Wednesday, December 16, 2015

It's finally here: Fed rules to begin gradual rate increases


The Federal Reserve Bank of Kansas City - Denver Branch includes a museum open to the public on the 16th Street Mall.

First rate hike in nearly 10 years at FOMC meeting is no surprise

The moment we've been waiting for years to come has finally arrived. And no, we're not just referring to the debut of "Star Wars: The Force Awakens Episode VII," which is coming to a theater near you Thursday night.

The Federal Open Market Committee voted this week to begin raising the central bank's interest rate by 0.25 percent, the first increase in nearly a decade. This move is a sign of confidence in the U.S. economy to weather higher interest rates, and it could also translate to bigger savings in your investment accounts accruing interest faster.

While news of this change could incite worry and even panic in borrowers and investors, there is little reason to be concerned. As mentioned previously, this increase has been anticipated for several years after a dormant period where rates were kept at 0 percent to stimulate growth and spending. The rate rise has been pushed back for the better part of the past year to wait until economic conditions were right.

Markets welcome news of rate increase

How did the markets react? Surprisingly, the stock markets seemed to warmly embrace the Fed's move after months of jitters as the Dow Jones industrial average ended the day up 224 points from Tuesday. Many economists had argued that prolonging a rate increase beyond the end of 2015 could have a negative effect. Fed officials have maintained that any further rate increases will come very gradually, not suddenly.

Meanwhile, new housing permits jumped to a five-month high in November, showing strength in the housing industry and backing the Fed's decision. Stay tuned here for updates on mortgage industry trends and other news impacting your home financing decisions.

Saturday, December 5, 2015

Jobs data solid; gradual rate hike expected

FOMC will hold last meeting of 2015 in mid-December

The November jobs report was released Friday with positive results: more than 211,000 jobs added to U.S. payrolls. This news was welcomed by Federal Reserve Chief Janet Yellen, bolstering the Fed's case for raising interest rates.

The Federal Open Market Committee will meet in less than two weeks and is widely expected to endorse the first central bank interest rate increase in nearly a decade. With continued steady job growth, modest wage gains and more personal wealth, Fed officials have finally been moving closer to raising rates.

However, don't panic: The first move to lift rates should be gradual, rising by only 0.25 percent initially. The idea is to ease into a slow, gentle shift back into rate territory above zero. Fed officials will continue monitoring economic data each month, looking especially at inflation rates. An inflation rate of 2 percent is targeted, ideally, but has remained stubbornly low.

How will these changes affect mortgage rates? They are loosely tied to the central bank's interest rates but are not guaranteed to mirror each other exactly. Some modest rate gains can be expected but will continue fluctuating based on market trends from day to day. If are in a position to refinance or buy a new home, don't hesitate to see what you may be eligible for by contacting a Vertex loan officer at 877-939-0339.

Wednesday, October 28, 2015

Behind the mystery: What the Fed does, and why

The Federal Reserve building in Washington, D.C. plays host to FOMC meetings.

Confused by what exactly the Federal Reserve does and what it all means? You're not alone.

Yet decisions made by the Federal Open Market Committee on when to raise, lower or leave interest rates unchanged affect every consumer, every business and every transaction made in the United States. The Fed's impact is like water or air, seeping into everything.

The Fed committee meets once every six weeks to vote on whether to adjust the central bank's interest rates or leave them unchanged, based on a variety of economic factors and trends. When interest rates are raised, the cost of taking on any new credit rises for borrowers or businesses, along with it slightly higher risk.

When interest rates are lowered, it makes borrowing money more attractive to consumers and businesses because the cost and risk is also lowered. Lower interest rates have the effect of stimulating economic growth: This is the key reason Fed officials have kept interest rates low since the beginning of the Great Recession.

The big question now is when the Federal Reserve policymakers will ultimately decide the economy is ready to sustain rate increases. It was widely speculated that such a change would come earlier this year - it hasn't yet, due to fears of untimely negative consequences on economic recovery.

