Mortgage Rates Holding Near Lifetime Lows, The Week Ahead

The bond market was closed yesterday in honor of Columbus day.

Today brings us two relevant events that could impact mortgage rates. Of lesser importance is a treasury auction of $32billion of 3 year notes at 1pm. This auction will carry less weight than tomorrows 10 year note auction as the life of a mortgage is much closer to 10 years than it is to 3 years. Strong demand for our nation’s debt is one of several factors that have attributed to mortgage rates holding near record lows.

Of much higher potential impact today will be the release of the minutes from the last Federal Open Market Committee meeting where our nation’s monetary policy is set. Mortgage rates would benefit with continued speak of no inflationary pressures and a stagnating economic recovery, but if they mention inflation is creeping higher or the economic recovery is picking up momentum rates will suffer. Market participants will also scour the report for any discussion of more involvement from the Fed in the purchasing of more government debt which would be very good news for mortgage rates.

As for the rest of the week, the economic data picks up Thursday and Friday with some high impacting reports. Thursday we get International Trade, weekly jobless claims and Producer Prices. The Producer Price Index(PPI) tracks inflationary pressures at the producer level and is the most important release of the day. The Fed has stated over and over that inflation is of little concern today and all recent reports have confirmed that. Inflation is one of the largest enemies of low interest rates, so all reports on inflation can impact rates quickly.

The week comes to an end with the most important releases of the week. At 8:30am, we get two high impacting reports, CPI and Retail Sales. The Consumer Price Index measures inflationary pressures at the consumer level while Retail Sales measures the monthly change in the total receipts at stores that sell durable and non-durable goods. Bonds and mortgage rates would benefit with lower than expected inflation and retail sales. We also get the release of the University of Michigan’s Consumer Sentiment survey. This report lets market participants know whether the consumer is optimistic about the economy or pessimistic. An optimistic consumer is more likely to spend which benefits stocks and corporate profits, while a pessimistic consumer is more likely to save and pay down debt which supports low interest rates.

The par 30 year conventional rate mortgage remains in the 4.00% to 4.25% range for well qualified consumers. Rates below 4% are still available but they will cost a extra at closing. If you are seeking a shorter term mortgage, 15 year terms continue to hold at 3.5% to 3.75%. To be considered well qualified, you must have a FICO credit score of 740 or higher. Lower FICO scores will either have to take a higher interest rate or pay additional costs due to Loan Level Price Adjusters(LLPA’s). A consumer with a 680 FICO score and a loan to value at 80% will have to pay an additional 1.5% of the loan amount to get the same rate quote as a person with a 740 score. As a note, LLPA’s are not factored in when choosing a 15 year term so a 680 score gets the same quote as a 740 score.

With rates holding near record lows (record lows were set Friday morning), I favor locking all loans closing within 10 days. Longer term closings can float for now but stay alert. Whenever floating you must be prepared to lock quickly as rates always rise much faster than they fall.