Mortgage Rates Improve Despite Positive Economic Data

Mortgage interest rates improved slightly despite economic data that was mostly stronger than expected.  Economic data stronger than expected included the February Chicago Fed National Activity Index, the January Case-Shiller Home Price Index, the final look at Q4 GDP, February Wholesale Inventories, NAR Pending Home Sales, and Weekly Jobless Claims.  Weekly Jobless Claims fell to their lowest level since 1973.  Economic data weaker than expected included the March Consumer Confidence Index, the February U.S. Trade Deficit, the March Chicago Purchasing Managers Index, and the University of Michigan Consumer Sentiment Index.  While weaker than expected, the University of Michigan Consumer Sentiment Index reached its highest final monthly level since January 2004.  Also of note, February Personal Income and Spending were in line with expectations.  The February core Personal Consumption Expenditures Index, excluding food and energy, was up 0.2% month over month and 1.6% year over year, slightly higher than expected.


The Dow Jones Industrial Average closed at 24,103, up over 500 points on the week.  Markets are closed for Good Friday.  The crude oil spot price closed at $64.91 per barrel, down almost $1 per barrel on the week.  The Dollar strengthened versus the Euro and Yen on the week.


Next week look toward Monday’s ISM Manufacturing Index and Construction Spending, Wednesday’s Factory Orders and ISM Services Sector Index, Thursday’s International Trade and Jobless Claims, and Friday’s employment report for March as potential market moving events.





The long, Easter-Passover-Equinox weekend really began on Thursday with another half-asleep but goofy day in stocks, the Dow up 254. In the previous six days the Dow moved 255 points, 9, 345, 669, 424, and 725. Volatility is so high that up or down doesn’t matter.       

On this holiday, whether you are moved by spiritual or astronomic/seasonal events, take a little time to reflect, first upon interest rates, then go big: think about civilization. :-)

In the bond market, and I suspect at the Fed there is nothing going on but reflection. A trader might say (cleaned up): “Does ANYBODY know what is happening?”

The Fed raised the overnight cost of money last week by .25% to 1.75% and said it would hike at least twice more this year and probably three times next year. Then the yield on 10-year T-notes went down. After repeated tries over two months to break 3.00% going up, 10s settled this week at 2.74%, barely a half-percent above the Fed-sensitive 2-year T-note at 2.27%. That closing spread is one of the very best signals of an overdone Fed and a slowing economy ahead.

Alternate explanation: global pension and life insurance funds see an irresistible buy in the US 10-year yielding close to 3.00% for the first time in five years. The only government bonds issued in any magnitude and with credit comparable to ours are German 10s paying 0.498%, and Japanese paying 0.042%. Buy American!

Can the economy be slowing, with all of the tax and budget stimulus? The Fed’s recent estimate of the bang for each buck of stimulus in 2018 is forty cents, and in 2019, twenty cents. The rest is just running a hose into already rich pockets, without economic effect.

From there, telescope your weekend reflection away from markets and all the way out to civilization. In a globalizing world we still celebrate these ancient holidays, Easter for two thousand years, Passover 1,300 years farther back, and the equinox… who knows when the first of us arranged stones to mark the seasons of the sun. And we are unchanged since.

Civilization requires organized cooperation, which means government — good or bad, durable or fragile, pleasant to some and resented by others. Mired as the US seems to be in discord, look outside, all around. Perhaps the biggest complication in civilization is culture, which is both extremely resistant to change and yet changes. In political culture, every nation tends to get the government it wants (or deserves), democracy or not.

Xi Jinping is now widely described as an “autocrat.” No, he is not. China open-ended his term limit after 30 years of ineffective General Secretaries, whose five-plus-five-year terms resulted in pointless bureaucratic struggles for succession and deepening economic risk. Debt-heavy and unproductive state industries with tremendous political power have increasingly threatened the entrepreneurial success of the rest of that economy.

China’s 5,000-year risk has been centrifugal, bloody disorder. China’s collective leadership has given maximum power to Xi because it will be required to hold the place together, and for China’s next steps. Signals: his succession rivals have not been purged. Xi shows neither self-admiration nor hereditary ambition. His daughter, Mingze went to Harvard (under pseudonym), and she and his famous wife keep the lowest possible profiles.

China’s business is business. After 500 years of foreign invasion and humiliation, it is very determined, the whole organized and focused on economic success and power — and notably disinterested in military adventures.