The FOMC meeting ending today resulted in no changes, as expected. However, by the next Fed meeting coming up in December, committee members might finally decide it's time for a change.

Thursday, October 15, 2015

Mixed signs on U.S. economy spell mixed forecasts

Interpreting economic news depends how you spin it

Good news: Gas prices are remaining low - this is good for consumers, at least. Also good news, the U.S. budget tightened its deficit to the smallest gap in eight years in part due to higher tax revenues.

Bad news: The lack of gains on energy prices are helping keep consumer prices low, along with worldwide economic struggles. These are some factors preventing the U.S. economy from experiencing more robust, steady growth.

With a still-strong U.S. dollar in the mix as well, inflation remains low. An inflation rate around 2 percent has been targeted by Federal Reserve officials before raising central interest rates, which have been stuck at 0 since the beginning of the Great Recession in 2008.

The absence of more dramatic economic growth has prompted some policymakers to suggest using negative interest rates as a tool to drive the economy further. This is a huge departure from the more widely expected increase in rates by the end of 2015.

To be certain, the idea of sending central interest rates below 0 is not popular with everyone, and it is more broadly expected that rates will instead begin rising in the next six months. Some analysts expect the first rate hike to come by this December.

What does all this mean for mortgage interest rates? Currently, mortgage rates are very attractive for most borrowers amid uncertain economic signs. More likely than not, they will start moving upward in the months to come. Please contact a licensed Loan Advisor at Vertex for more information on taking advantage of today's rates by calling toll-free 877-939-0339.

Saturday, October 3, 2015

New TRID rules: What you should know


New guidelines go into effect Saturday, Oct. 3rd

Today marks the first day of a new era in mortgage lending: It's the rollout of the new federal TRID rules intended to make the mortgage process more plain and transparent for borrowers.

TRID, which stands for TILA RESPA Integrated Disclosures, is the brainchild of the Consumer Financial Protection Bureau as mandated by the 2010 Dodd-Frank banking reform act to help consumers better understand the application process and terms of their mortgage loans.

The primary changes include implementing a Loan Estimate and Closing Disclosure at the beginning and end of the application process, respectively. These disclosures will replace the Good Faith Estimate and HUD Final Settlement Statement in an effort to more clearly explain mortgage terms. All mortgage lenders and brokers will be required to disclose each of those forms within a three-day period so the borrower has time to understand the terms.

At Vertex, we will be complying with the new regulations fully in accordance with the official Oct. 3, 2015, start date. Many lenders will provide their own LE (Loan Estimate) and CD (Closing Disclosure) forms, which will be provided to borrowers for review within the mandatory three-day periods. It is always our goal to assist borrowers in completely understanding the mortgage process and loan terms, as well as to help you achieve your specific financial goals.

As with any change, there is bound to be some confusion over changing guidelines. Should you have any questions about how this affects your mortgage application process, please do not hesitate to contact a Vertex loan advisor or processor by email or calling toll-free 877-939-0339.

Friday, September 18, 2015

Fed votes to keep rates flatlined; Dow ends week down

Information reflects data available in 2012.

The much anticipated September Fed meeting took place this week, and the Federal Open Market Committee decided, based on many global economic factors, to keep the central bank's interest rate at 0 percent for the time being.

As discussed previously on this blog, U.S. Fed officials have kept the interest rate locked in at zero since the Great Recession began in 2008. This has been the precedent set to help stimulate growth in the economy - borrowers are more encouraged to take out loans when interest rates are low. Homeowners can refinance at lower rates and save money every month to invest, spend or pad savings accounts.

U.S. household worth hits all-time high

Speaking of homeowners' savings, the total wealth of American households has hit a staggering new peak of $85.7 trillion. The U.S. economy enjoyed a strong second quarter in which stocks rose higher along with home values - especially in hot markets like Denver.

