Mortgage Rates Approach Historic Lows, Locking Everything
Posted 11-25-2009 at 08:12 AM by VictorBurek
The rally continued yesterday in the mortgage backed security market resulting in MBS closing at their highest price since May. To remind readers, as the price of MBS move higher, lenders are able to pass along lower mortgage rates. As the price gains held through close, many lenders who were already offering some of the best rates in history, reissued rate sheets lowering consumer borrowing costs even further.
Today is the final day of the week that we receive economic data and there is a bunch of it. All markets will be closed on Thursday and opened for a half day of trading on Friday.
This morning the Mortgage Bankers’ Association released their weekly applications index which tracks the weekly change in the amount of loan applications at major lenders for purchase and refinance transaction. An increasing trend would be a positive economic indicator since the purchase of a new home leads to many other purchases. Additionally, an increasing trend in refinances would allow consumers additional funds each month as they refinance to lower mortgage payments giving them more money to spend into the economy. The prior couple weeks showed large declines in activity leading many to believe the housing sector still has a ways to go to recover. Today’s report indicates a large surge in activity with the purchase index jumping 9.6%! The refinance activity posted a 9.5% decline but with the recent drop in mortgage rates, that should pick up in upcoming reports.
The U.S. Department of Labor released the weekly jobless claims which tracks the number of Americans that filed for first time unemployment benefits in the prior week. Included within this data is the continuing claims which totals the number of Americans that continue to file due to lack of finding a new job. The release indicates that both, initial and continuing claims came in lower than economists’ expectations. First time claims fell last week to the lowest level since September 2008 to 466,000 vs estimates of 500,000 while the continuing claims fell 190,000 to 5.42million! In more good news, the number of Americans that are receiving extended benefits also declined by 18,000 to 4.18million.
Next, the Department of Commerce released the monthly Durable Goods Order report. Durable goods are items that are expected to last several years such as appliances and electronics. This data basically tells market participants how busy factories will be in the months ahead. If durable goods orders are increasing, manufactures will be busier producing the goods to meet the demand. The report indicates that manufacturers will not be as busy as was expected. Durable goods orders for October posted a 0.6% decline when economists had expected a 0.5% increase. When you exclude transportation orders, durable orders fell 1.3% vs a 0.7% increase that was expected. Offsetting the bad economic news is a revision to the prior months numbers from a 1.0% increase to 2.0% rebound for September.
Also from the Department of Commerce is the Personal Income and Outlays report which shows us whether consumer income and spending is increasing or decreasing. Since our economy is driven by consumer spending, this data is closely watched by market participants. Increasing income should lead to higher spending which is good for stocks but pressures the fixed income sector lower. Personal income for October came in right on expectations with a 0.2% increase following a revised for the better 0.2%(first reported as 0.0%) increase in September. The spending component of the report indicates that the consumer is spending more money posting a 0.7% increase beating economists forecast of only a 0.5% rise. Included within this report is the Fed’s favorite measure for inflation with the Personal Consumption Expenditure which continues to show inflation to be of no concern today.
With the ever so important Christmas season staring us in the face, I would like to hear from our readers. Do you plan to spend more, less or about the same for Christmas this year as compared to prior years?
We also got another reading on how you the consumer is feeling. The University of Michigan’s Consumer Survey Center questions 500 households each month on their personal financial conditions and attitudes about the economy in their Consumer Sentiment survey. An optimistic consumer is much more likely to spend money while a pessimistic consumer is more likely to save. After peaking higher a few months ago, recent reports have indicated that consumers are becoming less optimistic as unemployment continues to rise with last month’s report dropping 4 points to 66. Economists surveyed expected a small rebound with a reading of 67 and the report came in basically in line at 67.4.
The final piece of data for the week gives us a reading on the housing sector with New Home Sales. This report totals the number of newly constructed homes with a committed sale during the prior month. Last month’s report showed new home sales falling much more than expected to an annualized pace of 402,000. Economists surveyed prior to this report are expecting a small improvement to an annualized pace of 410,000. The report shows that new home sales jumped 6.2% to an annualized pace of 430,000 beating estimates. This is the highest level since September 2008. Following the release of this report, MBS have come off their highs of the day.
At 1 pm eastern, the Department of Treasury will auction $32biilion of 7 year notes. Monday’s 2 year and yesterday’s 5 year note auction went rather well with strong demand despite a record amount of government borrowing.
Early reports from fellow mortgage professionals indicate lenders rate sheets continue to improve. The par 30 year fixed rate mortgage continues to hold in the 4.5% to 4.75% range for well qualified consumers. To secure the par rate you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs including an estimated one point loan origination/discount/broker fee. There are a few lenders offering 4.375% for consumers with exceptionally high FICO scores and loan to values under 60%.
If you are a current homeowner who has been waiting to refinance, now is the time. We are seeing about the best rates ever and there is not much room for them to continue to fall. At some point, they will start to rise and rates tend to rise much quicker than they fall. If you are still floating an interest rate, call your loan officer and lock as soon as possible. Ahead of the holiday, lenders will have itchy trigger fingers to reprice worse.
