Mortgage Rates Climbing on Week

Well, after a couple weeks of somewhat stagnant movement in mortgage rates, we are experiencing an uptick in rates this week. The mortgage risk premium spread is remaining fairly consistent at around 2.25 to 2.5%, but the bond yields continue to rise. As we know, the mortgage risk premium plus 10 year treasury yields is what makes up the offered mortgage rates. As I write, the 10 year is nearing the 4% range, an area not crossed in some time. Par mortgage rates on the 30 year fixed are hovering near 6.25%. We have access to lower par rates, but that is the general consensus on the average.

The good news is that sales of new homes were up in April, the bad news is that we are still near 17 year lows.

U.S. home prices dropped at the sharpest rate in two decades during the first quarter, a closely watched index showed Tuesday. It's a somber indication that the housing slump continues to deepen. Standard & Poor's/Case-Shiller said its national home price index fell 14.1% in the first quarter compared with a year earlier, to its lowest level since its inception in 1988.

I still say that the national averages for home sales and values are being heavily skewed by the high-cost regional market declines, but none the less, we still have no clear indication of a housing bottom. It is important for anyone looking to refinance or purchase a home to research home values before jumping in. I have clients in many areas that appear to have stabilized regarding market value. In other areas, particualry in some high-cost metro areas, the home value graphs are still in the decline slope.

Keep in mind that the great mortgage rates quoted on virtually every advertisement are based upon a minimum 20% downpayment or equity interest in the case of a refinance. Mortgage rates can increase substantially above that 80% threshold.

The FHA programs solve the preceding issue. I've been on the FHA bandwagon for some time now for high loan-to-value refinances and home purchases. The FHA mortgage rates are kicking the $#^& out of conventional mortgages above an 85% LTV for those with great or poor credit. FHA home loans are not only for those with poor credit scores any more.

May the Mortgage Rates be with You!


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Mortgage Rates Still Near 30 Year Lows Despite Stumbling Economy

Yes, the stock market dropped 3.5% for the week, existing home sales came in bad, foreclosure rates continue to climb, oil prices are going through the roof, earnings forecasts are declining, consumer sentiment is poor, wholesale inflation climbs, and the Fed speak leans toward an end to rate cuts in this cycle, yet mortgage rates are still near 30 year lows!

The big numbers relating to mortgage rates are home sales, foreclosure rates, and inflation. The economic news media is painting a dim picture in these areas, but is it an accurate assessment? Things may not be as bad as they seem, but recovery appears at least 2 quarters away in my opinion. Home sales are actually stabilizing and actually increasing in certain regional markets. The numbers appear to be skewed by the dismal housing numbers in a few select and densely populated areas such as California, Florida, and Las Vegas among other high cost metropolitan areas. Foreclosure statistics follow the same pattern, which could lead one to believe that once the high-cost home markets stabilize, the housing numbers will reflect a rapid recovery rate nationally. That is one of the problems with the current reporting and home investment lender criteria for home loans, as they are based upon national statistics as opposed to regional markets. The housing numbers are a huge part of a lenders mortgage risk premium spread and this spread is currently 1.0 to 1.5% higher than historical spreads due to the risk that home values will continue to decline. Can you imagine how low mortgage rates could be right now without the inflated risk premium?

Inflation is another ball of wax. In my opinion, the Fed has played their rate cut cards in the correct manner and inflation should be stabilized by year’s end. Energy costs and specifically, oil, is the fly in the ointment. Crude oil continues to rise due to speculation of increased global demand, decreased supply lines, and pitiful refinery output in the US. The government appears to have used magical mathematical algorithms to reflect that energy costs are in fact, at a reasonable inflationary level, if you can even begin to believe that. The fact is that energy costs will continue to be a major inflationary concern and could be the stumbling block to a quick and robust overall economic recovery. Last week’s PPI numbers reflected a not so positive outlook on near term inflationary pressures.

Why are mortgage rates so low in the face of these awful current economic factors? Well, the 10-year treasury yields are still near historic lows also. These yields plus the mortgage risk premium spread make up the mortgage rates that borrowers are offered at the mortgage store counter. When economic times are tough and filled with risk, investors tend to flock to the bond market for safe investments at reasonable returns. As the bond prices increase because of the demand, their yield declines and mortgage shoppers jump for joy. This trend may not last forever and in fact, the 10-year yields have been increasing, so any positive housing and inflation numbers will be a welcome treat for those of us who love low mortgage rates.