However, the summer months got rockier as China's economy struggled and stock investors got nervous in anticipation of any movement by the Fed. The Dow Jones industrial average has dropped somewhat off from the spring's highs and ended this week down 1.5 percent in response to the Fed meeting.

Opinions differed greatly on whether the timing was right to finally start raising rates or wait until later this year or next year. While the U.S. economy has hit many solid benchmarks such as a 5 percent unemployment rate, wages and inflation are both lagging. Members of the FOMC will also keep an eye on global economic trends before moving interest rates upward.

Thursday, September 10, 2015

Playing the Federal Reserve guessing game

Fed officials to decide next week if rates will rise yet



This chart shows that the core inflation rate has remained fairly flat at about 1.3%, but energy prices
have tanked by nearly 20% as the clear outlier.

Less than a week out from the Federal Reserve's much anticipated September meeting, economists and analysts are more conflicted than ever about whether they will vote to raise interest rates, and should they?

The Fed has kept central interest rates close to zero since December 2008, when they were lowered to help stimulate economic growth and recover from the recession. Nearly seven years later, with unemployment just above five percent nationwide, many feel it is time to start pushing interest rates upward again.

However, there is plenty of disagreement over whether a rate hike will happen following the Fed's meeting next week or later in the year - and whether the economy can sustain a rate increase. The stock markets have endured a roller coaster in the past month leading up to this announcement.

There are many different factors that define what economic "success" look like, including unemployment rates, GDP growth, currency strength and inflation. The latter category - inflation - has been a key area Fed officials have been watching and which hasn't flourished at the target goal of 2 percent growth this year. This is one reason a rate hike may be put on hold for now - then again, maybe not.

For current statistics and charts mapping a variety of different economic barometers, visit the Financial Times' U.S. economy page here:

Monday, August 24, 2015

Will they or won't they? Fed hints at delay while Dow crashes

Graph created by; data from Federal Reserve and Emolument

Those of us in the mortgage industry have been waiting for months to get clear indication from Federal Reserve System officials when they will start pushing to raise central interest rates. After several years of gradual market recovery from the Great Recession, the Fed has long hinted that eventually, they will have to start lifting interest rates off the ground to keep the economy moving forward.

In the wake of the Great Recession housing crash, homebuyers were able to take advantage of both government aid programs to recoup housing losses as well as historic low interest rates. These record low rates have saved homeowners hundreds, if not thousands, of dollars per month in monthly interest payments. Money saved in housing payments can either be invested elsewhere or spent and pumped back into the economy.

Rate hike likely off the table for Sept. Fed meeting

Now we are in a "wait and see" mode to find out when all of the market changes will affect mortgage interest rates. Earlier this year, Fed officials suggested that they may start raising rates following their September 2015 meeting. However, they will not do so until many different market indicators are strong enough to withhold a rate hike.

On Monday, the Dow Jones industrial average dropped over 1,100 points before recovering roughly half that. It was the single largest one-day drop in the market's entire history. Clearly, investors are deeply worried about implications of the Chinese market struggles as well as any impending drastic rate changes. If the stock markets continue tumbling, it's a safe bet that we won't see any real rate increases for some time to come.

Monday, July 27, 2015

Stocks, oil down to start the week

Oil price chart created by London School of Economics via

In the wake of the Chinese stock market's huge dropoff Monday, investors around the globe got skittish and stock indexes worldwide suffered. The Chinese government had been offering lower interest rates to encourage more market investment, but the burgeoning bubble market began to burst and the benchmark Shanghai composite index fell almost 8.5 percent, the biggest drop in eight years.

With European stock markets also in the gutter, the Dow Jones lost 128 points Monday. China has struggled to stabilize its economy, which now ranks as the 2nd biggest in the world. With that amount of influence, any sizeable change sends ripples in markets across the globe.

