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Amid darker economy, lower mortgages a glimmer

Houston Chronicle logo Houston Chronicle 6/6/2019 By Erin Douglas and R.A. Schuetz, Staff writer
a person wearing a suit and tie: Beijing has been waging economic warfare on the United States for years — stealing our intellectual property, forcing our companies to transfer technology as a price of doing business in China and subsidizing state-owned enterprises to prevent U.S. businesses from competing in dozens of sectors of the Chinese economy. The difference now is Chinese leaders are facing a president who is willing to fight back. © Thomas Peter, Pool / Getty Images

Beijing has been waging economic warfare on the United States for years — stealing our intellectual property, forcing our companies to transfer technology as a price of doing business in China and subsidizing state-owned enterprises to prevent U.S. businesses from competing in dozens of sectors of the Chinese economy. The difference now is Chinese leaders are facing a president who is willing to fight back.

Against a backdrop of economic uncertainty spurred by a trade war with China and the looming imposition of tariffs on goods imported from Mexico, one modest glimmer has shone through for consumers: mortgage rates have fallen to a nearly two-year low.

The average rate for a 30-year fixed-rate mortgage fell to 3.82 percent as investor confidence has slipped and money has moved to the relative security of debt and out of equities.

It’s likely that mortgage rates will continue to slide further in the coming weeks, according to Danielle Hale, chief economist for realtor.com, as Mexico and the U.S. face a June 10 deadline to come to terms on a plan to limit immigration to the U.S. or have tariffs implemented.

That, in turn, likely will drive a wave of refinancings. Freddie Mac said more than $2 trillion of conventional mortgages now are eligible to be refinanced, including the majority of those originated in 2018.

And while lower rates provide a relative savings for homeowners — someone closing on a home today would have a monthly mortgage payment of roughly $25 less than they would if they had closed a year ago, even as average home prices have risen — wider uncertainty may keep buyers on the sidelines.

“The cloudy outlook that’s driving rates lower could lead some would-be home buyers to hesitate before making the largest purchase of their lifetime,” Hale said.

Homebuyers aren’t alone in their nervousness.

Recent economic data pointed to a more pessimistic view of the economy this month, as a report from the Federal Reserve highlighted business executives’ concerns of slowing economic activity across the country as a result of tariffs, new and old.

Further interest moves

Federal Reserve officials also hinted at a conference in Chicago this week that they could cut interest rates as early as this summer, a measure typically used to boost economic expansion during times of crisis.

If the cut happens, it would mark a reversal for the central bank, which previously had indicated a strengthening economy in 2019 would spur a gradual increasing of rates.

Economic activity across the country did expand in the April to mid-May period, according to a recent Fed report , despite signs of slowing in some areas of the country.

But in the Dallas Fed’s district, which includes all of Texas, southern New Mexico and northern Louisiana, the outlook generally was less positive than during the March through mid-April reporting period, according to the Fed’s “ Beige Book ,” a report of economic conditions across the 12 Federal Reserve districts published Wednesday.

Respondents to the Fed’s survey said tariff and trade negotiations were driving uncertainty in the Dallas region, and long delays at the border with Mexico were adding to transportation costs for businesses.

While the U.S. trade deficit in goods and services decreased slightly in April from the month before, according to a Thursday report from the U.S. Census Bureau , it still is no smaller than it was a year ago.

Even with the tariffs imposed by President Donald Trump on goods imported from China, the U.S. still posted a seasonally adjusted increase in the trade deficit with that country of $2.5 billion, or 7.6 percent, in April.

Now, with the president’s threat of 5 percent tariffs on Mexican goods set to take effect next week, there’s a new concern for businesses that buy or manufacture products outside the U.S. and the consumers who buy them.

The Perryman Group, a Texas economic consulting firm, estimated the tariff could cause a loss of nearly $11.9 billion in gross domestic product to the state’s economy as the tax ripples throughout households and businesses.

Trade appears to already be putting a strain on several key sectors in the region, such as agriculture and manufacturing. The Dallas Fed noted both sectors had worsened outlooks recently, which were attributable to trade negotiations, tariffs and the political climate.

Fed’s inflation problem

Even as the Fed considers lowering interest rates as a way to spur investment, the growth in the economy has been constrained by tight labor markets resulting from a shortage of both high- and low-skill workers.

Competition has applied some pressure on employers to raise wages, but the Beige Book found those increases have yet to take hold. That’s a concern for the central bank, since it points to the low inflationary pressure in the economy.

“While I will always be vigilant about inflation that’s too high, inflation that’s too low is now a more pressing problem,” John Williams, president of the New York Federal Reserve, said at a conference in New York on Thursday. “If inflation falls, central banks will have even less room to maneuver when faced with a slowdown.”

That might be a problem soon.

Rates for 10-year Treasury bonds, which also are thought of as a safe bet during times of uncertainty, have fallen. Investors are so hungry for security that they’re willing to take less of a yield on a 10-year Treasury bond than on a three-month bond, meaning investors effectively are betting against the short term.

The phenomenon, known as an inverted yield curve, is rare and has historically preceded economic slowdowns .

According to the Federal Reserve Bank of San Francisco, every inverted yield curve in the past 60 years has been followed by an economic slowdown and, except for once, a recession.

erin.douglas@chron.com

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