Home 2020 Home Buyers Like Wall Street Really Like ‘cheap money’

Home Buyers Like Wall Street Really Like ‘cheap money’



A drop in interest rates in response to the Fed’s rate cut is adding urgency to a hiring spree across the mortgage industry.

Executives at of the nation’s 15 biggest mortgage lenders, already gearing up for a busy Y 2020, anticipate hiring thousands of employees this year to keep up with what they expect to be a flood of demand for purchase home loans and refinancings.

Lenders are scanning applications so fast that some expect to blow past origination records they set just last year.

At Quicken Loans Inc., the nation’s largest mortgage lender, Monday was the busiest day for mortgage applications in the company’s 35-yr history, said CEO Jay Farner.

United Wholesale Mortgage approved $2.5-B of preliminary loans, a single-day record for the company, according to its chief strategy officer.

The drop in rates, coming as Treasury yields plunge, is taxing an industry that was operating near capacity and setting off a battle for talent luring underwriters with signing bonuses and the chance to make big money, assuming they are willing to work long hours.

“If you are not making a $1-M this year as a loan officer, you are grossly incompetent, and there is no such thing as a 40 hr week in this field.”

Tuesday, the Fed slashed its benchmark rate by 0.50% in its 1st emergency move since Y 2008. And with the Treasury yields that guide mortgage rates sliding, loan officers are working a huge pile of refinancing applications, which spiked last week to the highest level since May 2013.

JPMorgan Chase & Co. is also responding. The bank told home-equity staff last week that half of the team would be transferred to mortgages to keep up with demand.

“The mortgage industry, riding a roller coaster over the past few years, has been forced into cycles of hiring and firing. Companies shed employees in 2018 as borrowing costs for 30-yr loans spiked to almost 5%, killing off the lucrative refinancing business and causing a slump in single family new and pre-owned home sales.

“But 2019 was a banner year, as trade wars and signs of a global economic slowdown resulted in cheaper financing. And just as rates were drifting up again this Winter, the virus struck.

Many remain cautious after the slowdown in 2018 and are unsure how quickly the latest crisis will resolve itself. They are keeping rates relatively high compared to bond market yields to choke off business.”

There is a caveat to the current interest rate decline: ‘A global recession would be bad for business, particularly if the outbreak stalls wage growth and consumer confidence’.

“If there is a sharp reduction in trade and economic activity, we will start to see people not qualify for a mortgage, That is the biggest risk now.”

But I do not see that happening on President Trump’s watch, and I expect it to run for another 4 years,” Bruce WD Barren,Chairman The EMCO/Hanover Group said in a telephone interview Wednesday.

For many, there’s never been a better time to borrow for a home, Monday borrowers could lock in a 2.75% interest rate on a Federal Housing Administration-insured 30-yr mortgage. The borrower’s down payment was just 3.5%. That was a day before the yield on the 10-yr T-Note plunged below 1% for the 1st time ever. Home buyers like Wall Street thrive on cheap money.

Interest rates for the typical 30-yr mortgage should fall below 3.25% and remain there for the rest of this year. And mortgage investors were privately discussing on Tuesday how to price a new Ginnie Mae 30-yr fixed-rate mortgage security that would yield just 2%, a 1st.

The current-coupon bonds guide loan rates indicates investors would be expecting lenders to package into securities mortgages with rates below 3%.

With that in mind, some borrowers believe that the 30-yr mortgage rates will drop to 2.5%, so they will wait.

There is nothing telling us that rates will move up. I

Stock investors are also anticipating other central banks will follow up on the Fed’s move Tuesday to slash interest rates by 0.50%. Canada’s central bank cut rates Wednesday, also by 0.50% citing the virus’ effect.

Money markets in the Eurozone are pricing in a 90% chance that the ECB will cut its deposit rate, now minus 0.50%, by 10 bpts next week.

Stocks around the world Wednesday. In Europe, Germany’s DAX returned 1.2%, the French CAC 40 rose 1.3% and the FTSE 100 in London gained 1.4%. In Asia, SKorea’s Kospi jumped 2.2%. Japan’s Nikkei 225 inched up 0.1%, the Hang Seng in Hong Kong slipped 0.2% and stocks in Shanghai rose 0.6%.

Wednesday, the major US stock market indexes finished at: DJIA +1173.45 at 27090.86, NAS Comp +334.00 at 9018.09, S&P 500 +126.75 at 3130.12

Volume: Trade on the NYSE came in at 1.23-B/shares exchanged

  • NAS Comp +0.5% YTD
  • S&P 500 -3.1% YTD
  • DJIA -5.1% YTD
  • Russell 2000 -8.2% YTD

HeffX-LTN’s overall technical outlook for the major US stock market indexes is Very Bullish in here.

Looking ahead:

  •  Initial Claims for week ending 29 February (consensus 215-K)
  • Continuing claims for week ending 22 February
  • Q4 Productivity – Revised (consensus 1.3%; prior 1.4%)
  • Unit labor costs (consensus 1.4%; prior 1.4%)
  • Factory Orders for January (consensus -0.1%; prior 1.8%)
  • Nat Gas Inventories for week ending Feb. 29 (prior -143 bcf)

Stay tuned…

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S. Jack Heffernan Ph.D. Economist at Knightsbridge holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reach a peak market cap of $15b. He has managed and overseen start ups in Crypto, Mining, Shipping, Technology and Financial Services.