June 17th, 2019 7:24 PM by Richard Sardella MLO.100007700/NMLS 233568
When coffee and equity go hand in hand
Starbucks. We search for them on freeways as if they are ports in a storm, use them as an oasis when shopping to rest our weary feet, meet business people there for non-threatening sales conversations and interviews or even introduce ourselves to blind dates there — all with the feeling that they are safe, public places with clean restrooms, cozy atmospheres, and comfortable surroundings. Even if we work from home, we occasionally take our laptops to one to place ourselves in a more creatively-conducive atmosphere.
Starbucks was founded by Jerry Baldwin, Gordon Bowker, and Zev Siegel, opening its first store in 1971 across the street from the historic Pike Place Market in Seattle. The three founders had two things in common; they were all coming from academia, and they all loved coffee and tea.
Whatever the reason people flock to them, Starbucks is indeed more than a coffee shop chain. In the U.S. they are a way of life, evidenced by recent Harvard Business School study showing they can improve values in any neighborhood in which they suddenly appear. It's called the "Starbucks effect."
While it's not the go-to place for everyone, most will recognize Starbucks as an asset to homeowners who live nearby. Between 1997 and 2013, homes closer to the branded coffee shop increased in value by 96%, compared to 65% for all U.S. homes — 31% more than that of all U.S. homes. Boston saw the largest appreciation over this time where home values increased 171%, 45% more than all the homes in Boston. But do people specifically search out neighborhoods containing a Starbucks when looking for a home? If they don't, maybe they should.
The study examined data from Yelp!, the online business review platform, Zillow, and the United States Census data, and an interesting trend was found. When a new Starbucks is introduced into a zip code, home values increased by 0.5 % within a year. But the chicken-or-the-egg comparison also enters the picture: is the opening of a new Starbucks store a sign home prices are increasing or because Starbucks stores bring more affluent customers to the area? Whichever the reason, it was determined that it was a bellwether that a neighborhood could be changing.
The study showed that a new Starbucks is a sign of gentrification, which means changing demographics as well. Some savvy long-term investors look for promising locations lacking the coffee house and then watch as one opens and their investments steadily rise in value.
How Rates Move:
Conventional overnment (FHA and VA) lenders set their rates based on the pricing of Mortgage Backed Securities (MBS) which are traded in real time, all day in the bond market. This means rates or loan fees (mortgage pricing) moves throughout the day, being affected by a variety of economic or political events. When MBS pricing goes up, mortgage rates or pricing generally goes down. When they fall, mortgage pricing goes up. Tracking these securities real-time is critical. For more information about the rate market, contact me directly. I’m among few mortgage professionals who have access to live trading screens during market hours.
Rates Currently Trending: Neutral
Mortgage rates are trending sideways this morning. Last week the MBS market worsened by -20 bps. This was enough to move rates or fees slightly higher. We saw modest volatility throughout the week.
This Week's Rate Forecast: Neutral
Three Things: These are the three areas that have the greatest ability to impact mortgage rates this week. 1) Central Bank, 2) Geopolitical, 3) Trade War
1) Central Bank: The focus will be on our Federal Reserve, but there is a lot of Central Bank action globally. Staring in the U.S., the FOMC will conclude on Wednesday and will have their Interest Rate Decision, Policy Statement, Live Press Conference with Fed Chair Powell and the release of their Economic Projects. It's the latter that may get the lions-share of attention by long bond traders. While everyone seems to be "jawboning" for a rate decrease, the simple truth is that the most recent round of economic data does not warrant a rate cut at this meeting. The market will, therefore, be looking for any direction in the policy statement or from Powell on the likelihood of a July 31st cut (which the stock market is currently pricing in). As a result, the economic projections and the corresponding "dot plot" chart will get a ton of attention to see if the aggregate bias' from individual Fed members shifts towards a cut in 2019 at all.
Besides our own Fed, we have very key Central Bank announcements out of the Bank of England and the Bank of Japan on Thursday. Rounding out the barrage of interest rate decisions are: Norway, Brazil, Taiwan, Indonesia, Philippines, and Colombia.
2) Geopolitical: Brexit will remain a key focus as the list of contenders to be the next Prime Minister (and therefore the fate of Brexit) will be narrowed down to just 2 by the end of the week. Iran will continue to get a lot of attention as each week, tensions between Iran and the U.S. rise. Their announcement that they will have over the maximum allowed of uranium stockpiled in 10 days. Italy and their threat of creating its own currency and their recent friction with the EU will also be closely watched.
3) Trade War: Every single comment from senior cabinet officials on both sides will get attention from traders as the G20 meeting is quickly approaching in Japan.
This Week's Potential Volatility: Average
Many events can move rates this week as denoted above. One of the keys to rate volatility this week will be our Fed's actions and comments about the economy and the future of rates.
If you are looking for the risks and benefits of locking your interest rate in today or floating your loan rate, contact your mortgage professional to discuss it with them.
Richard Sardella has been actively managing and providing services in the mortgage industry for over 27 years. Richard serves on the board of directors as President of Colorado Home Mortgages Inc.
All information furnished has been forwarded to you and is provided by thetbwsgroup only for informational purposes. Forecasting shall be considered as events which may be expected but not guaranteed. Neither the forwarding party and/or company nor thetbwsgroup assume any responsibility to any person who relies on information or forecasting contained in this report and disclaims all liability in respect to decisions or actions, or lack thereof based on any or all of the contents of this report.
MLO of record MLO.100007700 / NMLS#233568 / CHM NMLS#127716.