My next blog will come to you on Friday. I hope everyone has a wonderful Thanksgiving with friends and family. Don’t eat too much!
Today is the final day of the week that we receive economic data and there is a bunch of it. All markets will be closed on Thursday and opened for a half day of trading on Friday.
This morning the Mortgage Bankers’ Association released their weekly applications index which tracks the weekly change in the amount of loan applications at major lenders for purchase and refinance transaction. An increasing trend would be a positive economic indicator since the purchase of a new home leads to many other purchases. Additionally, an increasing trend in refinances would allow consumers additional funds each month as they refinance to lower mortgage payments giving them more money to spend into the economy. The prior couple weeks showed large declines in activity leading many to believe the housing sector still has a ways to go to recover. Today’s report indicates a large surge in activity with the purchase index jumping 9.6%! The refinance activity posted a 9.5% decline but with the recent drop in mortgage rates, that should pick up in upcoming reports.
The U.S. Department of Labor released the weekly jobless claims which tracks the number of Americans that filed for first time unemployment benefits in the prior week. Included within this data is the continuing claims which totals the number of Americans that continue to file due to lack of finding a new job. The release indicates that both, initial and continuing claims came in lower than economists’ expectations. First time claims fell last week to the lowest level since September 2008 to 466,000 vs estimates of 500,000 while the continuing claims fell 190,000 to 5.42million! In more good news, the number of Americans that are receiving extended benefits also declined by 18,000 to 4.18million.
Next, the Department of Commerce released the monthly Durable Goods Order report. Durable goods are items that are expected to last several years such as appliances and electronics. This data basically tells market participants how busy factories will be in the months ahead. If durable goods orders are increasing, manufactures will be busier producing the goods to meet the demand. The report indicates that manufacturers will not be as busy as was expected. Durable goods orders for October posted a 0.6% decline when economists had expected a 0.5% increase. When you exclude transportation orders, durable orders fell 1.3% vs a 0.7% increase that was expected. Offsetting the bad economic news is a revision to the prior months numbers from a 1.0% increase to 2.0% rebound for September.
Also from the Department of Commerce is the Personal Income and Outlays report which shows us whether consumer income and spending is increasing or decreasing. Since our economy is driven by consumer spending, this data is closely watched by market participants. Increasing income should lead to higher spending which is good for stocks but pressures the fixed income sector lower. Personal income for October came in right on expectations with a 0.2% increase following a revised for the better 0.2%(first reported as 0.0%) increase in September. The spending component of the report indicates that the consumer is spending more money posting a 0.7% increase beating economists forecast of only a 0.5% rise. Included within this report is the Fed’s favorite measure for inflation with the Personal Consumption Expenditure which continues to show inflation to be of no concern today.
With the ever so important Christmas season staring us in the face, I would like to hear from our readers. Do you plan to spend more, less or about the same for Christmas this year as compared to prior years?
We also got another reading on how you the consumer is feeling. The University of Michigan’s Consumer Survey Center questions 500 households each month on their personal financial conditions and attitudes about the economy in their Consumer Sentiment survey. An optimistic consumer is much more likely to spend money while a pessimistic consumer is more likely to save. After peaking higher a few months ago, recent reports have indicated that consumers are becoming less optimistic as unemployment continues to rise with last month’s report dropping 4 points to 66. Economists surveyed expected a small rebound with a reading of 67 and the report came in basically in line at 67.4.
The final piece of data for the week gives us a reading on the housing sector with New Home Sales. This report totals the number of newly constructed homes with a committed sale during the prior month. Last month’s report showed new home sales falling much more than expected to an annualized pace of 402,000. Economists surveyed prior to this report are expecting a small improvement to an annualized pace of 410,000. The report shows that new home sales jumped 6.2% to an annualized pace of 430,000 beating estimates. This is the highest level since September 2008. Following the release of this report, MBS have come off their highs of the day.
At 1 pm eastern, the Department of Treasury will auction $32biilion of 7 year notes. Monday’s 2 year and yesterday’s 5 year note auction went rather well with strong demand despite a record amount of government borrowing.
Early reports from fellow mortgage professionals indicate lenders rate sheets continue to improve. The par 30 year fixed rate mortgage continues to hold in the 4.5% to 4.75% range for well qualified consumers. To secure the par rate you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs including an estimated one point loan origination/discount/broker fee. There are a few lenders offering 4.375% for consumers with exceptionally high FICO scores and loan to values under 60%.
If you are a current homeowner who has been waiting to refinance, now is the time. We are seeing about the best rates ever and there is not much room for them to continue to fall. At some point, they will start to rise and rates tend to rise much quicker than they fall. If you are still floating an interest rate, call your loan officer and lock as soon as possible. Ahead of the holiday, lenders will have itchy trigger fingers to reprice worse.
My next blog will come to you on Friday. I hope everyone has a wonderful Thanksgiving with friends and family. Don’t eat too much!
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