Mortgage Rates Recap June 28, 2008

What a week for the economy, with a slew of major economic reports delivered in addition to the Fed Policy Statement. This is not to mention the continued spike in crude oil prices. The stock market took on heavy losses, resulting in an investor flight to bonds, creating a dip in mortgages rates as yields dropped. Personal spending rose 0.8 percent in May as taxpayers began to receive their tax rebate checks. The reading was above projections, and signaled that consumers are still managing to spend despite higher food and energy prices. This put treasury bond investors at ease that the Fed can hold off raising rates to combat inflation. Higher rates and inflation tend to erode the value of fixed-income investments, so Friday's news was reassuring to bond investors.

The average contract interest rate for 30-year fixed-rate mortgages decreased to 6.39 percent from 6.57 percent, with points increasing to 1.12 from 1.10 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.

The average contract interest rate for 15-year fixed-rate mortgages decreased to 5.95 percent from 6.14 percent, with points increasing to 1.16 from 1.10 (including the origination fee) for 80 percent LTV loans.

The average contract interest rate for one-year ARMs decreased to 7.09 percent from 7.22 percent, with points increasing to 1.59 from 1.56 (including the origination fee) for 80 percent LTV loans.

The National Association of Realtors (NAR) said Thursday that the number of existing homes sold during May rose 2% to a seasonally adjusted annual rate of 4.99 million units in May from a level of 4.89 million in April. Sales remain 16% below the 5.93 million-unit pace in May 2007, the report showed. And Thursday's report marks only the second time in 10 months that sales have increased. Home buyers may finally be getting off the fence as prices have dropped substantially in many markets. The large supply of homes on the market favors buyers, but it should take several more months to draw the inventory down.

More home sales will lead to an advantage for those looking to refinance in two important ways. First, increased demand leads to increased home prices, creating a higher equity value for those refinancing. Secondly, a more stabilized housing market will bring more investor and lender competition into the mortgage market and bring mortgage rates down. Lenders will take on less of a profit yield on the interest rate as perceived risk diminishes with stable and rising home values.

For the week, financials lost 6.5%. This is not a positive sign for the economy or mortgage rates. Mortgage investors and lenders are still on the diving board due to their continued financial liquidity issues. Those with cash are hoarding and those with more subprime write-downs to come are only participating in low ltv and low credit risk mortgages. Just another reason to always check FHA refinance options when getting a quote.

The Chicago PMI and Unemployment Rate report will be coming up in the next week. The market is spooked at the moment, so just about anything, both positive or negative relating to inflation, the housing market, employment, spending, currency, or financial liquidity will result in large moves one way or the other.

The current dip in mortgages could be an opportunity for those looking to refinance and waiting for lower refinance mortgage rates. The concern is that continued inflation will increase mortgage rates for some time to come.

May the Mortgage Rates be with You!

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Fed Leaves Rates Unchanged, Inflation Continued Concern

The fed left rates unchanged as expected.

The Federal Open Market Committee decided today to keep its target for the federal funds rate at 2 percent.

Recent information indicates that overall economic activity continues to expand, partly reflecting some firming in household spending. However, labor markets have softened further and financial markets remain under considerable stress. Tight credit conditions, the ongoing housing contraction, and the rise in energy prices are likely to weigh on economic growth over the next few quarters.

The Committee expects inflation to moderate later this year and next year. However, in light of the continued increases in the prices of energy and some other commodities and the elevated state of some indicators of inflation expectations, uncertainty about the inflation outlook remains high.

The substantial easing of monetary policy to date, combined with ongoing measures to foster market liquidity, should help to promote moderate growth over time. Although downside risks to growth remain, they appear to have diminished somewhat, and the upside risks to inflation and inflation expectations have increased. The Committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh. Voting against was Richard W. Fisher, who preferred an increase in the target for the federal funds rate at this meeting.

The Fed speak, as usual, makes it difficult to determine if they will raise rates come this fall, but inflation numbers are clearly a top priority on their agenda.

Inflation is an enemy to us all, and particularly to mortgage rates. The 10-Year Treasury yield took a bump up on the Fed decision. We'll have to keep a close eye on inflation numbers in the remaining year.

On the bright side, if inflation numbers do get better in the third quarter, we could experience a dramatic shift in mortgage rates to the lower side. The key is definitely a lowering of energy costs. Crude oil has gone straight up this year and you know what they say.... what goes up must come down. We hope!