Domestic U.S. oil prices also hit their lowest point in four months, falling under $48 per barrel of crude oil.  Since early 2015's oil market freefall, prices had been rebounding in recent months and American oil production again started to pick up. Current market prices would indicate the output is surpassing demand, however, as prices get cheaper.

American investors remain wary leading up to this week's Fed meeting, from which more insight is expected to emerge about a timetable for raising short-term interest rates. Whatever news arises could push markets sharply in one direction or another.

Thursday, June 25, 2015

New economic data looking stronger

The U.S. economy had a rough first quarter of 2015, but it's looking a little better after revised numbers came out this week. The economy shrank by about 0.2 percent from January through March of this year, much less than previously thought. The good news is that analysts are placing blame on harsh weather and a temporary West Coast trade dispute rather than more insidious long-term problems.

Since March, payroll numbers have also picked up along with wage growth - a huge indicator sought by economic officials to mark a fully complete recovery. Federal Reserve chairwoman Janet Yellen calls the wage growth "tentative" at the moment, but it's a positive sign nonetheless of real economic growth.

In addition, new home sales have risen to a seven-year high nationwide in May, showing how robust the housing market has become. The overall market is tight with existing home sales also doing very well. (In the Denver area in particular, anyone who has put a home on the market or attempted to buy knows homes in the metro area are selling extremely well, usually exceeding asking price.)

With most signs pointing toward economic improvement, many pundits are speculating when the Fed will start to raise central interest rates. Chief Yellen has stated that an inflation rate of around 2 percent is targeted before rates will really move upward. In anticipation of this coming change, mortgage interest rates have crept up slightly - but along with that, so have mortgage applications because rates are still lower than they were a year ago.

If you want to take advantage of today's very reasonable rates or get more information on market trends, call a Vertex loan officer toll-free at 877-939-0339.

Friday, May 15, 2015

April jobs report decent, but economic growth lags

Consumer confidence chart via
Last Friday's jobs report didn't reveal anything too terrible. An additional 223,000 jobs were added to U.S. payrolls and the national unemployment rate dropped to 5.4 percent, but it wasn't good enough to suggest any big changes are coming soon.

Part of the problem is that average wage growth barely budged, rising 0.1 percent in April. Despite the steadily falling unemployment rates, salaries have remained fairly flat - this is the opposite of the inflationary trends Federal Reserve officials want to see before making any policy changes.

The huge drop in oil prices in late 2014 and early 2015 has taken a hit on one of the fastest-growing U.S. industries in recent years. In April alone, domestic oil and gas well drilling dropped 14.5 percent, helping pull down overall U.S. industrial output 0.3 percent.

Even though gas prices are relatively low, consumer confidence is also lagging. A University of Michigan report shows consumer confidence dropped in the past month to its lowest point since last October (see chart above).

With all of these economic trends showing lackluster growth, and therefore pushing back a move by the Fed to raise interest rates, the S&P 500 index soared Friday to another all-time high. Low interest rates promote a positive growth environment for homeowners, car owners and business owners to build savings, invest more money into the market or pump back into the retail economy.

Wednesday, May 6, 2015

Is the oil market out of touch?


Prices are rising, but can demand sustain it?

Since last year's drastic dropoff in oil prices, when the cost of a barrel of crude oil sank from $114 to under $50 per barrel in the span of a few months, costs have begun moving up again.

After reaching a low of $46 a barrel in January, by Wednesday this week the going rate climbed to as high as $69. Since January, American oil production has dropped to stay in line with more tempered worldwide demand.

But are the recent oil price gains belying the continued weak demand, in reality?

"In the short-term, futures prices do not necessarily reflect accurately the physical market," Italian oil executive Dario Scaffardi told Reuters.

Data from OPEC and the International Energy Agency show that more oil is still being produced per day than is being consumed. If oil prices continue to gain too much, it could set the market up again for another crash similar to last summer.

