Mortgage Rates Holding at Aggressive Levels
Posted 06-02-2010 at 08:13 AM by VictorBurek
We had a relatively tame day in the fixed income sector yesterday. Mortgage backed securities opened higher following a higher close on Friday which allowed lenders to pass along better rate sheets compared to what we had at the end of last week. As the day progressed, stocks moved from negative terroritory to positive terroritory only to close near the lows of the day. As stocks bounced around, MBS traded with very little volatility which kept lender rate sheets unchanged on the day.
This morning the markets received 2 economic reports on the health of the important U.S. housing market. First was the weekly Mortgage Bankers Associations Applications Index. The Weekly Applications Survey covers over 50% of all US residential mortgage loan applications taken by mortgage bankers, commercial banks, and thrifts. The data gives economists a look into consumer demand for mortgage loans. In a low mortgage rate environment, a trend of increasing refinance applications implies consumers are seeking out lower monthly payments which can result in increased disposable income and consumer spending (or give consumers a chance to pay down other debts like credit cards). A rising trend of purchase applications indicates an increase in home buying interest, a positive for the housing industry and the economy as a whole.
Since the end of the home buyer tax credit, this report has offered no surprises. Purchase applications have fallen sharply but low mortgage rates has helped to spark another refinance boom. Today’s report is more of the same. Purchase applications in the week ending May 28 fell -4.1% to the lowest level in over 13 years. On the other hand, refinances have increased for the fourth consecutive week moving higher by another +2.4%. If you have been considering a refinance, now is a great opportunity as mortgage rates are near the all time record low.
Our final report on the day was Pending Home Sales from the National Association of Realtors(NAR). This data shows the monthly change in the amount of existing homes, not new construction, in which a contract has been signed, but has not closed. This is a leading indicator of housing activity and economic momentum as consumers would have to feel pretty confident about their own finances to purchase a home. Additionally, when a home is purchased, there are many other items needed to furnish the home, this adds to consumer spending which benefits the overall economy. This data has a two month lag so today’s report gives us data for April.
The NAR reported that Pending Home Sales rose 6% in April, which was higher than the 5% increase that was expected. Year over year, pending home sales are up 22% thanks to very low mortgage rates and the Home Buyer Tax Credit. With the expiration of the tax credit, market participants will pay a great deal of attention to upcoming Pending Home Sales report to see what impact the expiration will have on the housing demand which is crucial to our overall economic recovery.
Reports from fellow mortgage professionals indicate lender rate sheets to be similar to yesterday. The par 30 year conventional rate mortgage remains in the 4.625% to 4.875% range for well qualified consumers. To secure a par interest rate on a conventional mortgage 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 accessing equity in your home, you should expect either higher closing costs or a slight bump to the interest rate.
Like yesterday, I continue to favor locking as mortgage rates continue to hold near historic lows. If you wish to float in hopes of rates dipping further, keep an eye on stocks. If stocks move higher, rates will move higher. If stocks continue to sell, rates will either hold at present levels or decline further. There isn’t much room for rates to move lower, so you do have more to risk by floating than to gain. Remember, mortgage rates will always rise much faster than they will ever decline.
This morning the markets received 2 economic reports on the health of the important U.S. housing market. First was the weekly Mortgage Bankers Associations Applications Index. The Weekly Applications Survey covers over 50% of all US residential mortgage loan applications taken by mortgage bankers, commercial banks, and thrifts. The data gives economists a look into consumer demand for mortgage loans. In a low mortgage rate environment, a trend of increasing refinance applications implies consumers are seeking out lower monthly payments which can result in increased disposable income and consumer spending (or give consumers a chance to pay down other debts like credit cards). A rising trend of purchase applications indicates an increase in home buying interest, a positive for the housing industry and the economy as a whole.
Since the end of the home buyer tax credit, this report has offered no surprises. Purchase applications have fallen sharply but low mortgage rates has helped to spark another refinance boom. Today’s report is more of the same. Purchase applications in the week ending May 28 fell -4.1% to the lowest level in over 13 years. On the other hand, refinances have increased for the fourth consecutive week moving higher by another +2.4%. If you have been considering a refinance, now is a great opportunity as mortgage rates are near the all time record low.
Our final report on the day was Pending Home Sales from the National Association of Realtors(NAR). This data shows the monthly change in the amount of existing homes, not new construction, in which a contract has been signed, but has not closed. This is a leading indicator of housing activity and economic momentum as consumers would have to feel pretty confident about their own finances to purchase a home. Additionally, when a home is purchased, there are many other items needed to furnish the home, this adds to consumer spending which benefits the overall economy. This data has a two month lag so today’s report gives us data for April.
The NAR reported that Pending Home Sales rose 6% in April, which was higher than the 5% increase that was expected. Year over year, pending home sales are up 22% thanks to very low mortgage rates and the Home Buyer Tax Credit. With the expiration of the tax credit, market participants will pay a great deal of attention to upcoming Pending Home Sales report to see what impact the expiration will have on the housing demand which is crucial to our overall economic recovery.
Reports from fellow mortgage professionals indicate lender rate sheets to be similar to yesterday. The par 30 year conventional rate mortgage remains in the 4.625% to 4.875% range for well qualified consumers. To secure a par interest rate on a conventional mortgage 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 accessing equity in your home, you should expect either higher closing costs or a slight bump to the interest rate.
Like yesterday, I continue to favor locking as mortgage rates continue to hold near historic lows. If you wish to float in hopes of rates dipping further, keep an eye on stocks. If stocks move higher, rates will move higher. If stocks continue to sell, rates will either hold at present levels or decline further. There isn’t much room for rates to move lower, so you do have more to risk by floating than to gain. Remember, mortgage rates will always rise much faster than they will ever decline.
Total Comments 0
