What’s Ahead For Mortgage Rates This Week : December 21, 2009
Mortgage markets improved last week as pricing followed a roller coaster-like pattern. After touching a 6-week high Tuesday, rates rallied to weekly lows Thursday, and then jumped back higher Friday.
Despite the improvement last week overall, mortgage pricing remains significantly worse from the all-time lows set in late-November.
Oddly, last week’s most prominent mortgage-related story wasn’t the most influential one.
On Wednesday, the Federal Open Market Committee adjourned from a two-day meeting. It voted to leave the Fed Funds Rate unchanged from its current target zone of 0.000-0.250 percent. This wasn’t news, per se — markets expected the “no change” vote.
However, in its accompanying press release, the Fed appeared more rosy in its economic outlook, citing improving labor markets and low levels of inflation. Results like this are a mixed bag for rate shoppers, but is generally welcomed as good news.
Rates were unchanged after the FOMC release.
The bigger story last week comes from Greece.
Concerns for the country’s debt burden have been in play for weeks, but last week, Standard & Poor’s officially downgraded Greece’s debt rating. The move triggered concerns regarding broader Eurozone debt, especially considering the recent issues in Dubai.
U.S. mortgage markets benefitted from Greece’s troubles as “safe haven” attracted investors, driving down rates Thursday afternoon.
Debt concerns should remain in focus this week. Furthermore, there’s a bevy of domestic data that could swing rates in either direction, too. Most notably, watch for Tuesday’s housing data, Wednesday’s inflation data, and Thursday’s consumer confidence data. Each can be a powerful influence on rates.
There will be less volume on Wall Street because of Christmas and less volume tends to spur mortgage rate volatility. Be wary of swings in either direction.
Markets close early Thursday and will be closed Friday.
Housing Starts Jump; Home Sellers Lament.
Housing Starts jumped last month as builders got back to business. It’s a telling sign for the economy, but bad news for next season’s sellers.
With more homes coming online, home prices may be slow to rise nationwide.
A “Housing Start” is a privately-owned home on which construction has started. In November, starts rose by nearly 9 percent while remaining within the same tight range we’ve seen since June.
More interesting that Housing Starts, though, is the accompanying data for Housing Permits. After a 5-month plateau, Housing Permits finally broke through, posting its largest number in 12 months.
This, too, bodes poorly for sellers.
Housing permits are precursors to housing starts so because the number of permits are higher today, we expect that the number of starts will be higher just a few months from now.
According to the Census Bureau, 82% of homes start construction within 60 days of permit-issuance.
More permits means more starts which, in turn, leads to a larger home inventory. And when home supplies grow faster than the home demand, prices fall.
Throughout the early part of 2010, low mortgage rates and federal tax credits should help hold demand high but if builders flood the market with new, quality product, sellers may find that they’ve lost some of their leverage.
For home buyers, the rise in starts is welcomed.
A Simple Explanation Of The Federal Reserve Statement (December 16, 2009 Edition)
The Federal Open Market Committee voted to leave the Fed Funds Rate within its target range of 0.000-0.250 percent.
In its press release, the FOMC noted that the U.S. economy “has continued to pick up”, that the jobs markets is getting better, and that housing market has shown “some signs of improvement” lately.
It’s the fourth straight statement in which the Fed speaks optimistically about the U.S. economy – a signal that the worst of the recession is likely behind us.
The economy isn’t without threats, however, and the Fed identified several, including:
- Tight credit conditions for consumers
- Reluctancy of businesses to hire new workers
- Lower overall housing wealth
The message’s overall tone remained positive, however and inflation appears to be held in check.
Also in its statement, the Fed confirmed its plan to hold the Fed Funds Rate near zero percent “for an extended period” and to honor its $1.25 trillion commitment to the mortgage bond market. That plan — due to expire at the end of March 2010 – should be noted by today’s homebuyers. Fed insiders estimate that the program suppressed rates by 1 percent through 2009.
Mortgage market reaction to the Fed press release is negative. Mortgage rates are rising this afternoon.
The FOMC’s next scheduled meeting is January 26-27, 2010.
What’s Ahead For Mortgage Rates This Week : December 14, 2009
Mortgage markets worsened for a second consecutive week last week amid debt default concerns and stronger-than-expected economic data. Dollars left the bond market and mortgage rates suffered.
After re-reaching an all-time low December 1, mortgage rates have since rolled back to mid-November levels.
Rates are still low right now. Just not as low.
And meanwhile, last week’s big story — the one that should concern mortgage applicants between now and early-2010 — is the story of Retail Sales.
Last week, a government report showed that American consumers are spending more this holiday season than was expected. The Retail Sales data implies that consumers are feeling more confident in themselves, and in the economy overall.
This is one of the last remaining pieces in the economic recovery puzzle. Job growth, of course, is another, and both will be in focus this week as the Federal Open Market Committee meets for its final 2-day meeting of the year.