Wall Street suffers jitters

Meanwhile, Wall Street investors are jittery following a weak first quarter of 2015 for GDP growth. The Standard & Poor index closed Wednesday at its lowest point in the past month.

U.S. Gross Domestic Product growth in part has been stifled by a stronger U.S. dollar, ironically, because higher prices abroad make American products less appealing, and thus hurts trade profit margins.

April's job report figures will be released on Friday, which will either reaffirm weaker growth in 2015 or point to a shift in the other direction. As long as economic growth flounders or shows mixed results at best, it's looking more and more likely that the Federal Reserve will push an interest rate hike back into the future.

Saturday, March 21, 2015

The Fed ready to be patient no more

But rate hikes could still be delayed depending on market activity

You may have heard, the Federal Reserve held a meeting this week. Dropping a single word out of their language, "patient," was enough to indicate their timeline for starting an increase on short-term interest rates.

With unemployment rates falling steadily, currently at about 5.5 percent nationwide, Fed officials again lowered the range of when they believe unemployment will be low enough to allow inflation to occur. They now say the target range is between 5 and 5.2 percent.

Embracing recent positive economic reports, Fed officials are no longer saying they will be "patient" when it comes time to start raising rates for the first time in nearly 10 years. The earliest this rate hike could come is in just a couple months, June 2015.

Oil prices rise, U.S. dollar slightly drops

Crude oil prices rose about 2 percent on the week to $45.72 per barrel, which boosted stocks while the U.S. dollar weakened slightly. A stronger U.S. dollar means that American goods are more expensive abroad and consequently, fewer products sell.

Fed chief Janet Yellen will continue to see which direction markets go and any movement in job creation/unemployment rates before determining when the timing is right to move interest rates upward. In the meantime, rates remain at very attractive levels for homeowners and home buyers.

Wednesday, March 11, 2015

Markets react in fear of rate hikes

 The U.S. dollar is on a strong upward trend in early 2015.

Last Friday, the February jobs report was released with more positive data for the U.S. economy. The overall unemployment rate dropped to 5.5 percent with another 295,000 jobs added, which capped the best 12 months of consistent job growth in the past 20 years.

In addition, the U.S. dollar continues to get stronger compared with other currencies, as the European Union launches a new quantitative easing program. The irony of all of these glowing economic indicators for the U.S. is that stock markets are shaking under the assumption that interest rates will increase by the middle of 2015.

It has been widely expected that the Federal Reserve will begin to push a rate hike by June 2015, which would be the first increase in nearly a decade. If rates are pushed upward - including mortgage interest rates - investors fear it would have a damaging effect on continued growth. Despite many happy economic signs, lingering issues such as stagnant wage growth and low inflation are reason enough for some to urge Fed officials to hold off on raising rates.

If the U.S. dollar continues to shine while currencies around the world suffer, global economic weakness will in turn temper U.S. growth. Financial markets rest on a see-saw that is constantly tipping in one direction or another. If it slides too far in one direction, there's always the potential for turmoil to erupt before it's corrected.

Saturday, February 14, 2015

Gas prices start creeping upward; markets rebounding?

Plummeting oil prices have threatened Colorado's oil and gas production, one of the state's fastest-growing industries.

Has the oil crash officially bottomed out?

The dirt cheap gas prices we've been enjoying as consumers over the past two months have started creeping back up again, averaging $2.20 per gallon nationwide. Still, this is a far cry lower than the average price over most of 2014.

The slight rise in the cost of crude oil, reaching above $60 per barrel, coincided with a stronger week for stock markets. The Standard and Poor's 500 index hit a record high Friday, in part due to the boost in oil stocks. The Dow Jones industrial average nearly crept up to its all-time high set in December 2014, right over 18,000.

Investors were also encouraged by German economic growth and news that Greece, plagued by debt problems, could reach a deal with creditors. When stocks climb upward, investors typically put less money into "safer havens" such as bonds, which generally indicates interest rates also climbing.

