Shmuel Shayowitz (NMLS#19871) is President and Chief Lending Officer at Approved Funding, a privately held local mortgage banker and direct lender. Shmuel has over two decades of industry experience, including licenses and certifications as a certified mortgage underwriter, residential review appraiser, licensed real estate agent, and direct FHA specialized underwriter. Shmuel provides a uniquely holistic approach to comprehensive real estate and financial matters that goes well beyond any single transaction. Shmuel is an award-winning financier recognized for maximizing the short-term and long-term objectives of his client. As a contributing writer to many local and regional newspapers and publications, his insights have been featured in the media for many topics, including mortgages, personal finance, appraisals, and real estate trends.
In commerce, most things have a season and a cycle. An easy visual example of a season would be when you walk into a store the day before a holiday, and when you walk into that same store the day after – and the shelves are completely turned over planning for the next upcoming holiday. In fact, ‘yesterdays’ hot seasonal items are now on sale at considerable discounts in the back! In real estate, most buyers and real estate agents might identify the summer as the peak home-buying season, typically ending before the school season starts. The list and examples go on and on.
In the mortgage world, there are also cycles and seasons, often predicated by the movement in the housing markets and in interest rates. Guess what?! This week, I predict, that we struck a chord in the market that will have a prominent impact on the interest rate cycle. Unfortunately, however, I forecast that the change will be for the worse. On Monday the US treasury market started to sell off. This was typical of any other daily market movement, but I boldly sent an alert to my loan officers and to some professional partners letting them know of my viewpoint.
I based my calculations on the fact that I went back to analyze the bond market charts over the past few years, and historically late October and early November have been unfavorable for mortgage rates. On top of the historical chart patterns and data, the 10 year US treasury was comfortably range-bound and had managed to stay below 2.38 since May 9- May 11. Breaking above this important 2.38 threshold (which isn’t known to most in the marketplace) during this time of year, made me extremely nervous. We reached out to clients and pending applicants who were not yet locked and informed them of our thoughts. Most acted on our advice. As of the writing of this article, the 10 years is targeting 2.50% which translates into a big spike in rate movement in a very short period of time.
With the stock market continuing its historic surge, and the earnings season in full swing, I expect (hopefully incorrectly) that mortgage rates will be on the rise. The markets continue to record a record high in trading almost every session. The S&P has hit a record weekly close for 6 straight weeks and record monthly close for 7 months. That’s 18 consecutive record closes over daily, weekly, and month time frames. What is amazing about this stock market run is that it has not seen even a 3% correction (pull-back) on all-time highs for close to 250 consecutive trading sessions – which is the longest run in history.
I say all this, not to make those of you who did not invest in the stock market to feel bad, but to point out how the fundamentals in the marketplace are moving. We continue to see a robust stock and housing market, and we are now seeing a shift in the bond market. All this, coming off the heels of a Federal Reserve that is determined to un-wind its book of low yielding mortgage and treasury securities.
So what does all this mean for the average person?! The good news is that as the housing inventory levels continue to decline, with fewer homes available for sale – sellers who are determined to sell – will get aggressive with their price reductions. If mortgage rates do inch higher, they will be forced to get even more conspicuous with their discounts. Where does that leave homeowners who were holding out or unable to refinance? To be candid, I hope that they did not miss the boat! That said, rates are still clinging out to low levels of the year, and there might still be a small window of opportunity left. At the same time, one might speculate that at some point the bubble in the stock market will stop inflating, and bonds will get a little reprieve which will cause rates to dip. Hopefully that won’t happen after too much damage is done. So, fundamentally, while those who were on the fence have missed the immediate opportunity, all is not lost … yet.
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