The FOMC isn’t expected to raise the Fed Funds Rate from its current “target range” near 0.000%, but when the FOMC adjourns at 2:15 PM Wednesday, its press release will dominate the news.
Specifically, watch for verbiage on the expected economic growth for 2010 because no matter what the Fed says, mortgage rates will be in flux. As one example:
- If the Fed says inflation is under control, mortgage rates should fall
- If the Fed says inflation pressures are growing, mortgage rates should rise
There’s other news this week, too, including PPI and CPI — 2 popular inflation gauges, plus some housing data, too.
If you need to lock a rate this week, it may be safer to lock prior to the FOMC’s adjournment. Given the recent strength in Retail Sales and the reports of “crowded malls” this past weekend, the Fed may choose to revise its growth estimates for the economy — a move that would be awful for mortgage rates.
Falling Unemployment Rate Leads To Higher Mortgage Rates Today
This morning’s jobs report is causing mortgage rates to rise, capping a week during which rates have already jumped 3/8 percent off all-time lows.
The government’s November Non-Farm Payrolls report reinforced the notion that the recession is nearly over, if not over already.
Just 11,000 jobs were lost last month — much fewer than analysts had expected — as the Unemployment Rate fell to 10.0%.
If it seems strange to be talking economic recovery while Americans are still losing jobs – 7.2 million since 2008 – remember that data always needs context.
See, analysts view employment figures as a lagging indicator for the economy. This is because business owners tend to make hiring decisions based on how business has been – not on how it will be at some point in the future.
The jobs report rarely reflects the “right now”. As an example, job loss peaked in January 2009 – 4 months after the height of the financial crisis.
We saw the same pattern during the Recession of 2001.
According to government data, during the last recession, job loss peaked in October 2001 but the recession ended the very next month. It wasn’t until October 2002 that employment went net positive on a monthly basis.
And this is why investors are cheering November’s jobs report. Better-than-expected numbers and a falling Unemployment Rate show that the economy is improving.
Unfortunately for rate shoppers, better-than-expected data is pushing mortgage rates higher. Rates are expected to open 0.250% higher versus yesterday’s close.
One Reason Why Mortgage Rates Are Back To All-Time Lows
Home affordability improved this week after the Federal Reserve released its November 3-4, 2009 meeting minutes.
The FOMC Minutes is a companion to the Federal Reserve’s post-meeting press release. It’s released 3 weeks after the Fed adjourns and details the internal debates that shape our nation’s monetary policy.
As compared to the press release, the minutes can be rather lengthy. November’s press release featured 428 words, the minutes offered 6531.
However, this extra level of detail shapes markets and mortgage rates. With Wall Street unsure about the economy’s path, investors look to our nation’s central bankers for guidance.
The Fed has made several points clear:
- The economy shows tell-tale signs of improvement
- Unemployment threatens the recovery
- Inflation pressures are low, for now
Overall, the FOMC Minutes paint the economy as in a state of measured repair, and under tight federal surveillance. Investors like this message and, as a result, stock and bonds markets are improving.
If you haven’t checked mortgage rates lately, make a point to do that. In the wake of the FOMC Minutes, conforming mortgage rates are now hovering near their all-time lows set exactly 1 year ago.
What’s Ahead For Mortgage Rates This Week : November 30, 2009
Mortgage markets improved last week on stronger-than-expected economic data and safe haven buying.
The holiday-shortened trading week amplified what should have been modest gains into large ones.
Conforming mortgage rates dropped by about a quarter-percent last week, dropping them near their best levels of the year — and of all-time.
Oddly, mortgage rates are falling as the U.S. dollar weakens. This is atypical because mortgage bonds are repaid in U.S. dollars. When the value of the dollar is falling, therefore, the value of holding mortgage bonds become less over time.
Investors are snapping up bonds with fury, however. Partially because of lingering concerns related to Dubai, and partially because of faith in the U.S. economy’s long-term health.
This week, those beliefs could be shaken to the core — specifically because of Friday’s jobs report.
It’s no secret that the economy is growing. Housing is improving, banks are re-capitalizing, and businesses are making capital investment. However, employment is lagging.
More than 4 million jobs have been lost this year and the unemployment rate is north of 10 percent for the first time since 1983. Consumers are worried for their jobs and are guarding their wallets the holiday season as a result.
The economy can’t grow without consumer spending, though, and that’s why Friday’s job figures will play an especially large role in mortgage markets. If employment data goes positive, stock markets will rally at the expense of mortgage rates.
Conversely, if data looks worse, mortgage rates should dip.
Either way, it’s a gamble. If you haven’t looked at the benefits of a refinance lately, waiting until Friday to see what happens may be ill-advised. This is because the last two times mortgage rates fell this low, markets corrected within 48 hours, sending rates soaring higher.
Rates look good today. Consider locking something in before rates have reason to rise.
Congress Expands And Extends The First-Time Home Buyer Tax Credit
Congress both extended and expanded the First-Time Home Buyer Tax Credit program Thursday.
