SLG’s focus is on mortgage products, pricing, and service. There are many moving parts that go into each one of those, and all of the news in recent weeks has been on the government and economy. What’s going on out there that impacts Sovereign Lending Group’s borrowers?
Last week the stock market closed out the holiday-shortened week on a strong note, with the Dow Jones average soaring 700 points for its biggest point gain of the year. Investors were excited about the progress and then passage of a debt ceiling bill that averted a U.S. default.
What many predicted actually happened: With just days left until the deadline, the U.S. Senate passed the debt ceiling bill. What does it mean for our clients? The bill doesn’t focus on anything directly to do with mortgages, but includes cuts in “discretionary” federal spending, a claw back of COVID-related assistance funding, and a mandate that the pause on federal student loan repayments come to an end no later than Aug. 30, 2023. The federal cuts in the bill do not touch Social Security, Medicare, veterans, or defense, but focus on “discretionary spending.” This includes education, transportation, income security, and homeland security.
Except for Social Security and Medicare, due to the bill, funding for domestic programs will not increase but will stay the same in 2024. The bill will impact over 40 million federal student loan borrowers: The three-year-long pandemic-related federal loan pause in repayments will end, at the latest, 60 days after June 30, 2023. By law, after that point, payments must resume, and interest will begin to accrue again.
But SLG’s loan officers know that the biggest driving factor was May’s jobs report, which showed U.S. employers added a seasonally adjusted 339,000 jobs, far more than expected. The data also showed a slight slowdown in year-over-year average hourly earnings growth, and a move higher in the unemployment rate to 3.7% from 3.4%, which helped push recession and rate hike fears to the backburner, at least for now.
For many Americans, the most impactful aspect of the debt ceiling bill is quite simply avoiding the economic damage that would be unleashed if the government did not meet the deadline. Recessions lead to lower rates, and with the diminished odds of one happening, mortgage rates and U.S. Treasury yields rose, with the two-year note surging 18 basis points to 4.51% and the U.S. 10-year yield adding 8 basis points to 3.69%.