woman became the first person on the planet to receive the COVID-19 vaccine. A lot of hard work has to be done to gather and distribute the vaccine across the globe, but the work has just begun. Stocks liked the news and rates moved higher, as both sense better days ahead.

3.) Eurodrama: The European Union reported their economy is extremely fragile and may actually contract in the 4th quarter. The textbook definition of a recession is two consecutive quarters of negative growth or contraction. This is not good news, and the U.S. is also experiencing an end-of-year slowdown when compared to the recent recovery. To offset the economic slowdown, the European Central Bank (ECB) upped their Bond-buying or quantitative-easing program. Stocks love stimulus but hate recessions. The idea that the ECB is committed to doing more stimulus to avoid a recession is a story to follow. If Stocks move higher it can be at the expense of Bonds and rates.

Bottom line: Rates have ticked up slightly from recent all-time lows. With a vaccine and more stimulus on the way, it may be difficult to see rates improve much, if at all. 

Three Market Movers This Past Week

December 7, 2020jordanreedNews

Last Week in Review: Three Market Movers This Past Week

1) Stimulus Talks Are Back

The big news this past week was the renewed stimulus talks and the “chance” that we may see a $900 billion stimulus bill included in the government funding package this month.

Up until now, both political parties have been unable to agree on a stimulus package. In addition to the political pressure on both sides to come to an agreement, there are two deadlines Congress has “chances” to get this deal done.

By December 11, Congress must come to an agreement on a funding bill to avoid a government shutdown. As mentioned, we may see a stimulus package included in this funding measure.

If Congress misses this window, they have until December 21 before Congress goes on recess until year-end.

Stocks and rates have been behaving like a deal will get done with both moving higher.

2) Vaccines on the Way

Markets are forward-looking and both Stocks and rates have been rising on hopes and optimism that mass vaccine distribution is just around the corner.

In addition to several vaccines already showing high efficacy rates, there are many more vaccines and therapeutics in the pipeline. Continued good news from vaccines and therapeutics will be a tailwind for Stocks and rates, pushing them higher. The opposite is also true.

3) COVID-19 Cases on the Rise

The rise in COVID-19 cases, hospitalizations, and deaths is a major concern. Even though markets are forward-looking, the uncertainty and threat of more shutdowns is limiting the rise in Stocks and rates. The tug-of-war between vaccine hopes, rising cases, and uncertainty will continue to be a major driver for the next few months. Remember what Fed Chair Powell said back in July, “The path of the economy will depend significantly on the course of the virus.” This statement has aged well several months later.

Bottom line: Rates remain right at historic lows, per Freddie Mac this week. With a vaccine and more stimulus on the way, it may be difficult to see rates improve much — if at all.

Tug-of-War at Play

November 23, 2020jordanreedNews

Last Week in Review: Tug-of-War at Play

The Tug-of-War Continues

Stocks, Bonds, and rates are responding to the tug-of-war playing out between vaccine hopes and the rise in COVID-19 cases, along with additional lockdowns.

Pfizer was out this past week saying its vaccine has a 95% effectiveness rate. Moreover, the firm says they will have 50 million doses available before year-end and as much as 1.3 billion doses available in 2021.

On top of this, Moderna has a very effective vaccine and there are dozens of firms ready to deliver additional doses and therapeutics.

Stocks and rates have moved higher because both are forward-looking. Yes, the rise in cases and hospitalizations is a concern, but at the moment the markets are looking four to six months down the road and there is hope that with a high vaccination rate we can return back to normal sometime in 2021.

Home Builders Are Very Bullish

Single-family Housing Starts showed the highest reading since 2007! Historically low-interest rates and shifting demand to move to the suburbs are the drivers.

The main challenge for builders is keeping up with the demand. Available lots and decreased availability of supplies are headwinds for builders.

One thing is for sure: If land and materials are scarce, expect new home prices, currently averaging $326,000, to continue to climb.

Bottom line: Rates hit historic lows, as reported by Freddie Mac, this week. With a vaccine and more stimulus on the way, it may be difficult to see rates improve much, if at all.

Financial Markets Get Vaccinated

November 16, 2020jordanreedNews

Last Week in Review: Financial Markets Get Vaccinated

The big news of last week was Pfizer’s announcement that their vaccine was 90% effective against COVID-19. It also appears that some vaccines could be distributed before year-end.

The market’s response? “This is a gamechanger.” Stocks soared to record highs and mortgage-backed securities and Treasuries prices fell sharply, causing rates to rise.