The White House says the President will sign it into law today.
The up-to-$8000 tax credit’s expiration date has been pushed forward to spring, requiring homebuyers to be under contract by April 30, 2010, and to be closed by June 30, 2010.
The program’s basic eligibility requirements remain the same:
- Buyers can’t purchase the home from a parent, spouse, or child
- Buyers can’t purchase the home from an entity in which they’re a majority owner
- Buyers can’t acquire the home by gift or inheritance
- All parties to the purchase must meet eligibility requirements
The new law includes some notable updates, however.
For one, the definition of “first-time home buyer” has been expanded to include most homeowners with at least 5 years in their current home. “Move-up” buyers like these are now eligible for IRS tax credits, but with a cap at $6,500.
This means that you don’t have to be a true first-time home buyer to claim the “first-time home buyer tax credit”.
Other eligibility changes include:
- The subject property’s sales price may not exceed $800,000
- The subject property must be a primary residence
- Income thresholds raised to $125,000 for single-filers and $225,500 for joint-filer
And remember, the First-Time Home Buyer program grants a tax credit as opposed to a deduction. This means that a tax filer would receive a cash payment of $2,000 from the U.S. Treasury if his “normal” tax liability totals $6,000 and he was eligible for all $8,000 available under the new law.
The complete list of qualifying criteria is posted on the IRS website. Be sure to review it with a tax professional to determine your eligibility. Then mark your calendar for April 30, 2010.
It’s 5 months away.
What’s Ahead For Mortgage Rates This Week : November 23, 2009
Mortgage markets worsened last week on a mixed bag of economic data. Inflation data came in soft, but so did the start of the holiday shopping season.
For the first time in a month, mortgage rates worsened last week, adding roughly 0.125 percent on conforming fixed-rate products, and a little bit more on ARMs.
Despite rates worsening, there was still some good news for home buyers and would-be refinancers. Mortgage rate volatility was markedly lower than in recent weeks. You could shop for mortgage rate last week and actually take your time about it.
This is in stark contrast to the last month or so over which mortgage rates changed every few hours, on average.
This week, though, because a heavy data calendar is combining with a holiday-shortened trading week, rates aren’t likely to stay as tame.
- Monday: Existing Home Sales
- Tuesday: Consumer Confidence, Home Price Index, Fed Minutes
- Wednesday: New Home Sales, Personal Income and Outlays
Each of these data points are market-movers by themselves. In tandem, however, they could really shake things up. Then, at the tail end of the week, markets will react to Black Friday.
If stores look full Friday and initial receipts appear high, stock markets should rise at the expense of bonds, leading mortgage rates higher.
Additionally, expect that mortgage rate changes will be amplified because of low trading volume. This could work in your favor, or out of your favor — depending on the market direction.
With mortgage rates at such low levels and unlikely to fall much further, locking a rate is advisable. If you choose to float, though, keep your loan officer on speed dial because when rates do rise, they’re going to rise quickly.
Why is the APR (annual percentage rate) of my 3, 5 or 7 yr ARM (adjustable rate mortgage) less than the start rate?
Good question. The concept of APR is a bit difficult for many to swallow. It’s in the Truth in Lending disclosure giving to borrowers of mortgage loans as well as many other types of debt.
Super simple terms: The rate that a borrower would receive from a lender if the lender charged you 0 closing costs.
Simple terms: The rate that would result if you plugged a) the number of payments b) the dollar amount of the monthly payments and c) the result of reducing the loan amount by the closing costs, into the calculator and solved for rate.
More “formal” terms: The internal rate of return of the cash flow model that includes the loan amount, closing costs and monthly payments over the life of the loan.
The one factor that does not change in a fixed rate loan is the monthly payment – right? It has the same principal and interest payment every month for 15 or 30 years. But on an ARM the payment will adjust every year after the initial 3, 5 or 7 year period. The future payment is really unknown since it’s based on the always moving index in 3, 5 or 7 yrs from now plus a set margin. So RESPA rules say for lenders to use the “current” index value as if it will be the same when the loan starts adjusting every year.
Today the most common index of the 1 year LIBOR is a hair above 1%. 1.09% I think. Adding a typical ARM margin (2.5) to that means that if LIBOR remains the same, your 5 yr arm will adjust into a rate of 1.09+2.5 or 3.59. Amazing world if Libor is 1.09 in 5 years huh?
Now factor that back into the APR calculation and assume you have a 5 yr ARM with a start rate of 4.25 paying normal closing costs and a 1% loan origination fee. You will have 5 yrs of payments at 4.25 then roll to 25 years of payments at 3.59. This results in an APR – of 3.995. Sign me up.
With all the recent turmoil in the financial markets and the resulting crush of regulation that lenders are feeling, plus the double whammy of additional “rules” to our business from HUD, one would think that we would be required to disclose “worst case” on these ARM loans. Perhaps this is bit of consumer protection that someone at HUD needs to look into?