May the Mortgage Rates be with You!

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Big Week Ahead for Mortgage Rates

Well, we had a bit of a dip in mortgage rates the last few days of the week. Finally! Inflation had been the major culprit driving rates up over the past couple weeks, but it appears that investors are sliding to the side of safety in the bond market, facing steep declines in the stock market. The mortgage spread is still quite high and not budging, so we'll have to count on investor's perceived risk in the overall economy to keep mortgage rates down.

Shorter term mortgage rates are catching up to the standard 30-Year Fixed mortgage rates, as the impending potential Fed rate increases loom heavily on the market. Short term money may be getting more expensive in the near future, so make sure to check on all loan term options when receiving a rate quote, if you are looking at any other term alternative than a 30-Year Fixed rate mortgage.

The week ahead should be a crazy ride for mortgage rates with a slew of major economic reports coming out. Consumer confidence, durable orders, new home sales, FOMC statement, GDP, existing home sales, and PCE core inflation are all on slate for this week. The Fed is not expected to move rates, but thier statement could have a significant impact on market movement.

We still need to see some positive numbers from the housing market and credit markets to breathe some life into market sentiment. Until we come to a stabilzation in both areas, we will continue to experience high mortgage spreads and a lackluster investor involvement in the mortgage market, and higher mortgage rates.

Mortgage rates are still very good, but the current economic environment and inflation worries could change that in short order.

May the Mortgage Rates be with You!

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Black Gold and Mortgage Rates

Seems that the surging price of oil is impacting all segments of the economy, including mortgage rates. Inflation fears have taken center stage as the weak dollar and surging prices for oil, corn and other commodities have clearly spooked bond investors.

Yields are up sharply over the past few weeks, with the 10-Year Treasury touching 4.27% on Monday, up from 4% just a few weeks ago. The yield on the 2-Year Treasury is now hovering around 3%, up from around 2.75% not long ago.

Since long term mortgage rates are based on the 10-Year treasury yield, inflation is a key component to be aware of. Why own a 10-year bond at 4.2% when the inflation rate is somewhere near 4%

Does this mean that bond yields and mortgage rates will continue to rise with increasing inflation numbers? Maybe not. Investors may flock back to Treasurys if there is more turmoil in the stock market, the proverbial flight to quality, even though inflation is eating away at bond returns. If the choice is a 4% bond yield versus losing 10% in the stock market, a lot of investors will take the 4%.

The remainder of this week is relatively light for economic reports, so expect an even keel on mortgage rates. Next week, however, is a different story, so stay tuned for "all that is great about a mortgage rate"... I know, I can see you rolling your eyes!

May the Mortgage Rates be with You!

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Mortgage Rates Push Through Key Resistance Level

Mortgage rates climbed significantly this week due mainly to the threat of inflation and credit quality. The mortgage rate movement is reflecting increased concerns about what the Federal Reserve might do to battle inflation. Freddie Mac, the mortgage company, reported Thursday that 30-year fixed-rate mortgages averaged 6.32 percent this week, the highest level in nearly eight months and up sharply from 6.09 percent last week.

The housing picture is adding to mortgage rates now as foreclosure filings continue to increase. Foreclosure filings last month were up nearly 50 percent compared with a year earlier. Nationwide, 261,255 homes received at least one foreclosure-related filing in May, up 48 percent from 176,137 in the same month last year and up 7 percent from April, foreclosure listing service RealtyTrac Inc. said Friday.

This is the first time in 2008 that 30-year fixed mortgage rates have pushed through the 6.25% resistance level, which is corresponding directly with the 10-year treasury yield, which has clearly broke it’s resistance level of 4.0%. Until this week, we have enjoyed a nice roller coaster ride up and down between 5.75% and 6.25% par mortgage rates on 30-year fixed mortgages.

Shorter term rates and adjustable mortgages have fared worse than fixed-rate mortgages on a percentage basis, as the shorter term bond yields have increased at a higher percentage than the longer term bond yields

Where do we go from here? Many feel that mortgage rates will continue to rise. There are still no compelling reasons for investors and lenders to dive into the mortgage market, which will the mortgage premiums on the high end. The argument is that the continued threat of inflation will continue the rise in bond yields and mortgage rates.

