Mortgage Rates Rally, Still in the Range

Mortgage rates extended their gains for the second day in a row yesterday. News from China, they announced a surprise rate hike, led our stock market lower which allowed money to flow into US Treasury debt and mortgage backed securities. Later in the trading day, it was announced that Bank of America might be forced to buy back $47billion of loans they previously sold to investors. This added more pressure on stocks and allowed more money to flow into the debt markets. By day’s end, all lenders had repriced for the better lowering consumer borrowing costs.

The light economic data theme continued today with only two releases. First, the Mortgage Bankers Association released their weekly Applications Survey. The MBA application 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 a lower monthly payment which can increase disposable income and consumer spending (or give consumers a chance to pay down other debts like credit cards). A falling trend of purchase applications indicates a decline in home buying interest, a negative for the housing industry and the economy as a whole. The purchase index fell 6.7% for a second straight week of steep declines indicating more problems ahead for housing sales. The refinance index fell 11.2% but that follows a robust 21.0% increase last week as home owners rushed to get applications in when mortgage rates fell to historic lows.

The only other release today comes at 2pm when the Federal Reserve releases 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 released two weeks before each FOMC meeting. Much of the information is already known so its impact on the markets is also minimal. Since it is used at the FOMC meeting where our nation’s monetary policy is set, market participants scour the book for any hint of future monetary policy and the outlook for our economy.

Lender rate sheets are similar to yesterday’s repriced sheets. The par 30 year conventional rate mortgage has fallen to the 4.00% to 4.25% range for well qualified consumers. Lower rates are available, but the cost to buy down the rate is not homeowner friendly. If you are seeking a 15 year term, par continues to hold in the 3.50% to 3.75% range.

I continue to favor floating all loans closing in over 2 weeks, but if you are closing in the near term you might want to consider locking later today. Since Friday, lender rate sheets have improved considerably so it is time to lock in the gains and remove all risk.