Positive jobs news in January

Stock markets have also responded favorably to stronger jobs reports for January. More than 257,000 new jobs were added to U.S. payrolls in the first month of 2015, and more importantly, wages increased by 0.5 percent on average to $24.75 per hour. Stagnant wage growth has been a sticking point for the gradually recovering economy.

Federal Reserve officials will continue to closely monitor a broad range of economic trends before taking action to raise short-term interest rates. Until then, mere whispers of a move by Fed leaders could send mortgage rates higher. Currently, average mortgage rates sit more than half a point lower than a year ago this week.

Sunday, January 25, 2015

New home sales up in December

The U.S. housing market closed out 2014 on a high note with increased sales of both new and existing homes, as 5.04 million homes sold to new owners. The 2013 spike in home values finally slowed down enough last year to keep prices in affordable range for buyers with relatively stagnant incomes.

In addition, global economic pressures have encouraged more purchases of bonds and treasuries, which keeps mortgage rates lower and buying homes cheaper. While the U.S. stock market has floundered in early 2015, investing in bonds is considered a "safer haven" to place funds.

One of the biggest problems for the housing market remains weak participation from first-time home buyers. This demographic represented only 29 percent of the market in December 2014, significantly lower than the 40 percent ratio deemed healthy for growth.

Millennials have moved to urban centers in droves to start their careers, also burdened with massive student loan debt and not enough assets for down payments. As long as this trend continues, interest rates could stay near historic lows, making refinancing more attractive and home buying more affordable.

Saturday, January 17, 2015

Oil-related market slide sparks deflation fears

The cost of oil is still dropping but halted at just under $49 a barrel by the week's end. Friday's plateau finally caused the stock market to pick up again after four straight days of losses.

This unforeseen oil drop has confounded market analysts and spurred a wide range of reactionary effects: saving the average consumer money, yes, but also spelling job cuts within the industry.

The most obvious effect of the lower cost of gas is extra savings in transportation costs, as well as energy savings for gas-heated homes and businesses. Definitely a win for the average citizen.

On the other side of the coin are the inevitable layoffs for companies dependent on oil production. With lower demand and profits, plenty of jobs will disappear, including 9,000 this week at international oil company Schlumberger.

Looking at the bigger picture, markets are spooked by the drastic dropoff. Just seven months ago, the cost of an oil barrel was more than double today's price at $115 per barrel. The dropoff in gas prices represent part of December's 0.4 percent overall consumer price slide.

This deflationary trend is the exact opposite of what the Federal Reserve is looking for before it will start to raise interest rates again. Slow, modest inflation rates are generally associated with strengthening economic trends. Current conditions are leading to more investment in gold and bonds rather than stocks - a good sign for interest rates remaining low.

Saturday, January 10, 2015

Starting the new year with a bang

Crude oil prices through late 2014. This week, prices dropped to under $50 per barrel.

As we enter 2015, things are looking up economically for most Americans. Unemployment rates have dipped down to 5.6 percent and the December 2014 jobs report shows more than 250,000 new jobs added to payrolls. The jobs report reflects 12 straight months of strong job growth for 2014, the best streak since 1999.

In other news, gas prices continue dropping lower. Money saved at the gas pump translates to more flexible spending cash for Americans to spend elsewhere, a good sign for retail and tourism. On the flip side, however, Wall Street investors are getting nervous that as supply finally surpasses demand, the U.S. oil boom could wither away and take jobs with it.

On account of these conflicting economic themes, the Dow Jones industrial average and Nasdaq slipped on Friday following a couple days of gains. Another concern remains a lack of solid wage growth to match rising employment.

With all of these issues in mind, Federal Reserve officials have stated that interest rates should stay at low levels for the foreseeable future, which is intended to further boost the economy. Another way to put more cash back in your pocket? Take advantage of extremely low interest rates by refinancing your mortgage. You never know when low rates will be here today, gone tomorrow with new economic data.