If you are sitting on the fence and waiting for lower rates to refinance, it could be a long wait. I had more than a few clients that waited for lower rates when the par 30-year fixed mortgage rates were at 5.75%! I advised them all to jump and lock the rate, but the gambling mentality prevailed. They lost out on some significant financial benefit, and I would guess they are kicking themselves now.

Mortgage rates are still very good for now, and I would still suggest locking a rate now if it produces a sound financial benefit, depending upon the individual’s specific situation. For excellent credit scores and 80% LTV or lower home loans, conventional refinance programs are the way to go. For poor to good credit and higher LTV home loans, I suggest checking out a FHA refinance.

More times than not, those who seek to hit any market bottom, whether it be stocks or mortgage rates, will end up on the short end of the stick. It is best to get off the fence when the time is appropriate and not worry about catching the absolute lowest mortgage rate of the century.

May the Mortgage Rates be with You!

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Mortgage Rates Up on Week

Mortgage rates are up this week due to inflation concerns and financial liquidity issues. The Mortgage Bankers Association (MBA) today released its Weekly Mortgage survey, and the average contract interest rate for 30-year fixed-rate mortgages increased to 6.24 percent from 6.17 percent, with points increasing to 1.12 from 1.06 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.

The average contract interest rate for 15-year fixed-rate mortgages increased to 5.78 percent from 5.7 percent, with points increasing to 1.12 from 1.06 (including the origination fee) for 80 percent LTV loans.

The average contract interest rate for one-year ARMs increased to 6.87 percent from 6.8 percent, with points decreasing to 1.42 from 1.44 (including the origination fee) for 80 percent LTV loans.

Investors continue with a lackluster appetite for mortgages. The culprit seems to be overall investor nervousness about the financial sector and the housing market. Although bond yields are still at attractive levels for mortgage rates, investors are only enticed to the party with a higher mortgage yield, which causes mortgage rates to rise.

Pending Home sales might be on the rise, according to the National Association of Realtors. The NAR's index of pending home sales, which is seen as a bellwether, rose about 6 percent from March to April. The April pending home sales index was 88.2, compared to 83 in March. So April's index was up from the previous month, but it was down 13 percent from the April 2007 figure of 101.5.

Many feel that the pending home sales numbers are not much to get excited about, as they are an indication of banks letting foreclosed homes go at rock bottom prices. Even so, this may be a good sign that buyers are ready to pull the trigger in the housing market. The big issue of concern is that home values do not diminish due to fire sales.

All in all, another crazy week for the mortgage market with more in store.

May the Mortgage Rates be with You!

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Volatile Week For Economy and Mortgage Market

The broken record continues with volatility overwhelming the stock, bond, and mortgage markets this past week. We tend to experience this type of up and down movement in bear markets. Economic reports which come in at above or below expectations are met with a buying or selling frenzy, much like the sheep leading the sheep. Market psychology plays a huge impact on short term movements, particularly in times of economic uncertainty.

So far this year, market movement has created a virtual stalemate for mortgage rates in general. Mortgage rates have actually trended upward from the January lows, but continue at excellent historic levels. In fact, those refinancing with loan-to-value ratios under 80% are still experiencing sub 6% 30 year fixed mortgage rates. I continue to advise my clients to pull the trigger on short term dips in mortgage rates.

In my opinion, the stalemate in current mortgage rates is the result of two major factors. First, this year's reported poor economic data and future uncertainty is leading investors to the safety of bonds, which causes the bond yields to decrease and mortgage rates to decrease. Secondly, this same economic uncertaintly, with financial liquidity issues, and housing market concerns is creating an increase in the mortgage premium risk spread, which brings an increase to mortgage rates. Add these two components together, and the tug of war flag is still in the middle. Thankfully for those currently refinancing or buying homes, the recipe is still cooking some tasty mortgage rates.

Excuse me while I replace my broken record with another one.

Inflation and the housing market continue as the enemy to low mortgage rates. We continue to experience a weak dollar and rising energy costs, coupled with a weak housing market. So far, the dominos have not fallen, but the risk is there. The Fed has pretty much announced no further rate cuts in this cycle, which should help the dollar. Energy costs continue to rise with no end in sight.

