Weak Housing Data Takes Mortgage Rates to New 2010 Lows
Posted 06-23-2010 at 08:25 AM by VictorBurek
Mortgage rates rallied once again yesterday following very disappointing housing news from the National Association of Realtors. The NAR reported that existing home sales in May fell 2.2% when economists were expecting a 5.4% increase. This is quite troubling as the home buyer tax credit was still in effect. The weak data sparked a rally in the fixed income sector which took mortgage backed security prices to new all time highs. To remind readers, as the price of MBS moves higher, lenders can offer lower mortgage rates. Despite the rally, only a few lenders repriced better; however, we did have several lenders offering 4.375% as par for a 30 year conventional mortgage setting a new low for 2010.
Today we received a couple other reports on the housing sector. First out early this morning was the weekly Applications Survey.
The Mortgage Bankers Association application survey covers over 50% of all US residential mortgage loan applications 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 would imply consumers are seeking out lower monthly payments. If borrowers are able to qualify for lower payments, their disposable income would rise which could lead to increases 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 homebuyer tax credit expired on April 30, purchase applications have declined sharply. This was to be expected though. On the other hand, a global stock market sell-off and “flight to safety” into risk averse assets like U.S. Treasuries has helped push mortgage rates almost as far as the record lows we witnessed last spring. Low mortgage rates have led more borrowers to consider a refinance which has helped lead the MBA's refinance application index on a rally of its own over the past month. Last week’s report gave us some positive news, both purchase and refinance applications posted healthy gains. The increase in purchase applications was the first increase since the home buyer tax credit expired.
Today’s release indicated in the week ending June 18, purchase applications dipped 1.2% continuing their post stimulus trend lower as fewer people are looking to buy a new home. The refinance activity posted an even larger decline of 7.3% but this follows last week’s huge surge of 21.1%. If you’ve been considering a refinance, now continues to be a great time as mortgage rates have hit new all time lows for 2010.
Next came the release of May New Home Sales. The Census Bureau considers a new home sold when the buyers sign the sales contract. The house can be in any stage of construction: not yet started, under construction, or already completed. Typically about 25% of the houses are sold at the time of completion. The remaining 75% are evenly split between those not yet started and those under construction. Today’s report will be the first New Home Sales data without the tax credit as it expired on April 30. Last month’s report beat expectations indicating new home sales increased 14.8% to an annualized sales pace of 504,000 units which was the fastest pace of new home sales since May of 2008.
The report indicated New Home Sales for May plummeted 32.7% to an annualized pace of only 300,000 units, a record low. This is well below economists’ expectations of a pace of 400,000 units. More bad news, the supply of new homes available increased from 5.8months to 8.5months. On the news, stocks have moved lower and MBS are setting new highs in price. New home sales is a small part of the overall housing sector, but today’s report was quite troubling and points to harder times ahead for the troubled housing sector.
At 1pm, the Department of Treasury will release the results of today’s auction of $38billion of 5 year notes. Yesterday’s 2 year note auction went very well with strong demand. Since the life of a mortgage is much closer to 5 years than 2 years, today’s auction will be more relevant to rate watchers.
At 2:15pm, the Federal Open Market Committee will release their monetary policy statement. The FOMC meets 8 times a year to set our nation’s monetary policy and give an outlook on future economic growth. It is highly expected they will continue to hold the Fed Fund rate at 0 to .25%. Market participants will thoroughly review their statement for any hint as to when they plan to raise rates and their economic outlook. If the Fed paints a rosey picture of future economic activity, mortgage rates will come under pressure to increase later today.
Reports from fellow mortgage professionals indicate lender rate sheets to be similar to what we had yesterday. The par 30 year conventional rate mortgage is in the 4.375% to 4.625% 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 seeking a 15 year term, you should expect par in the 3.875% to 4.125% range with similar costs but lower FICO score requirements.
