Market Commentary

 

 

 

 

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UPDATES


Investor/NOO Loans: We’re working on a number of pricing and product updates across our NOO/Investor suite, so stay tuned. As a reminder we offer NOO in several programs: ClearEdge Core & ClearEdge Plus (Qualified on borrower DTI), Investor Edge (Qualified on property DSCR or No Ratio), and Agency Edge (Fannie/Freddie eligible Investor loans).

Reach out if you have any questions or want to learn more.

MARKETS


Equity and risk markets have recovered nearly all of the December sell-off. They are up over 16% from the lows – an impressive reversal. The VIX index, a widely watched gauge of market volatility, is at its lowest level since October.

Interest rates, however, really haven’t sold-off nearly as much as you’d think given the decidedly bullish tone over the last two weeks. Conventional wisdom is the equity and bond markets move in opposite directions, so when investors are buying stocks they are dumping bonds (pushing rates higher), and when they are buying bonds (pushing rates lower) they are dumping stocks.

When equities were last at this level in early December, the 10yr Treasury was just under 3%. It is currently only at 2.70%. There have certainly been many periods when this inverse correlation has broken down, and the rationale for the disconnect now may simply be that dovish Fed comments are buoying equity and credit prices. If that is the case, though, the opposite is likely also true: higher stock prices will give the Fed another window to raise rates.

LOANS


Mortgage applications dropped again last week. Seasonally adjusted purchases were down 5% and refi’s increased only 0.3%. The weak activity is on the back of lower mortgage rates, too. As we’ve discussed several times, rates need to drop very meaningfully for a sustained increase in refinance activity – the market for the foreseeable future is heavily dependent on purchase activity.

CoreLogic released their HPI data for December yesterday, showing full year average HPA of 5.8% for 2018. A strong headline number, but some of the data continues to point to slowing home price growth. Notably, the price growth was faster in the first half (6.4%) vs. the second half (5.2%) of 2018. Additionally, the gains continued to be stronger in lower priced segments of the market.

Another housing chart worth keeping an eye on is the NAR Months Supply of Existing Housing. The December data showed we’re at the highest point since mid 2016. If this continues to tick up, it will certainly create additional pressure on home prices.

S&P 500 (Bloomberg):

VIX Index (Bloomberg):

10 Year Treasury Rates vs. S&P 500 (Bloomberg):

HPI by Price Segment (CoreLogic):

Existing Homes Months Supply (Bloomberg & NAR): 

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