Roll the Dice?

It’s Fed Day once again.  The likelihood that the FOMC raises rates today stands at only 4%.  December holds a 35% probability and January a 50% shot that the eight year trend of rates at 0% will be broken.  Nevertheless, with interest rates as good as they are, only a fool would put off purchasing a home right now because they were holding off for better rates.

Feel the Flow

Spending cuts across the energy sector last month dropped the Durable Goods Orders down to a negative 1.2%.  While most of the orders come from the producer level, U.S. consumers contributed to to the downturn as well.  That Mr. & Mrs. America are not as loose with their money  right now is corroborated by the decline in Consumer Confidence, down 4.7% off of expectations.

So for now, we are in our happy place.  The absence of any earth-shattering news has kept Mortgage Bonds steady Eddy all month long, consequently, interest rates have found their zen place.



The Chill in the Air

This is my favorite time of year, when the weather is chilly in the morning and perfect in the afternoon; when the rain clears the air and the light shines through the clouds onto golden mountains.  When it’s still early on enough that I don’t panic every time I think of the upcoming Christmas season.  The downside is the unpredictability; it’s hard to plan outside activities more than 2 hours in advance because you just don’t know what the weather will be like.  Who am I kidding?  I haven’t been outside in months.

Speaking of unpredictability, let’s talk about the foreign markets for a sentence or two. The European Central Bank decided to leave its main refinancing rate–the rate that it charges on regular loans directly to banks–at a record low of 0.05%, where it has been for over a year. The rate on overnight deposits also remained at minus 0.2%, meaning banks continue to pay to temporarily stash excess funds at the ECB.  I want in on that business–or I’d even settle for excess funds that I don’t know what else to do with.  Heading further east, China’s central bank combined a quarter-point cut in benchmark interest rates with a half-percentage reduction in banks’ reserve-requirement ratios to make it easier for institutions to borrow money from the CCB.  This is the sixth time that China has cut their interest rate in the last year.

Turning to domestic housing, the number of existing home sales increased 4.7% during September, and is up 8.0% since this time last year.  Single-family home sales were up 5.3% last month (8.6% year over year), meaning that multi-family and condo unit transactions are starting to taper.  Following the summer rush, the median sales price of an existing home fell 2.9% to $221,900 across the U.S. (still +6.1% from last year).

All Quiet on the Western Front

No published economic reports and no global catastrophes out there today.  Mostly, we got nothing…that we might be able to turn into something.  How about car maker stocks?  General Motors beat third quarter earnings estimates and Ferrari’s IPO (yeah, the Italian car manufacturer went public today) is up 10% over the opening price this morning.  That’s helping stocks rise marginally.  Mortgage Bonds are also up a touch.

Concluding the most boring conference of the year, the Mortgage Bankers Association summarized the three day proceedings with an economic outlook for next year.  The MBA expects the job market to increase in 2016, GDP to be 2.3%, and while interest rates will rise next year, the MBA says that they should remain below 5% for 30-year mortgage rates. 

It’s the Most Boring Time of the Year

The Mortgage Bankers Association has its annual meeting this time every year.  The content is so stodgy that that they have to host the conference in some place like San Diego just so people will attend.  For anyone who stayed awake during the proceedings however, there was some good news: the MBA expects a 10% increase in home purchases next year.  By contrast, the National Association of Realtors forecasts a 3.5% uptick in purchase transactions over the next 12 months. Perhaps the MBA’s statistic might have been inflated just to see if anyone was paying attention?  Last year, NAR showed a 7.0% increase in purchase transactions from 2014 to 2015.  Personally, I have seen a decent pickup in the number of homebuyers this year and welcome a little boost from 2015, especially considering the anticipated 33% decrease in refinance transactions coming next year as a result of increasing interest rates (another MBA forecast).

Newly issued Building Permits decreased by 5% and Housing Starts increased by 6.5% over last month according to the National Association of Home Builders this morning.  So-so news which pales by comparison to the 17% increase in the construction of multi-unit dwellings.  Anyone who has driven down the length of Orem’s State Street this year would refute that 17% is a low number.