With mortgage rates at new lows for 2010 I find it hard to recommend not locking. Can rates really go much lower? We still have a treasury auction and the Fed statement to get past today. If you are still floating, continue to do so but consider locking later today. With the price increase with MBS this morning, lenders are in a position to reprice better. Keep in mind, lenders are very slow to pass along improvement but quick to take away when MBS move lower. I suspect lenders may wait until after the FOMC statement to reissue new rates… assuming MBS can hold where they currently sit.
Today we received a couple other reports on the housing sector. First out early this morning was the weekly Applications Survey.
The Mortgage Bankers Association application survey covers over 50% of all US residential mortgage loan applications 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 would imply consumers are seeking out lower monthly payments. If borrowers are able to qualify for lower payments, their disposable income would rise which could lead to increases 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 homebuyer tax credit expired on April 30, purchase applications have declined sharply. This was to be expected though. On the other hand, a global stock market sell-off and “flight to safety” into risk averse assets like U.S. Treasuries has helped push mortgage rates almost as far as the record lows we witnessed last spring. Low mortgage rates have led more borrowers to consider a refinance which has helped lead the MBA's refinance application index on a rally of its own over the past month. Last week’s report gave us some positive news, both purchase and refinance applications posted healthy gains. The increase in purchase applications was the first increase since the home buyer tax credit expired.
Today’s release indicated in the week ending June 18, purchase applications dipped 1.2% continuing their post stimulus trend lower as fewer people are looking to buy a new home. The refinance activity posted an even larger decline of 7.3% but this follows last week’s huge surge of 21.1%. If you’ve been considering a refinance, now continues to be a great time as mortgage rates have hit new all time lows for 2010.
Next came the release of May New Home Sales. The Census Bureau considers a new home sold when the buyers sign the sales contract. The house can be in any stage of construction: not yet started, under construction, or already completed. Typically about 25% of the houses are sold at the time of completion. The remaining 75% are evenly split between those not yet started and those under construction. Today’s report will be the first New Home Sales data without the tax credit as it expired on April 30. Last month’s report beat expectations indicating new home sales increased 14.8% to an annualized sales pace of 504,000 units which was the fastest pace of new home sales since May of 2008.
The report indicated New Home Sales for May plummeted 32.7% to an annualized pace of only 300,000 units, a record low. This is well below economists’ expectations of a pace of 400,000 units. More bad news, the supply of new homes available increased from 5.8months to 8.5months. On the news, stocks have moved lower and MBS are setting new highs in price. New home sales is a small part of the overall housing sector, but today’s report was quite troubling and points to harder times ahead for the troubled housing sector.
At 1pm, the Department of Treasury will release the results of today’s auction of $38billion of 5 year notes. Yesterday’s 2 year note auction went very well with strong demand. Since the life of a mortgage is much closer to 5 years than 2 years, today’s auction will be more relevant to rate watchers.
At 2:15pm, the Federal Open Market Committee will release their monetary policy statement. The FOMC meets 8 times a year to set our nation’s monetary policy and give an outlook on future economic growth. It is highly expected they will continue to hold the Fed Fund rate at 0 to .25%. Market participants will thoroughly review their statement for any hint as to when they plan to raise rates and their economic outlook. If the Fed paints a rosey picture of future economic activity, mortgage rates will come under pressure to increase later today.
Reports from fellow mortgage professionals indicate lender rate sheets to be similar to what we had yesterday. The par 30 year conventional rate mortgage is in the 4.375% to 4.625% 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 seeking a 15 year term, you should expect par in the 3.875% to 4.125% range with similar costs but lower FICO score requirements.
With mortgage rates at new lows for 2010 I find it hard to recommend not locking. Can rates really go much lower? We still have a treasury auction and the Fed statement to get past today. If you are still floating, continue to do so but consider locking later today. With the price increase with MBS this morning, lenders are in a position to reprice better. Keep in mind, lenders are very slow to pass along improvement but quick to take away when MBS move lower. I suspect lenders may wait until after the FOMC statement to reissue new rates… assuming MBS can hold where they currently sit.
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