{"id":693,"date":"2018-12-21T09:48:53","date_gmt":"2018-12-21T17:48:53","guid":{"rendered":"http:\/\/www.ezmortgages.us\/?p=693"},"modified":"2019-01-15T09:49:13","modified_gmt":"2019-01-15T17:49:13","slug":"ez-mortgage-monitor-december-21-2018","status":"publish","type":"post","link":"https:\/\/ezmortgages.us\/ez-mortgage-monitor-december-21-2018\/","title":{"rendered":"EZ Mortgage Monitor – December 21, 2018"},"content":{"rendered":"

Happy Holidays!\u00a0 I hope the season is treating you and yours well.<\/p>\n

In this letter, in addition to a quick \u2013 or what I hope is a quick \u2013 recap of this year\u2019s mortgage market movement, and my take on what things may look like as we roll into the New Year, I\u2019m going to touch on a relatively new mortgage program for home renovation loans, that\u2019s really cool.\u00a0 It\u2019s unlike anything offered before.<\/p>\n

But first, this year was another interesting one in the mortgage market.\u00a0 In my newsletter from January of this year, I pointed out that since the early 1970\u2019s, basically 2\/3rds of the time, mortgage rates were lower leaving the year, than they\u2019d entered it.\u00a0 Well?\u00a0 That\u2019s not likely, this time.\u00a0 We\u2019re set up to be in that 30% of the time where rates left the year higher than they entered.<\/p>\n

Going into 2019, it looks like the average 30yr fixed mortgage rate will be about .625% higher than it was coming into 2018.<\/p>\n

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But, where will be in another 12 months is anyone\u2019s guess.\u00a0 We do know that a recession\u2019s coming.\u00a0 We just have no clear idea of when.\u00a0 Nor do we know whether any downturn will be relatively minor, or of a more severe variety, and what that may do to markets for equities, bonds and mortgage backed securities.<\/p>\n

What we can point to is that rates are still really low, from a historic perspective.\u00a0 We\u2019re only about 1%-1.25% higher than the floor we saw between Oct. 2012 and May 2013, which we\u2019ve nearly hit a few times since.<\/p>\n

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Do I see us getting back to those lows any time soon?\u00a0 No.\u00a0 And, it\u2019s possible we\u2019ll never see rates that low again.\u00a0 But, there are certainly circumstances that could see the equities slide further, pulling treasury yields and mortgage rates lower, while driving those security prices higher.<\/p>\n

From my view, 2019 is likely to look a lot like 2018 in terms of volatility.\u00a0 But, the overall economic picture may not be as strong.\u00a0 We may have hit the cycle low in unemployment.\u00a0 And, that may roll over just as we start to see a little wage pressure.\u00a0 It appears the benefit of the recent tax cuts, may have run their course, meanwhile there\u2019s concern over the ongoing budget deficits and national debt ( and whether we\u2019ll be able to grow ourselves out of those problems, remains to be seen).<\/p>\n

If you look at the DOW Industrial Average in 2018, it\u2019s been gyrating around 25,000.\u00a0 Meanwhile, the 10yr treasury yield \u2013 a reasonable proxy for 30 yr mortgage rate movement \u2013 has been hovering around 3%.\u00a0 And, 30yr fixed mortgage rates have been bouncing around 4.625%, on average.\u00a0 And, as we\u2019ve seen, the swings around and within those ranges can be pretty severe and sudden.<\/p>\n

To me, the bigger question is whether the same general range will hold, or whether we\u2019ll shift to some higher plateau for equities, yields and mortgage rates, or if things will soften, to a lower level for those three components.<\/p>\n

Equities have been on a good run, really since the election of Donald Trump.\u00a0 And, treasuries and mortgage backed securities have suffered.\u00a0 Was that a sugar high, of sorts, in equities, that we\u2019re now seeing wear off?<\/p>\n

Ultimately, equities, bonds and mortgage backed securities are all competing for the same investment dollars.\u00a0 And, on the treasury and mortgage backed security side of the ledger, with the US Federal Reserve unwinding its balance sheet, basically on \u201cauto-pilot\u201d per Fed Chairman Jay Powell (albeit some FOMC members have begun rephrasing that) the additional supply is significant.\u00a0 Yet, so far, the demand seems to be there to soak up that additional supply, especially during the last month or so.\u00a0 Meanwhile, other central banks around the globe may be starting to retract some of their liquidity too, as everyone strives to normalize their balance sheets, ahead of any future downturn.<\/p>\n

And, if the US economy does roll into and through a soft patch, or into an outright recession, will we find ourselves with the DOW down another 20% or so, back closer to 20,000, where we started 2017?\u00a0 And if so, will that pull treasury yields and mortgage rates down too?\u00a0 After all, it was right then, when we last saw mortgage rates around for 30yr fixed loans, consistently below 4% with no points.<\/p>\n

Or?\u00a0 Is this just another blip of a correction, and the economy will pick up another bit of steam and churn to a new, higher plateau, driving treasury yields and mortgage rates higher with them?<\/p>\n

As always, it will be interesting to watch it unfold, and I\u2019ll do my best to keep you posted.<\/p>\n

In terms of the new Renovation\/Rehab loan that\u2019s available that I mentioned starting this note, it\u2019s the Fannie Mae Homestyle Renovation Loan.\u00a0 The most unique features are:<\/p>\n