Markets Tend to Overshoot

Stocks and Bonds tend to overshoot to the upside and downside in response to market-moving news, and last week looks like another example.

Last Monday, when the Pfizer announcement was made, the Dow Jones almost hit 30,000, and since that time has actually lost several hundred points and is well off the best levels of the week.

Rates also endured a similar response with the 10-year yield rising to .98% on Monday, well up from .71% just days before. By the end of the week, the yield settled above .90%, off the highest levels but still a big rise week over week.

The Vaccine Will Be a Headwind for Bonds

Besides Pfizer, there are many more firms close to an effective vaccine. So, over time, we should expect more ways to combat the virus and allow our economy to fully open. While the financial markets may have “overshot” with its initial response to the vaccine, the trend of more progress and economic expansion is bad for Bonds and rates.

Stocks and Rates Were Not the Only Things That Rose

An effective vaccine can’t come soon enough. This past week, daily COVID-19 cases and those currently in the hospital hit record levels. This alarming trend has many states paring back their re-opening strategies and reinstituting fresh restrictions. Should we see deeper restrictions that cause uncertainty and/or economic harm, Stocks, and rates may experience volatility and decline from current levels.

More Help Is on the Way

Despite the high uncertainty in politics, a new stimulus package is coming to help many in need. The size and scope of the stimulus is not clear, but will likely consider the current rise in cases as well as the effects of a widely distributed vaccine.

More stimulus is not necessarily good for Bonds and rates because it lifts inflation expectations, adds more Treasury supply to the Bond market, and helps continue economic expansion.

Bottom line: Rates are just above all-time lows. With a vaccine and more stimulus on the way, it may be difficult to see rates improve much, if at all. 

Three Things the Markets Told Us About Election Day

November 9, 2020jordanreedNews

Last Week in Review: Three Things the Markets Told Us About Election Day

Many were expecting uncertainty and chaos emerging from Election Day, and those people were not disappointed. Joe Biden will be the next president of the United States.

Even when the president was unknown, Stocks skyrocketed, and Bond prices soared, causing rates to decline.

What caused such a market reaction?

Here are three things the markets told us about Election Day:

  1. It appears we may have a split Congress in 2021 as Republicans may maintain control of the Senate (at least as of this writing). This balance of power will likely lead to more gridlock in Washington D.C. over the next couple of years. This means no radical changes within the economy as it would be hard for Congress to agree on any new policies. Stocks rallied on the notion that any meaningful corporate tax hike would be unlikely. At the same time, both Bonds and rates also did well because they too embrace a government stalemate.
  2. The forthcoming stimulus package just got smaller. With a split Congress, expect the next stimulus package to be quite a bit smaller than previously anticipated. We believe and hope we may see targeted stimulus over the next couple of months. Bonds like a smaller stimulus package as it means less new Bond supply, less inflationary pressure, and less aid to the economy.
  3. The Fed is not going anywhere. A split Congress makes it difficult to get big fiscal plans passed. This means the Fed may be called upon to do more to help grow the economy and is not likely to hike rates any time soon — possibly years from now. And this is another reason why Stocks skyrocketed higher this week. This past Thursday, at the Fed Meeting, they reiterated their commitment to buying $120 billion worth of Bonds each month to help keep long-term rates, like mortgage rates, low. As the old saying goes, “Don’t fight the Fed.” They are committed to helping promote maximum employment and economic growth, which Stocks love.

Bottom line: The backdrop for housing looks amazing and the Fed will continue to support the economy alongside fiscal stimulus from the government. 

Prime Advantage vs. Jumbo

October 27, 2020rashtonNews

Comparable Benefits with Easier Qualifications

Although the market for Jumbo loans is bouncing back for traditional banks, Carrington Mortgage Services offers borrowers a better-priced alternative – Carrington Prime Advantage℠ – that has comparable benefits with easier qualifications for loans up to $2.5 million. Dare to compare!

“The Bank”
One loan up to 90% LTV? No

We offer up to 90% LTV

DTI’s Up to 50%? No Yes
FICO’s as low as 660? No Yes
Our minimum is FICO 660
Less than a 2-year Income History? No Yes
We allow 1-year of tax returns or W-2s to verify income
Qualify with bank statements? No Yes
We allow 12 & 24 months of personal or business bank statements
12-month mortgage history? No Yes
We only need a 12 month mortgage history when others need 24 months!
Less than 7-year BK and FC Seasoning? No Yes
We require only 48 months seasoning for BK, FC, Short Sale, Modification or Deed In Lieu
Quick Approvals? Some may Yes
Since we underwrite and service ourselves, we control the turn times!