Mortgage Rates Continue to Hold Near Record Low
Posted 07-28-2010 at 07:57 AM by VictorBurek
Volatility picked up in the interest rates market yesterday as the market absorbed good and bad news. Following a better than expected reading on home prices, stocks rallied pressuring benchmark treasuries and mortgage backed securities lower in price higher in yield. However, following a worse than expected reading on consumer confidence the tide shifted. MBS managed to recapture the early morning losses to basically close unchanged on the day despite treasury yields moving higher once again. A couple lenders who issued rate sheets early did reprice better but all other lenders left rate sheets unchanged on the day.
We have a couple economic reports that hit the news wires this morning and our second treasury auction of the week. First out was the Mortgage Bankers Association’s Weekly Applications Survey.
The MBA loan applications survey covers over 50% of all US residential mortgage apps taken by mortgage bankers, commercial banks, and thrifts. Survey data gives economists a sample of consumer demand for mortgage loans. In a low mortgage rate environment, a trend of increasing refinance applications could imply more consumers are seeking out lower monthly payments. If more homeowners are able to qualify for lower payments, their disposable income would increase which could lead to a rise in consumer spending (or give consumers a chance to pay down other debts like credit cards). A falling trend of purchase applications indicates consumer demand for new and existing homes is on the decline, a negative for the housing industry and the economy as a whole.
Since the end of the government stimulus for home buyers, purchase applications have steadily plummeted as many buyers pulled forward their purchase plans to take advantage of the tax credit. On the other hand, we have seen a large increase in refinances due to the recent decline of mortgage rates to record lows. Last week’s report did offer some good news on purchase applications as they posted a 3.4% increase for only the second increase in the survey in the past 10 weeks.
In the week ending July 23, purchase applications posted a 2.0% increase and is the highest level seen since the end of the home buyer tax credit. Refinance applications posted a 5.9% decline. With mortgage rates at record lows, a decline in refinances might indicate that most people who can qualify for a new mortgage has already done so leaving a smaller pool of eligible home owners.
Our final report on the day and of higher relevance was Durable Goods Orders. This data measures the number of new orders placed at U.S. factories for products that are expected to last at least three years. This would include items such as computers, appliances, and electronics. This report tells economists how busy factories will be in the months ahead. Increasing orders implies there is more potential for higher corporate revenues and profits. It could also imply that firms would need to hire additional staff to ensure they keep up with growing orders. This is a positive for the overall economy and stocks...but a negative for the fixed income sector/interest rates.
The report was pretty dismal. Durable Goods Orders in June fell -1.0% when economists were expecting a +1.0% increase. This was the biggest decline in orders since last August and the second straight month for declining orders. When excluding transportation orders, orders fell -0.6% also worse than the +0.3% increase that was expected. After the release, stock market futures fell while benchmark treasuries and MBS moved higher in price.
At 1pm, the Department of Treasury will release the results of today’s auction of $37billion of 5 year notes. Yesterday’s 2 year auction was good enough to keep yields from rising further. Since the life of a mortgage is much closer to 5 years than 2 years, today’s auction can have a larger impact on mortgage rates.
At 2pm the Federal Reserve will release the Beige Book, named that simply for the color of its cover. The Beige Book is a compilation of anecdotal information and data on current economic conditions across the country. The findings are not the views of Federal Reserve officials...instead, each Federal Reserve bank interviews key business contacts, economists, market experts, and other sources in their specific district. This report is published eight times a year and is used by Fed officials at the Federal Open Market Committee meeting where our nation’s monetary policy is set.
The best 30 year fixed mortgage rates remain in the 4.375% to 4.625% range for well qualified consumers. Most loans continue to be locked at 4.50%. To secure the best rates you will be required to pay all closing costs. If you are seeking a 15 year term, the rates remain in the 3.875% to 4.125% range.
Rates continue to hold at record low levels and the market has proven it does not want to drive MBS prices even higher which would allow lenders to lower rates from current levels. I favor locking all loans closing within the next 30 days. The only loans I would float would be ones that are a day away from a shorter lock period which would offer slightly better pricing.
We have a couple economic reports that hit the news wires this morning and our second treasury auction of the week. First out was the Mortgage Bankers Association’s Weekly Applications Survey.
The MBA loan applications survey covers over 50% of all US residential mortgage apps taken by mortgage bankers, commercial banks, and thrifts. Survey data gives economists a sample of consumer demand for mortgage loans. In a low mortgage rate environment, a trend of increasing refinance applications could imply more consumers are seeking out lower monthly payments. If more homeowners are able to qualify for lower payments, their disposable income would increase which could lead to a rise in consumer spending (or give consumers a chance to pay down other debts like credit cards). A falling trend of purchase applications indicates consumer demand for new and existing homes is on the decline, a negative for the housing industry and the economy as a whole.
Since the end of the government stimulus for home buyers, purchase applications have steadily plummeted as many buyers pulled forward their purchase plans to take advantage of the tax credit. On the other hand, we have seen a large increase in refinances due to the recent decline of mortgage rates to record lows. Last week’s report did offer some good news on purchase applications as they posted a 3.4% increase for only the second increase in the survey in the past 10 weeks.
In the week ending July 23, purchase applications posted a 2.0% increase and is the highest level seen since the end of the home buyer tax credit. Refinance applications posted a 5.9% decline. With mortgage rates at record lows, a decline in refinances might indicate that most people who can qualify for a new mortgage has already done so leaving a smaller pool of eligible home owners.
Our final report on the day and of higher relevance was Durable Goods Orders. This data measures the number of new orders placed at U.S. factories for products that are expected to last at least three years. This would include items such as computers, appliances, and electronics. This report tells economists how busy factories will be in the months ahead. Increasing orders implies there is more potential for higher corporate revenues and profits. It could also imply that firms would need to hire additional staff to ensure they keep up with growing orders. This is a positive for the overall economy and stocks...but a negative for the fixed income sector/interest rates.
The report was pretty dismal. Durable Goods Orders in June fell -1.0% when economists were expecting a +1.0% increase. This was the biggest decline in orders since last August and the second straight month for declining orders. When excluding transportation orders, orders fell -0.6% also worse than the +0.3% increase that was expected. After the release, stock market futures fell while benchmark treasuries and MBS moved higher in price.
At 1pm, the Department of Treasury will release the results of today’s auction of $37billion of 5 year notes. Yesterday’s 2 year auction was good enough to keep yields from rising further. Since the life of a mortgage is much closer to 5 years than 2 years, today’s auction can have a larger impact on mortgage rates.
At 2pm the Federal Reserve will release the Beige Book, named that simply for the color of its cover. The Beige Book is a compilation of anecdotal information and data on current economic conditions across the country. The findings are not the views of Federal Reserve officials...instead, each Federal Reserve bank interviews key business contacts, economists, market experts, and other sources in their specific district. This report is published eight times a year and is used by Fed officials at the Federal Open Market Committee meeting where our nation’s monetary policy is set.
The best 30 year fixed mortgage rates remain in the 4.375% to 4.625% range for well qualified consumers. Most loans continue to be locked at 4.50%. To secure the best rates you will be required to pay all closing costs. If you are seeking a 15 year term, the rates remain in the 3.875% to 4.125% range.
Rates continue to hold at record low levels and the market has proven it does not want to drive MBS prices even higher which would allow lenders to lower rates from current levels. I favor locking all loans closing within the next 30 days. The only loans I would float would be ones that are a day away from a shorter lock period which would offer slightly better pricing.
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