Mortgage Rates Back to Lows of 2010, More Home Sales Data
Posted 02-24-2010 at 08:15 AM by VictorBurek
Thanks to a much weaker than expected consumer confidence survey, the fixed income sector went on quite a rally yesterday. Adding more fuel to the rally was a rather strong treasury auction of 2 year notes that saw very large demand from indirect bidders. As the price gains with mortgage backed securities held through close, all lenders did reprice for the better resulting in many lenders offering 4.75% as par for a 30 year conventional rate mortgage.
The Mortgage Bankers’ Association released their weekly Applications Index which tracks the weekly change in the amount of mortgage applications at major lenders. This data gives market participants a look into consumer demand for mortgage loans. An increasing trend would indicate an increased interest in home buying which is positive for the housing industry and the economy as a whole. Additionally, when mortgage rates are low, many consumers refinance into lower mortgage rates and payments which increases disposable income that can be spent into the economy or to pay down debt. Recent surveys have shown consumer demand declining as many home owners have already refinanced and taken advantage of the low interest rates that have been available.
Last week’s survey indicated overall mortgage demand declined 2.1% with refinance activity declining 1.2% while purchase applications declined 4.0% from the prior week. This week’s survey continues to show consumer demand for mortgages slipping with the purchase index posting a weekly decline of 7.3% while refinances are down 8.9%. The decline in applications is bad news for the housing sector as prospective new home buyers are not entering the market place. We continue to expect the refinance activity to post declining numbers as most home owners have already refinanced taking advantage of last year’s historic low mortgage rates.
Of higher impact this morning was the release of New Home Sales which measures the number of newly constructed homes with a committed sale during the prior month. This report does not total the number of sales that actually closed during the prior month but does gives market participants a gauge of housing market trends and economic momentum. The purchase of a newly built home leads to many other purchases which benefits the overall economy and can lead to more construction jobs. Additionally, consumers would have to feel pretty optimistic about their financial position and future outlook to take the big step of buying a new home. The last two reports have disappointed the market as new home sales have declined; however, economists are expecting a small increase with this month’s report. Last month’s report indicated new home sales on an annualized pace of 342,000 in December and economists expected this month’s report to indicate a annualized pace of 353,000.
The release indicated new home sales in January plunged to a record low to an annualized pace of only 309,000, a decline of 11%! Immediately following the release, MBS have moved higher extending the rally of the last couple days.
We have the potential of tape bombs today with Federal Reserve Chairman Ben Bernanke delivering his semi-annual monetary policy report to the House Financial Services Committee. Anytime Chairman Bernanke speaks, market participants pay attention for any hint of future monetary policy and his outlook on the economy.
Lastly, at 1pm eastern the Department of Treasury will bring $42billion of 5 year notes to auction. When our government lacks the cash to pay for spending, they borrow the money by issuing treasuries. Since the supply is already known, market participants gauge the success of the auction by tracking the demand especially by indirect(usually foreign accounts) bids. Yesterday’s 2 year note auction went very well which helped to sustain the rally with MBS. Strong demand at today’s auction should allow MBS to hold onto the gains from yesterday.
Reports from fellow mortgage professionals indicate lender rate sheets to be improved from yesterday. The par 30 year conventional rate mortgage is once again in the 4.75% to 5.00% 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. You may elect to pay less in fees, but you will have to accept a higher interest rate. Keep in mind, securing a mortgage rate is like buying anything else, you can pay more and get a better interest rate.
I have been saying all year that for mortgage rates to fall below 4.75% we will need a shift in economic outlook or a surprise announcement from the Fed of the continuance of the MBS purchase program(I find this highly unlikely at the present time). With today’s weak housing data and yesterday’s much worse than expected Consumer Confidence report, we could be seeing the beginning of that change in outlook. If today’s auction goes well we could see further improvement with mortgage rates; however, lenders will be slow and reluctant to pass along better pricing. If you can tolerate some risk, let’s see if floating can pay off. If you are conservative and cannot afford the risk of a higher mortgage payment, go ahead and lock as rates have once again fallen to the lows of 2010.
The Mortgage Bankers’ Association released their weekly Applications Index which tracks the weekly change in the amount of mortgage applications at major lenders. This data gives market participants a look into consumer demand for mortgage loans. An increasing trend would indicate an increased interest in home buying which is positive for the housing industry and the economy as a whole. Additionally, when mortgage rates are low, many consumers refinance into lower mortgage rates and payments which increases disposable income that can be spent into the economy or to pay down debt. Recent surveys have shown consumer demand declining as many home owners have already refinanced and taken advantage of the low interest rates that have been available.
Last week’s survey indicated overall mortgage demand declined 2.1% with refinance activity declining 1.2% while purchase applications declined 4.0% from the prior week. This week’s survey continues to show consumer demand for mortgages slipping with the purchase index posting a weekly decline of 7.3% while refinances are down 8.9%. The decline in applications is bad news for the housing sector as prospective new home buyers are not entering the market place. We continue to expect the refinance activity to post declining numbers as most home owners have already refinanced taking advantage of last year’s historic low mortgage rates.
Of higher impact this morning was the release of New Home Sales which measures the number of newly constructed homes with a committed sale during the prior month. This report does not total the number of sales that actually closed during the prior month but does gives market participants a gauge of housing market trends and economic momentum. The purchase of a newly built home leads to many other purchases which benefits the overall economy and can lead to more construction jobs. Additionally, consumers would have to feel pretty optimistic about their financial position and future outlook to take the big step of buying a new home. The last two reports have disappointed the market as new home sales have declined; however, economists are expecting a small increase with this month’s report. Last month’s report indicated new home sales on an annualized pace of 342,000 in December and economists expected this month’s report to indicate a annualized pace of 353,000.
The release indicated new home sales in January plunged to a record low to an annualized pace of only 309,000, a decline of 11%! Immediately following the release, MBS have moved higher extending the rally of the last couple days.
We have the potential of tape bombs today with Federal Reserve Chairman Ben Bernanke delivering his semi-annual monetary policy report to the House Financial Services Committee. Anytime Chairman Bernanke speaks, market participants pay attention for any hint of future monetary policy and his outlook on the economy.
Lastly, at 1pm eastern the Department of Treasury will bring $42billion of 5 year notes to auction. When our government lacks the cash to pay for spending, they borrow the money by issuing treasuries. Since the supply is already known, market participants gauge the success of the auction by tracking the demand especially by indirect(usually foreign accounts) bids. Yesterday’s 2 year note auction went very well which helped to sustain the rally with MBS. Strong demand at today’s auction should allow MBS to hold onto the gains from yesterday.
Reports from fellow mortgage professionals indicate lender rate sheets to be improved from yesterday. The par 30 year conventional rate mortgage is once again in the 4.75% to 5.00% 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. You may elect to pay less in fees, but you will have to accept a higher interest rate. Keep in mind, securing a mortgage rate is like buying anything else, you can pay more and get a better interest rate.
I have been saying all year that for mortgage rates to fall below 4.75% we will need a shift in economic outlook or a surprise announcement from the Fed of the continuance of the MBS purchase program(I find this highly unlikely at the present time). With today’s weak housing data and yesterday’s much worse than expected Consumer Confidence report, we could be seeing the beginning of that change in outlook. If today’s auction goes well we could see further improvement with mortgage rates; however, lenders will be slow and reluctant to pass along better pricing. If you can tolerate some risk, let’s see if floating can pay off. If you are conservative and cannot afford the risk of a higher mortgage payment, go ahead and lock as rates have once again fallen to the lows of 2010.
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