A bit of good news for those shopping for Jumbo mortgage rate loans. Lenders are finally getting serious about underwriting new conforming jumbo mortgages for more than $417,000. The new conforming jumbo mortgages officially were available in April of this year, but lenders were not pricing them any differently and Jumbo shoppers continued to pay 1% or higher than conforming mortgage rates. Fannie Mae just announced that it would buy jumbo conforming mortgages for the same prices as conforming loans and lenders are jumping in. The new conforming jumbos are now at about three-eighths to one half of a percentage point higher than conforming mortgages. I should also note that FHA has increased its lending limits in high cost areas and many jumbo loan shoppers can beat the pants off a conforming jumbo rate with an FHA home loan. Make sure you check both options when going jumbo.

Have a Great Memorial Day and May the Mortgage Rates be With You!

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The Fed May Stop Rate Cuts for rest of 2008

The Fed reported today that they see slower growth and higher unemployment in 2008. Citing blows from the housing and credit debacles along with zooming energy prices, it also expects higher unemployment and inflation. The Fed is hoping that it's previous series of rates cuts, coupled with the governments $168 billion stimulus of tax rebates for people will help to energize economic growth. Given the hope of a second-half economic pickup but worried about inflation, Fed officials signaled last month that their one-quarter-point rate reduction, which dropped their key rate to 2 percent, might be their last rate cut for some time.

The PPI report was released this week and showed higher than expected inflation numbers on the wholesale level, even when stripping out food and fuel costs. I don't need to say that inflation is hitting everyone. Gas and food prices are skyrocketing. Inflation is key to mortgage rates as investors flock out of bonds (major determing factor for mortgage rates) and into higher yield investments.

Remember though, that Fed cuts affect short term interest rates and not mortgage rates. A strong economy with stabilized home values will have the biggest effect on mortgage rates. Banks and investors are still on the sidelines, hoarding cash, so the future is bright for home loans once we sustain a bottoming in the housing market. Don't expect to see any major turnaround on the housing front on a national level, but regionally, particularly in the Northeast, we can expect stabilization soon.

Looking at the glass half full again. Mortgage rates are still near historic lows, even with all this economic uncertainty and cash hoarding. Yes, lender guidelines have become stricter, but this will be for everyone's benefit, including those closed previously into bad low documentation home loans. Lenders simply don't want to take the risk on high loan-to-value with little or no documention any more.

Depending upon the source (I don't trust most national average mortgage rate sources), 30 year fixed rate mortgages for those with at least 20% equity in their home and excellent credit scores are between 6% and 6.25% today. My sources are below 6%, but even at a 6.25%, that is a great rate historically. The fear in the mortgage market now is that the bond market will crash, inflation will jump heavily, and the housing market will continue it's slump. This scenario would cause mortgage rates to increase significantly.

Looking on the rosy side again, the economy is set up for a rebound, but this will take us to 2009 in my opinion, before stabilzation and growth occurs in both the economy and housing markets. Till then, we will most likely experience the current roller coaster ride in the mortgage rates amusement park.

May the Rates be With You!

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Stable Week For Mortgage Rates

Finally, another stable week for mortgage rates. The 10 Year treasury yield crept up slightly on the week, but no major moves with mortgage rates.

In a pleasant surprise, it was reported this week that that housing starts rose 8.2% in April to an annualized rate of 1.032 million units. Granted that increase was driven by starts on multi-unit dwellings, the April number was finally some positive news on the housing front. The housing crisis is not over, but the number does provide some hope that stability is returning to the housing market such that residential construction won't be near the drag on GDP growth that it has been in past quarters.

The key is senitment. The stock market has been trading on positive sentiment, despite the poor economic and earnings reports coming out as of late. If this sentiment spills over to the home lending market, we could finally experience a reduction in the mortgage spread premium and see further mortgage rate reductions.

I know, that's alot of "ifs", but even one month ago, this was not a possibility. Let's face facts though. Home sales and foreclosure rates are still trending in awful territory. Until this trend stabilizes, mortgage rates will continue on the roller coaster ride.

May the Mortgage Rates be with You!

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April Inflation Numbers Good for Mortgage Rates

Inflation pressures eased a bit in April despite the biggest jump in food prices in 18 years. The Labor Department reported today that consumer prices edged up 0.2 percent last month, compared to a 0.3 percent rise in March. The lower inflation reflected a flat reading for energy, which helped offset a 0.9 percent jump in food costs as prices climbed for many basic items, from bread and milk to coffee and fresh fruits.

Mortgage rates respond positively to good inflation numbers. Simply put, banks and investors need to make a larger return on their money if inflation goes up.

Looking at the bigger picture, it also leaves room for the Fed to drop rates again in the future. Inflation is a huge part of the current mortgage rate picture and economy as a whole, in addtion to the current housing market, investment and bond insurer credit and liquidity strength, retail sales, and employment numbers.