Angela Merkel is at the end of her fruitless try for one-Europe on German terms, but Germany itself is a unified economic machine with a huge trade surplus, and a budget surplus. Emmanuel Macron is giving France its best dose of economic salts in the history of the 5th Republic (1958). The left is in the streets of course, but the majority is with super-competent Macron. Theresa May, undermined from all sides appears to be turning Brexit into a success with far less pain than even its supporters imagined. Separate culture, separate from Europe.

Japan is a special case so strange to outsiders, in a terrible demographic hole but a fiercely competitive economy. South Korea despite northern risks, Taiwan despite China’s ambition to absorb a runaway province — these places will be our economic competitors no matter what, their cultures intent on economic success.

Look around anywhere else, and the will of the people prevails, no matter how odd.

Not even Putin is a true tyrant. He and his cronies have majority support. Any Russian living during the Czars or Soviets would instantly recognize Russia today — a cruel strongman at the top, a rotten nobility dedicated to stealing from each other, a peasantry content to live under predestined brutality, all held together by secret police.

Eastern Europe’s rejection of Western-style one-Europe and liberal democracy — that’s neither “populism” nor creeping autocracy, it is who they have always been. A majority of Turkey supports Erdogan’s reversion to Ottoman illnesses, Turkey’s secular 20th Century the aberration. Even Castro’s heirs to Cuba enjoy popular support. Maduro’s Venezuela and Kim’s Korea are our few modern tyrannies. Others hang in the balance of cultural imperative versus modern economic demands: India, Pakistan, Saudi Arabia, Iran, and much of South Asia, Central and South America, and Africa.

So, apply the same tests of history and progress to us, and where are we this holiday? Take heart! Our last 18 years of bad leadership have been the aberration. Twenty years ago we had a budget surplus, the Fed discussing how to invest excess tax revenue after we had paid off the national debt. No kidding.

As everywhere else it’s convenient here to blame leadership or political opponents for an unpleasant interval. The US is unique in the world for its system of laws and yet chaotic freedoms, and our ability to find economic success while the federal government is tangled in its underwear. However, given the rise of China and determination of other competitors we may not for much longer get away with our preference for political mud-wrestling.

Our political divide has widened, election results oscillating across the divide. But there’s a good chance that we’re growing tired of ourselves. If we are open to the idea, leaders will begin to speak of the things we can agree on instead of feeding division. It’s all up to us, of course. We said to ourselves at the outset, “From Many, One” and have lost the thought periodically, but always re-taken that vow. We have not changed.


The US 10-year T-note in the last five years. To stall just below that gorgeous double-top in 2013… confounding:


The 10-year in just the last week fell of the sled, but without any news as cause:


The Fed-signaling 2-year in the last year has no slide at all, but has paused despite “everyone knows” more hikes are coming:


The Atlanta Fed’s GDP tracker has rebounded from a slide below 2% for Q1 2018, but the gain is due to inventories accumulating — actually a sign of slowing ahead:


The always reliable ECRI is steady in a moderate spot:

The Fed Increased Interest Rates but what does that means for Mortgage Interest Rates?

The Federal Reserve recently raised the Prime Rate by 0.25%, the first increase since December. We get a lot of calls when the Prime Rates change, wondering how this will impact mortgage interest rates.

While it may seem logical that increasing the Prime Rate will cause mortgage interest rates to be higher, there isn’t necessarily a direct correlation. Below outlines the impact of changes to the Prime Rate and the major causes of mortgage rate fluctuations. 

Changes to the Prime Rate impact:

  • Credit cards
  • Student loan debt
  • Rates for home equity lines of credit

Mortgage Interest Rates are impacted by:

  • Inflation
  • Economic growth
  • The Bond Market


Events are coming so fast in bunches and connected and separate that it’s hard to sort noise and style from substance.

The Fed met this week, concluding with Chair Powell’s first press conference and new projections for the cost of money. In any other month or year or decade the Fed news would have dominated all else. This time, just an “uh-huh” from markets and back to the other jaw-dropping shows in progress.

The Fed took the Fed funds rate up .25% to 1.75%, and confirmed its intention to be 2.25% or higher at year’s end and 3.00% or more by the end of next year. The bond and mortgage markets had priced-in the hike, and part of the next one, and ignored the Fed’s further intentions. The 10-year T-note fell in yield at Wednesday meeting-end.

