Less than two weeks ago, I mentioned that there was only a 33% chance of a rate cut in December, based on “market probabilities” (aka futures/options bets).
Today, however, the likelihood of a Fed rate cut this month is pushing 90%!
The reasons stem from “dovish” comments by Fed officials and weakening labor markets, with today’s weaker-than-expected ADP report (showing job losses) leading the charge.
“Dovish” vs. “Hawkish”
As a quick reminder: A “dovish” Fed member is someone who is more willing to keep rates low and the money supply looser. In contrast, a “hawkish” Fed member is someone who wants to keep rates higher and the money supply tighter – usually because of inflation concerns (Fed Chair Powell is in the “hawkish” camp, while many other Fed officials are not – creating the unusual situation where we have a very divided Fed).
FED’s Fast Mind Change Drives Pundits Crazy!
The Fed’s about-face on rate cuts is what drives many Fed watchers (like Steve Forbes and Steve Hanke) crazy. The Fed claims it is “data dependent,” responding to new information as it arises. Critics, however, claim that this merely allows the Fed to act on a whim and then find the necessary data to justify its actions. Critics also say the Fed is looking in the rear-view mirror at old data, that was influenced by policy from 12 to 18 months earlier.
Critics think the Fed should instead focus on hard and fast data that everyone else can see, like inflation, GDP, and/or money supply. This would provide much more stability and less volatility.
Final Point: Rate Cut Announcement Will Not Impact Mortgage Rates
The market already responded to the same data the Fed will likely respond to, e.g. today’s weak employment report. So once again, we should not expect mortgage rates to fall if/when the Fed announces a cut in the short-term Fed Funds Rate this month.
Can a Citizen and Resident of Another Country Get a Mortgage in America?
About 2% of homes in America are purchased by “foreign nationals” – the formal term the mortgage industry uses for citizens and residents of other countries (I am not referring to foreigners legally living and working in the U.S.).
That % peaked at close to 5% in 2017. But keep in mind those %s are much higher in states like CA, TX, and Florida (the markets JVM serves) – so this comes up surprisingly often.
The two countries that provide the most foreign national buyers are Canada and China.
Chinese buyers were, in fact, extremely common in CA in the years following the meltdown – and we were unable to help most of them back then.
Today, however, we could likely help all of them. So yes, “foreign nationals” can obtain mortgage financing.
They will need to provide: (1) some sort of credit report, e.g. “international credit report” or credit reference letters; (2) proof of sufficient assets, converted to American dollars; and (3) at least a 25% down payment.
For income, DSCR loans (using rental income only for “income”) are often the best options.
Foreign nationals cannot buy “owner-occupied” properties, though. They are restricted to “investment properties.”
Why Foreign Nationals Buy U.S. Real Estate
I was under the impression that Chinese buyers were scooping up CA properties post 2008 because they saw bargains and wanted to make money.
It was only later, after listening to “macro guys” on myriad podcasts, that I realized that many foreigners buy properties in the U.S. as a currency hedge or as a way to not be overly exposed to their own country’s currency.
This is just another reminder that no matter how bad we might think our fiscal situation is in the U.S., many savvy investors overseas see their own situations as worse.
And that is one of the reasons the dollar holds up – despite all of our issues.
