November 13-17, 2023

Tactical Signal 9

Sowell’s technical indicators stabilized from last week’s positive momentum and remain in full position (100%).

The past week unfolded without turbulence, adhering to the adage that 'no news is good news.' Against a backdrop of uneventful bond yields, equity markets gracefully rose, with the S&P 500 registering a commendable +1.35%, elevating the year-to-date gain to a robust +16.6%. The Nasdaq, showcasing its resilience, secured a +2.4% gain, contributing to a noteworthy year-to-date ascent of +32.76%. Meanwhile, embodying adaptability, the Bloomberg US Agg Bond index prudently reined in its month-to-date gains to +2%, effectively paring down YTD losses to a commendable -0.82%.

The dynamics of equity markets unfolded with Technology and Communications stocks taking center stage, yielding returns of +4.43% and +2.17%, respectively. The performances of industry giants such as Apple, Microsoft, Alphabet, NVIDIA, and Meta provided crucial support to this market symphony. In contrast, amidst the stability of the broader economy and a descent in 30-year mortgage rates averaging 7.5%, financial stocks delivered a more subdued role, returning a measured +0.16%.

As the financial narrative unfolds into the upcoming week, a tapestry of Federal Reserve interest rate guideposts awaits, commencing with the inflation report on Tuesday. This economic tableau promises heightened visibility into the strength of consumer spending, accompanied by a cascade of retail-related releases, including Retail Sales and earnings reports from industry stalwarts such as Home Depot, Ross, Target, TJX, and Walmart. On the international stage, a geopolitical subplot unfolds as President Biden is slated to engage with China's President Xi at the APEC Summit in San Francisco. Concurrently, the drama of a potential U.S. government shutdown casts a shadow over the proceedings, with a divided Congress under the stewardship of the newly appointed House Speaker, Mike Johnson, adding a layer of complexity to the unfolding saga.

"The satisfaction one can achieve from helping people is a level of satisfaction that you can't get otherwise."

– Chuck Feeney, Founder of Atlantic Philanthropies and co-founder of Duty-Free Shoppers Group

Lessons in Mortgages - The Case for Assuming a Mortgage Rate Hack

Mortgage Hack

In this new rate environment, the housing market has been dramatically affected, mainly through the mortgage market. Surprisingly, however, the competing dynamics within supply, demand, and rates have left housing prices unchanged, if not, in some cases, higher.

A recent survey from Zillow highlighted the incredible rise in mortgage rates from below 3% in 2020 and 2021 to now between 6% and 7% most recently.

The direct effects of this are outlined in the fact that current homeowners are "locked in" to their current homes, and the survey reports that most "homeowners are more likely to hang on to their current homes."

The survey found that about 80% of existing mortgage holders reported having a rate of less than 5%, 90% reported having a rate of less than 6%, and almost a third reported having a rate of less than 3%. A positive, however, is that nearly 25% of those surveyed still expressed an interest in selling their home within the next three years or even have their homes listed for sale.

One mortgage "hack" that many may not know about is the assumable mortgage loan. More than ever, a strategy to buy a home with an assumable mortgage may be a key to saving money on financing. In fact, sellers should check to see if they have an assumable mortgage. Most may not know or have forgotten if their loan is assumable.

Of course, not all loans are assumable, and a quick check is well worth the time. Typically, Federal Housing Administration (FHA) insured loans, Department of Veterans Affairs (VA) backed or United States Department of Agriculture (USDA) loans are assumable.

Alas, some requirements need to be met before you can assume, like,

1) Complete the standard FHA loan application process
2) Credit Score of 580 or above
3) Current or former military service member for VA loans
4) May need approval from the lender and USDA.

Lastly, there may be nuances when it comes to the appraised value and the current mortgage amount, which the buyer would have to accept, affecting the down payment size. There may also be additional mortgage insurance payments attached to the original loan.

Despite these additional criteria and factors, the advantages are numerous for buyers and sellers. Sellers may have a much easier time selling their home as they pass on the potentially advantageous interest rate and lower closing costs. The seller may even get a higher price as the mortgage benefits may be added to the home's sales price.

For buyers, the most obvious benefit is the lower mortgage rate that would otherwise not be available in today's rate environment, mainly if the pundits are correct that interest rates will remain higher for longer. We are already seeing companies collecting data on who holds assumable mortgages and creating a market for those homes.

Advisory services offered through Sowell Management, a Registered Investment Advisor. The views expressed represent the opinion of Sowell Management. The views are subject to change and are not intended as a forecast or guarantee of future results. This material is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment. Stated information is derived from proprietary and non-proprietary sources that have not been independently verified for accuracy or completeness. While Sowell Management believes the information to be accurate and reliable, we do not claim or have responsibility for its completeness, accuracy, or reliability. Statements of future expectations, estimates, projections, and other forward-looking statements are based on available information and Sowell Management’s view as of the time of these statements. Accordingly, such statements are inherently speculative as they are based on assumptions that may involve known and unknown risks and uncertainties. Actual results, performance or events may differ materially from those expressed or implied in such statements. Investing in securities involves risks, including the potential loss of principal. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles, or from economic or political instability in other nations. Past performance is not indicative of future results.


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