Chair Powell, is not an economist and not afflicted by their prideful pretense to predict the future via model-building. In different words than Yellen, Powell told us that the Fed will rely on incoming data, especially wage growth to calibrate future monetary policy. He knows what markets know: nobody knows how inflation works in this economy. The good news is Powell’s competence. The bad news is the risk of a reactive Fed, policy lurching from datum to datum.

The dominant shows in progress involve the stock market, the tariff announcement and possibility of trade war, a tough week for technology, and White House staff changes implying substantial and hawkish change in security policy.

Stocks. The principal difficulty in that market is the leap in value from Dow 6,626 in March 2009 to 18,332 on election day 2016, and then in just fifteen months to 26,616. The Dow could easily unwind to 18,000 and the move have nothing to do with Fed, economy, administration, or anything. That said, the 3% single-day dump on Thursday coincided with the imposition of tariffs on China.

Economy. There’s another player beside the Fed and tariffs threatening slowdown. In our present dysfunction the Treasury is a fountain of new Treasury bills sold to finance an explosion in the Federal budget deficit not seen since 1981. A $500 billion increase in deficit in a single year brings some stimulus (Powell said the disciplined obvious: nobody knows how much stimulus), but to tighten credit any central bank sells securities — and the Treasury’s sales of new IOUs are suddenly having the same effect. This way: during most of 2017 one-year Libor traded close to 1.75; since fall, Libor has spiked to 2.50%, crowded up there by the flood of T-bills, and bringing the first significant slowing pressure in this cycle. Mortgage borrowers with Libor ARMs last year adjusted up from 3.375% to 4.00%. Next month’s notices: 4.50%. Going higher.

Technology. This week technology brought timeless lessons in human nature. Poor Facebook and it’s tongue-tied founder, cost-free connectivity gone to the Dark Side.

Above all let us mourn the death of 49-year-old Elaine Herzberg, killed this week by a robo-car. May there be monuments raised to her sacrifice, random as it was, and high schools named for her. A google excursion found the first person killed by any automobile: Henry Bliss in 1899 when disembarking a street car on the upper West Side of NYC was run over by an electric-powered taxicab (et tu, Uber?). The cab driver was charged with manslaughter, but found not to be negligent and acquitted.

Technophile exuberance at autonomous autos is in trouble, and with financial consequences. We slaughtered 40,000 of ourselves last year with our cars, but we did it, not some damned robot. The fix may involve v e r y, v e r y, s l o w autobots covered with warning lights and sirens. Isaac Asimov’s flat-genius multi-volume exploration of robotic AI is worth study by today’s youngsters and elders.

Technology is tough. Romans did not build millennial-durable aqueducts on the first try. Cathedral architects learned the need for buttresses the hard way. It’s a shame that we have no video of early experiments with gunpowder.

Beyond technology, Ms. Herzberg’s sacrifice is memorial to our inability to connect present action to future result.

The Trump administration is now in daily play in markets. Trade and security are big deals. And since this administration is unlike any other in US modern history, so much more difficult to handicap its consequences.

It is possible that the new replacements in the White House will temper their views, now that those views will have consequences. It is also possible that Mr. Trump’s style is mostly negotiating ploy, grating but not dangerous.

Trying to read minds is no more productive than predicting the future. However, those of us with long connections to New York real estate have experience with Mr. Trump’s style in practice. He has acted in the same patterns for almost forty years. He has consistently pressed aggressive negotiations until either an adversary has conceded defeat, or Trump has been forced to stop — by legal or financial force, or buzzed-off by the adversary.

Our risk now is Mr. Trump’s means of success. In political genius he saw the weakness of his Republican opponents. And since election he has progressively taken advantage of the Democrats’ paralysis in minority, and the mainstream Republican fibrillation in fear of the Tea Party and of Trump himself.

A wise old deal guy impressed on me: if a client or negotiating adversary ever gets the idea that you are round-heeled, mistaking courtesy or dignity or restraint for weakness, you’ll never convince the adversary you’re not a pushover. The more we defer, the more the other is convinced that we will always defer, and the more violent the ultimate collision.

The changes in White House senior staff to an aggressive group may enable more productive action at home and abroad. Or something else.