Take This Job and Shove it

Several reports out this week conclude that more and more Americans are just plain exiting the workforce, though the headlines tell a different story: The number of people filing for unemployment fell today to the lowest level since 1973–which sounds awesome.  Yesterday I read that one institution forecast that the unemployment rate will fall to 4.1% by 2017–double awesome.  So it sounds like everyone who wants to work should be able to find a job.  The reality seems to be that these numbers are declining as a result of an increasing number of workers who are calling it quits.  Underemployment and government subsidies are making a day filled with Dr. Phil and Guiding Light more appealing than clocking into the daily grind. The following graph of the Labor Force Participation Rate from the Department of Labor shows that the percentage of employed Americans is continuing to decline to new all-time lows.

What that means for the future of interest rates is uncertain; the market is a fickle thing. A declining workforce should keep interest rates near these record low numbers, but lower productivity creates a world of other challenges.



Statistically speaking, it’s not looking like the Fed will hike interest rates this year.  According to research done by the CME Group and published last Friday, here are the probabilities that the FOMC will raise rates at their next three meetings:

  • October 28th: 8%
  • December 15th: 37%
  • January 27th: 47%

It appears that just like every other set-in-our-ways human being here on this planet, those working in the financial sector just don’t enjoy change.  It’s easier to push for an upset three months from now than it is to want to undergo the pressures and exerted effort required of morphosis today. Does the economy need higher interest rates to sustain growth?  I think so.  Is there danger in hiking too soon?  Possibly.  Would we be better off to peel back the bandage now to let the healing begin and to stockpile ammunition for when we need it next time?  Probably.  Do I talk out of both sides of my mouth in this publication depending on the most recently published data from one of a thousand inconsequential studies/articles/surveys?  A resounding “yes”.  I, for one, embrace change. 🙂


Back in 1998 the Bureau for At-Risk Youth made some pencils to inspire kids to stay clean.  Not too many weeks into the campaign, a 10 year old at Ticonderoga (yep, the school bearing the same name as the pencil maker) Elementary discovered that as the pencils were actually put through the rounds of use, an entirely different message was being sent to the minds of the unsuspecting children donning the lead infused advertising campaign, and it was retooled immediately.  As it happens of course, the pencils now have cult status among English-speaking wayward souls around the world.

In the vein of would-be-do-gooders seeking to clean up the world with nary a thought as to how the pencil will look when it’s actually put into use, the Consumer Financial Protection Bureau rolled out TRID this week.  This much anticipated set of rules and procedures retiring the Good Faith Estimate and the Truth in Lending Disclosure has been coming down the pike for over two years now.  It is formally called The Truth-in-Lending/Real Estate Procedures Integrated Disclosure Rule (TRID is in there somewhere), and it has Realtors, lenders, title companies, and buyers and sellers of real estate across the country holding their collective breath to see how things will shake out.  Despite having published the 27 page “Know Before You Owe” brochures, the CFPB is discovering that there is still a lot of vagaries to be sorted out and we are getting memos and bulletins constantly.

HOWEVER, the new docs are a giant step in the right direction, and I think that it will be great for the lending community as a whole, aiding transparency to outdated and misleading forms.  I embrace the changes and am attempting to find the humor in the moronic nuances that, like the pencils, are turning out send a different message than what they were constructed to convey.  Laughter is after all, the best medicine.

Consumer Spending

Yesterday I touched on the fact that oil prices are half of what they were a year ago, and look to be rebounding.  A study published by JP Morgan Chase today shows that consumers are spending eight percent more money now than they were when gas prices were higher.  The research comes from studying 25 million Chase credit and debit card users’ transactions over the last few years.  The study shows that 10% of the extra discretionary spending is spent on groceries, 18% at restaurants, 23% on retail purchases, and 32% going to other services.  I would hope that those “other services” include mortgage lending, but I don’t charge the borrower for my services 80% of the time (being compensated from the loan servicer or having the seller cover costs in most transactions).  It would appear that consumers are expected to spend all of this extra money on themselves; the National Retail Federation forecasts that holiday spending will decline 10% this season.

Oil Prices are Risin’

The prices of stocks and oil around the world are increasing, dragging down the cost of bonds and putting upward pressure in interest rates. If Jed Clampett were alive today and paying cash for his property, he could almost afford to move to Beverly Hills again.  Now if Jed were to produce his last two years’ tax returns showing profits when oil was still over $100 per barrel (double today’s price) and finance the property with these low interest rates, I’d be much obliged to get his kin folk back into Mr. Drysdale’s neighborhood.