Pierre Frediere, Mortgage Professional

Last week's movement in mortgage rates was very modest, but the coming week is host to many potentially rate moving announcements. With expectations solidly built any deviations from the planned scenario may be caused for sharp movements either direction. And any surprise may be offset by an other surprise the following day so caution is key.

GDP growth for the second quarter exceeded expectations, albeit by a small 0.2% (which could be adjusted in the next weeks to come as more precise estimate are released). Although the growth rate has been decreasing, the continuing expansion most likely rules out a .5% (50 bps) decline in rates by the Fed next week, but a 25 bps drop appears a very safe bet. This week has been fairly uneventful, from an interest rate standpoint at least, but the Fed will release its policy statement and a potential change in rates. Any deviation from the anticipated 25 bps decrease could trigger a substantial move in rates across the board.

Real estate investments are now preferred by a majority of Americans over stocks (and various other forms of savings). However, I have recently seen expected rates of return (cap rate is a good proxy for return) and the numbers are fairly low. This may reflect the low inflation environment and the extended bull market in stocks, which will sooner or later come to an (abrupt?) end.

Markets have now largely discounted a drop in interest rate by the Federal Bank Open Market Committee, so at this point it is unlikely that rates will improve much in the short term. However, the second quarter GDP growth initial estimate on Friday may have an adverse impact on rates and could spoil the party.

The Federal government is running out of money (Treasury Secretary Mnuchin anticipates that there will be a lack of funds by September), and so are Americans. The dual deficits, budget and trade, create an insatiable appetite for debt, and both have been worsening. In addition, the US consumer is also carrying a large amount of debt, which is worrying assuming economic growth will stall in the not too distant future. Overall debt (public and private) has now reached roughly $70 trillions, while the US economy amounts to nearly $21 trillions. Cause to worry.

This week should be eventful as any hint of Fed policy stance ahead of next week’s meeting will be closely dissected, regardless of its merit (many Fed officials issue statements and many of them are contradictory, and all of them ambiguous). As expected China’s GDP growth is sharply decelerating due to the US trade sanctions, but there doesn’t seem to be much resolve in finding a mutually agreeable policy on their part. The impact of Chinese sanctions on US producers is no...t trivial either and it appears to be a situation where each contender is waiting for the other to blink and take a more conciliatory stance. With unemployment still at record lows, those who are expecting a rate cut next week may be disappointed. The Fed’s mission is to control the trade-off between inflation and unemployment, and since neither appears to be out of line, a wait and see policy may be the preferred course of (in)action embraced by the Federal Reserve Bank, despite political pressure to lower rates. See more

As home prices have reached all-time highs in most areas of the country, flipping has become increasingly risky. An increasing concern of flippers are construction costs as the trade policy with China has raised construction materials prices. More pitfalls can also derail house flipping and eat away any profit (or even generate a loss). Some of these pitfalls are identified in the main text.

several income growth and inflation statistics were released earlier today but none of them differed much from expectations and they are most likely having minimal effect on interest rates. Far more potent will be the outcome of the trade discussions between Presidents Trump and Xi Jinping of China.

Ongoing trade talks with China are the main factor accounting for the jittery stock and bond markets. Uncertainty with Iran certainly contributes too.

Declining mortgage rates have stimulated home sales, but apprehension regarding a potential forthcoming recession is putting a damper on new home construction. Housing affordability remains the main obstacle to homebuying.

The Fed are meeting today and future policy will be announced tomorrow. Expectations are that they will lower rates twice by .25% by the end of the year, starting in July.