US 10-year T-note in just the last week. The Fed raised its rate on Wednesday, tariffs announced on Thursday — the more powerful force clear:


The 10-year in the last year, astounding stability developing:


The Fed-sensitive 2-year T-note in the last week. The same pattern as in 10s, tariffs canceling the pricing-up for the next Fed hike. The Fed will not hike during a trade war:


The 2-year in the last year. Every recession is preceded by a path like this:


The new set of damned dots, each Fed governor and regional Fed president forecasting the Fed funds rate at the end of each future year. These dots are incompatible with today’s market rates and vice-versa:

Mortgage Rates Flat Despite Fed Funds Rate Increase

Mortgage interest rates were mostly flat on the week as the Fed increased the Fed Funds rate by 0.25% as expected after its FOMC meeting.  The Fed mentioned that growth rates of household spending and business fixed investment have moderated from their strong fourth quarter levels.  Markets expect two more rate hikes this year.  Economic data was limited.  Of note, February Existing Home Sales, the January FHFA Home Price Index, February Leading Economic Indicators, and February Durable Goods Orders were stronger than expected.  Durable Goods Orders were up 8.9% year over year.  February New Home Sales were in line with expectations and weekly jobless claims were slightly weaker than expected.  The median sales price of a new home was $326,800, up 9.7% year over year.  Trade war fears have increased as President Trump signed a presidential memorandum imposing $60 billion of import tariffs on China.  If the tariffs are implemented there are fears of increased inflation and a global economic slowdown.


The Dow Jones Industrial Average is currently at 24,019, down over 900 points on the week.  The crude oil spot price is currently at $65.33 per barrel, up over $3 per barrel on the week.  The Dollar weakened versus the Yen and Euro on the week.


Next week look toward Tuesday’s Case-Shiller Home Price Index and Consumer Confidence Index, Wednesday’s final look at Q4 GDP, International Trade, and Pending Home Sales Index, and Thursday’s Jobless Claims, Personal Income and Outlays, Chicago Purchasing Managers Index, and Consumer Sentiment Index as potential market moving events.



The things we know for sure: the 10-year T-note during most of 2017 traded below 2.50%, at New Year’s 2018 broke out to a 2.95% top on February 21, and in the month since has been in the 2.80s despite universal expectation for an eruption above 3.00%.

Mortgages follow 10s, thus topping at 4.75% in late February, now back down, just above 4.50%. Sidebar: concerns that the Fed’s unwinding its MBS QE-portfolio would increase the mortgage spread above 10s… uh-uh. Still a remarkably steady 1.80% spread from 10s to no-point 30-fixed loans.

So, what stoppered the rate volcano? Consumer spending is suddenly weak, flat-to-negative in the last three months, corking all of the strong projections for GDP. Inflation numbers are under-performing, year-over-year core CPI still below 2%. And, as strong as hiring is, the supply of potential workers is larger, and new hiring is in low-wage jobs, thus little threat to inflation. The stock market is still iffy, putting a safety bid in the bond market. Last, German 10s pay 0.572%, and Japanese 0.036%. Buy Treasurys.

The Fed’s next meeting will break on Wednesday the 21st, hiking Fed funds from 1.50% to 1.75%, releasing a new set of projections and “damned dots” indicating the slope of future hikes, and concluding with Chair Powell’s first post-meeting press conference. Compared to all other government goings-on, a most-refreshing interlude of rational competence.

Strange goings-on in a lot of places…

A Kansas City family flying home on Tuesday from Seattle loaded as cargo its German shepherd, Irgo. But, in baggage claim in K.C. was a Great Dane. Irgo was in Japan, expected home soon.

On Wednesday a Seaside CA schoolteacher (also Mayor and police officer) leading a firearm safety class accidentally fired a round into the ceiling. The ricochet superficially wounded only one student, so startled that he didn’t notice the bullet fragment stuck in his neck until he got home. Irgo had a better trip.

The installation of the Miami bridge which has collapsed was monitored by an engineering firm based near my home town. It’s tweet then, a few days ago, "We are thrilled to have performed structural monitoring during a spectacular bridge move…” was replaced yesterday by this: "BDI was not involved in the bridge’s design or construction… We are deeply saddened….”

Now that readers are in a proper frame of mind for a political update…
Dignified Rex Tillerson, wise Texas buzzard who knows how the world really works was fired on Tuesday by tweet. Not even a phone call. His replacement as Secretary of State will be Mike Pompeo, if Congress will confirm him. US Army Captain, then businessman, an arch-hawk elected to the House in the Tea party wave of 2010.