The housing market could be the white stallion to ride in and save the day. We are experiencing stabilization and actual increases in home value in certain pockets of the US. Stabilization in the home values is key to the economic recovery and would go a long way toward stabilizing mortgage rates, while increasing lender and investor participation in the mortgage market. Our majestic galloping hero still has quite a ride ahead, but at least he's finally on the trail!

May the Mortgage Rates be with You!

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Mortgage Rates Continue Roller Coaster Ride

Mortgage rates continue the ride up and down. On a yearly note, mortgage rates have been moving between a 1/4% to 1/2% range on national trends. This may not seem like much, but the differences can be quite wider on high loan-to-value loan scenarios. Last week, we experienced a gradual daily increase, in line with the bond yield increase. This week, well, you guessed it. We have experienced a gradual decrease in mortgage rates in line with the bond yield decrease.

Still, lenders and investors are not exactly jumping over themselves to jump into the mortgage market. It's a wonder that mortgage rates are still near historic lows, considering the demand for mortgage backed securities has diminished to such an extent.

Federal Reserve Chairman Ben Bernanke painted a gloomy picture of the economy on Tuesday but hinted that the central bank was prepared to hold steady on interest rate cuts. The Fed has already cut the key federal funds rate 7 times since September, to the current rate of 2%, down from 5.25% before the easing began. Also, Bernanke said that some of the more troubled aspects of the economy are starting to show signs of stability. He said the battered financial markets had "improved of late but conditions remained strained." He also said the pressures on the U.S. economy are being softened somewhat by foreign demand for U.S. goods and services.

Inflation, financial sector liquidity, and the housing market continue the be the areas of major concern for not only mortgage rates, but the major economy as a whole. Economic reports have not been encouraging relating to these factors, but we haven't exactly fallen off a cliff either. Those looking at the glass half full, feel that the economy will improve in the second half, and that the economic stimulus package will aid in the effort. In my opinion, housing is the number one area that lead the economy out of it's current slump. Without a stabilized housing market, economic recovery will be stuck in the mud.

Those looking to refinance or purchase a home are still in very good shape as mortgage rates continue to be at excellent levels.

May the Mortgage Rates be with You!

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Cash Hoarding and Mortgage Rates

What does hoarding cash have to do with mortgage rates? Alot, when it's the banks that are stuffing the cash away. Most, if not all banks are in safety mode after the subprime meltdown of 2007-2008. Many banks and investors got caught up in a cash crunch due to the recent high foreclosure rates, and are now hoarding cash for loan-loss reserves. Lenders have tightened the reigns on mortgage and refinance lending, while increasing qualification requirements. This translates to less mortgage demand and higher mortgage rates, particulary for high loan-to-value home mortgages. Fortunately, those shopping for low mortgage rates are still in a good position as the bond market and 10-year treasury yields are still near all-time lows. If the mortgage premium risk spread were at it's historical average, we would be currently experiencing par 30 year fixed rates at 5.25% instead of 6.00%!

As a comparison, FDIC-insured banks set aside $37.1 billion in loan-loss provisions during the quarter - four times more than the $9.2 billion in the first quarter of 2007. The first-quarter provisions ate up 24% of the industry's net operating revenue in the quarter, up from only 6% a year ago. This reflects a drastic response to the subprime mess.

Mortgage rates are also coming under pressure from inflation. Prices for fuel and food keep moving higher and higher with no stabilization in sight. The fear is that prices for everything will creep higher and higher. This means that those investing, particulary in mortgages, need to get a higher rate of return to offset the increasing cost of money. Hence, mortgage rates creep up.

In my opinion, we are experiencing the two sides of over-reaction. We started out from 2004-2007 with people tripping over themselves to buy homes and lenders approving mortgages (over-reaction to not miss out on easy profit) for almost anyone who could sign their name. Home prices soared and the housing sector line went straight up. Mid 2007 to present, home-buyers are scarce and lenders are putting up the "Do Not Disturb" sign for mortgage shoppers. The housing sector line is going straight down.

So what's next? Well, what goes up, must come down, then we stabilize and begin a rational appreciation trend (relating to the housing market). I feel that we are getting closer to the stabilization mode, but still have a couple quarters to go. Until then, mortgage rates will likely continue the ride up and down with overall good value for those refinancing with good equity in their homes, or those qualified for FHA home loans.

May the Mortgage Rates be With You!

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