Mortgage Rates Still Under Attack
Posted 12-29-2009 at 08:25 AM by VictorBurek
The theme of the past week and a half continued yesterday with the fixed income markets. Mortgage backed securities and treasuries continued to move lower in price(higher in yield) for the sixth consecutive day of losses. The losses were not to severe and there was no reports of lenders repricing for the worse. Most of the losses had occurred early in the morning and were already accounted for on lender rate sheets when they were issued.
The only potentially market mover yesterday was the auction of $44billion of 2 year treasury notes. The demand was slightly above the yearly average but much lower than the previous 3 auctions. The bid from foreign investors, known as the indirect bid, was much less than normal leading many to grade the auction as apathetic. Today at 1pm, the auctions continue with the Department of Treasury offering $42billion of 5 year notes to the highest bidder. If the demand is strong, we could see an improvement in mortgage rates later today.
The S&P Case Shiller Home Price Index was released this morning. This report tracks the monthly changes in the value of residential real estate in 20 metropolitan regions across the United States. Since our economy is driven by consumer spending, home values affect the psyche of consumers. During periods of declining home values, consumers are much more likely to save money and pay off debt as they see the value of their largest investment move lower. Rising home values encourage new construction, remodeling, etc… which increases consumer spending. Many economists believe that until home prices start to move higher, our economy will have a difficult time growing. This makes tracking home sales data much more important now than in previous years.
The report showed that home prices rose, albeit slightly, for the fifth consecutive month across the 20 city index but falling short of economists’ expectations. The 20 city index rose from 146.51 to 146.58 for November following the prior month’s 0.2% increase. The biggest month over month gain was in San Francisco which saw home prices increasing 1.2% while the biggest decliner was Tampa which saw a decline of 1.6%. Year over year, home prices are down 7.3% which is slightly worse than the 7.2% decline that was expected. Year over year, the city posting the smallest decline is Denver with a -0.1% followed by my hometown Dallas at -0.6%.
The final report of the day gives us a reading on how the consumer is feeling with the Consumer Confidence report. An optimistic consumer is much more likely to spend money while a pessimistic consumer is more likely to save. After peaking in August with a 54.5 reading, it seems that consumers have lost some of the optimism. Last month’s report showed a small increase but fell short of expectations. Economists surveyed for this month’s report expect the confidence reading to register a 53.0 reading. The report showed consumers becoming more optimistic and in line with expectations with a reading of 52.9. There was no immediate reaction in the markets following the release.
Reports from fellow mortgage professionals indicates mortgage rates to be similar to yesterday’s. The par 30 year conventional rate mortgage remains in the 5.00% to 5.25% range for well qualified consumers. To secure a par interest 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. If you are seeking a 15 year term, you should expect a par rate of 4.375% to 4.50% with similar costs.
There are currently two thoughts regarding the recent move higher with mortgage rates. One side is saying that this is the start of higher mortgage rates which will continue into next year as the economy continues to improve. The other side of the argument is the recent move higher isn’t an indication of a trend for rates next year but rather due to very low volume of activity due to market participants being on vacation over the last two weeks of the year. What is your opinion? Do you feel the move higher in rates will continue into next year and the days of rates under 5% are over? Or do you feel once the first team traders come back to work from their Christmas vacations that much of the losses we have suffered will be recaptured and rates will once again move below 5%?
The only potentially market mover yesterday was the auction of $44billion of 2 year treasury notes. The demand was slightly above the yearly average but much lower than the previous 3 auctions. The bid from foreign investors, known as the indirect bid, was much less than normal leading many to grade the auction as apathetic. Today at 1pm, the auctions continue with the Department of Treasury offering $42billion of 5 year notes to the highest bidder. If the demand is strong, we could see an improvement in mortgage rates later today.
The S&P Case Shiller Home Price Index was released this morning. This report tracks the monthly changes in the value of residential real estate in 20 metropolitan regions across the United States. Since our economy is driven by consumer spending, home values affect the psyche of consumers. During periods of declining home values, consumers are much more likely to save money and pay off debt as they see the value of their largest investment move lower. Rising home values encourage new construction, remodeling, etc… which increases consumer spending. Many economists believe that until home prices start to move higher, our economy will have a difficult time growing. This makes tracking home sales data much more important now than in previous years.
The report showed that home prices rose, albeit slightly, for the fifth consecutive month across the 20 city index but falling short of economists’ expectations. The 20 city index rose from 146.51 to 146.58 for November following the prior month’s 0.2% increase. The biggest month over month gain was in San Francisco which saw home prices increasing 1.2% while the biggest decliner was Tampa which saw a decline of 1.6%. Year over year, home prices are down 7.3% which is slightly worse than the 7.2% decline that was expected. Year over year, the city posting the smallest decline is Denver with a -0.1% followed by my hometown Dallas at -0.6%.
The final report of the day gives us a reading on how the consumer is feeling with the Consumer Confidence report. An optimistic consumer is much more likely to spend money while a pessimistic consumer is more likely to save. After peaking in August with a 54.5 reading, it seems that consumers have lost some of the optimism. Last month’s report showed a small increase but fell short of expectations. Economists surveyed for this month’s report expect the confidence reading to register a 53.0 reading. The report showed consumers becoming more optimistic and in line with expectations with a reading of 52.9. There was no immediate reaction in the markets following the release.
Reports from fellow mortgage professionals indicates mortgage rates to be similar to yesterday’s. The par 30 year conventional rate mortgage remains in the 5.00% to 5.25% range for well qualified consumers. To secure a par interest 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. If you are seeking a 15 year term, you should expect a par rate of 4.375% to 4.50% with similar costs.
There are currently two thoughts regarding the recent move higher with mortgage rates. One side is saying that this is the start of higher mortgage rates which will continue into next year as the economy continues to improve. The other side of the argument is the recent move higher isn’t an indication of a trend for rates next year but rather due to very low volume of activity due to market participants being on vacation over the last two weeks of the year. What is your opinion? Do you feel the move higher in rates will continue into next year and the days of rates under 5% are over? Or do you feel once the first team traders come back to work from their Christmas vacations that much of the losses we have suffered will be recaptured and rates will once again move below 5%?
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