At this point, we'll take what we can get. We have yet to feel the effect of the tax rebate economic stimulis program, which could pump up the retail sales. The US dollar has been gaining strength as of late, which could also help the economy through this slump.

You might ask what the heck all this economy stuff has to do with mortgage rates, but it is all related. Especially in the current market. Mortgage rates are offered at the 10 Year Treasury Yield price plus a mortgage spread premium. This spread premium has risen significantly as a result of the subprime mortgage crisis due to the perceived Risk for the mortgage investor. When the economy is strong, inflation is stable, and homes appreciate in value, the mortgage spread premium decreases as risk goes down. This has a direct and significant effect on lower mortgage rates.

Foreclosure rates continue a dramatic rise in year over year numbers and we need to experience a moderation in this area to start the real economic recovery in my opinion. There are many predictions as to when high foreclosure rates will diminish, but a clear picture has yet to be determined. A closer look at foreclosure rates shows us that the biggest percentage of foreclosures are coming from a relatively isolated few housing markets in California, Las Vegas, Florida, along with a few other metropolitan areas. This could actually be good news on the whole, as we may experience a quicker than expected housing recovery in many large regional areas that experienced moderate home appreciation during the mortgage boom years. Once the ball starts rolling, lenders will jump in, home loans and refinance mortgages will become more attainable, and things will begin to look rosy again.

We are still at great mortgage rates now. I will be curious to see where we end up after the economic recovery hits it's stride.

May the Mortgage Rates be With You!

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Mortgage Rates Down Slightly on Week

The benchmark 30-year fixed-rate mortgage fell 3 basis points to 6.13 percent, and the mortgage market was much calmer than the previous 3 month period of wild rides up and down. The benchmark 15-year fixed-rate mortgage remained at 5.71 percent. The benchmark 5/1 adjustable-rate mortgage dropped 9 basis points to 5.87 percent.

The stock market lost ground for the first time in four weeks as the S&P 500 declined by 1.8%. Oil dominated the headlines throughout the week with crude futures closing at new record highs each day. The final settlement of $126.13 per barrel marked an 8.4% gain for the week. The spike in oil prices took its toll on sentiment and knocked the wind out of the market's sails.

By the same token, the financial sector also had a heavy hand in the action, falling 6.3% for the week following a batch of ugly earnings reports from the likes of Fannie Mae (FNM), UBS (UBS) and Dow component American International Group (AIG).

For us mortgage rate watchers, the 10 Year Treasury Yield decline on the week by .078%, which reflects the slight drop in mortgage rates.

This week hosts a slew of earnings reports and some key inflationary reports, including the CPI numbers on Wednesday.

Mortgage rates are still at nice levels across the board, so another stable week will be welcome.

May the Rates be with You!

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Mortgage Rates Little Changed on Week

The past week experienced little change in mortgage rates. Freddie Mac released the results of its Primary Mortgage Market Survey® (PMMS®) in which the 30-year fixed-rate mortgage (FRM) averaged 6.06 percent with an average 0.5 point for the week ending May 1, 2008, up from last week when it averaged 6.03 percent. Last year at this time, the 30-year FRM averaged 6.16 percent.

The Fed cut the short term fed funds rate by .25 basis points to 2.0%, which had little impact on the overall refinance rates. The biggest risk to rising mortgage rates continues to be inflation and the housing market. The Fed did note that financial markets remain under considerable stress and tight credit conditions, which along with the deepening housing contraction, are likely to weigh on economic growth. The Fed lest the impression that we may be at the end of rate cuts for this cycle. The Fed's statement acknowledged some indicators of inflation expectations have picked up, yet it stuck with its view that it expects inflation to moderate in coming quarters.

April employment numbers came out better than expected causing the stock market to rally. The 10 year treasury yield bounced down and back up by week's end increasing by .010% for the week, which reflects the small change in mortgage rates.

Housing numbers continue to slump. This week's pending home sales report for March will likely follow the slumbering home sales trend.

Overall, the week was quiet, considering the fed meeting, GDP report, and slew of inflation and earnings data reported. This could be a good sign, especially for the prospect that the inflation outlook might not be as bad as originally anticipated. With the Fed curbing future cuts, the dollar can recover and have a positive impact on our food and energy costs, further stabilizing the economy.

Mortgage rates are still at excellent levels, but will only remain there if investors start putting their money back to work in mortgage backed securities (The 10 Year treasury yields won't stay at these levels forever). Banks and investors have been so busy building up cash reserves, they still remain hesitant to dip their green toes in the mortgage market. The industry change to stricter mortgage underwriting guidelines should help, but I think they are waiting for sustained and stable inflation, a stable housing market and to follow the first guy who jumps back into mortgage backed securities headfirst. Fannie and Freddie could be the heros to ride in on the white horse.

May the Rates be with You!

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