Gary Cohn of Goldman, who resigned last week as Chief Economic Advisor will be replaced by Larry Kudlow, a CNBC personality who has never held a job in which he would have responsibility for his catchy, if extreme views.

Cohn departed because of the tariff decision, whose author Peter Navarro has ascended to control trade policy. A professor and Fox polemicist, Navarro’s opinions on trade are representative of the 19th Century. Maybe the 18th.

National Security Advisor Lt. General H.R. McMaster was fired yesterday by leak (not worth a tweet). Some potential replacements would be okay, although the leading candidate, John Bolton would not.

Markets have reacted little to developments in this administration because most matters have been political, not economic. Markets did react to tariffs and to Tillerson’s discharge, and these new personnel changes involve potentially destabilizing security issues. I encourage all to google the old people and the replacements, and check sources across the political spectrum.

Congress tends to freeze at about this point prior to any election. But this administration will be active with or without Congress, and security is big, inside of markets and out.

Back to economics. The top question at the end of this week: what happened to the consumer? Perhaps the effects of the tax bill are delayed? Not likely three months into new withholding tables, and exuberance among found-money businesses, although capital investment can take time. But the impression of a ramping-up global economy also seems overdone. Perhaps the primary reason for Xi’s term-extension is China’s need for tough measures to compress borrowing, and the wrenching adjustment to a shrinking workforce — both of which are likely to slow the outside world. Europe and Japan are as fragile as they have been, and Czar Vladimir will wreck anything he can.

Through all of that, one thing stands out. Neither political party is addressing the mountain of new demographic data describing fabulous economic success in cities, and the collapse of the countryside.

A pair of news stories this week illustrate, the first about an Idaho schoolteacher, his spouse and one-year-old. His $32,000 salary will not afford his own school district’s health insurance coverage, so the couple has dropped their own insurance in favor of covering their infant. (Memo: my perfect-health 23-year-old son’s Silver coverage at Kaiser last year was $250/mo, in 2018 $320.)

The second story was about Madison, Indiana, a lovely town of 12,000 (unemployment 4% but median household income only $51,500, 20% of kids below poverty level), and the role of its 1-9 high school football team trying to protect youth from addiction and suicide. In Madison’s small county, 15 suicides in nine months in 2017, not counting overdoses. Four by students since 2014. In 2016, triple the national rate.

And we expected healthy consumer spending in heartland places like these?


A big batch of charts this week:


The 10-year T-note in the last year, poised, paused, or topped?


The Fed-sensitive 2-year T-note… poised. No doubt about that:


Three charts from Tim Duy, professor and Fed-blogger at U-Oregon, the threesome illustrating the too-fast pace of hiring supported by new entrants into the workforce for lousy pay:


Used to be an economic indicator, now a political one, the NFIB index is a caution to all of us about opinion-based economic surveys. Small-business owners are heavily conservative (of course to which they are entitled), and very pleased by the election and tax bill. The index is worth watching, to see if actual economic underpinnings rise to the level of optimism, or vice-versa:


The Atlanta Fed’s forecast for first-quarter GDP beautifully describes both fading expectations and uncertainty:


The ECRI may be the best long-term indicator available, and it confirms the Q1 softening:

Credit Scores

Big news for credit scores!

After the Equifax security breach late last year, many people started paying a lot closer attention to their credit scores and the agencies that report on them.

We are happy to let you know that some big changes are on the way that will not only make qualifying for a home easier, but lighten the burden for a lot of different financing situations. The following changes are likely to help improve credit scores for many people and will be implemented beginning June 8, 2018.

  • Collections under 180 days will no longer be accepted, giving consumers time to pay a collection before it hurts their credit
  • Medical collections that are paid (or are being paid through insurance) will no longer negatively impact credit
  • Collections with no activity for more than 6 months will be dropped from your credit score as the creditor is presumed to no longer pursue the collection
  • Collections without a contract or agreement (i.e. traffic tickets and library fines) will also be removed

This could have a significant impact on a consumer’s credit scores as a collection account, even for the most minor thing, can affect a credit score by 100 points or more. Not having these collections factored in will open the doors for a lot of consumers that could not qualify before or may improve the loan and rate options for those with less than perfect credit.

If you have struggled with your credit in the past, or are just curious to see what these new regulations could mean for your purchasing power, give us a call today!

If you would like to check your current credit score, you can do so with no obligation or impact to your score at: