The Mortgage Rundown

Mortgage markets improved last week in a week of few economic releases. The one major data point — Retail Sales — showed stronger-than-expected, but markets reacted mildly. The report’s strength was whispered in advance of the actual release; its reading validated Wall Street’s growing faith in the U.S. economy.

Most action last week revolved around the Middle East:

• Libya’s internal turmoil continued
• Bahrain clashes intensified
• Saudi Arabia’s citizens planned a Day of Rage

In response to these events, Wall Street continued its flight-to-quality. Mortgage-backed bonds are now at their best levels since early-February. Mortgage rates have improved 4 straight weeks.

Unfortunately for rate shoppers in Nebraska , the gains have been meager. Conforming mortgage rates have only dropped slightly.

This week, however, the market could move in either direction.

The biggest news on tap is the Federal Open Market Committee’s 1-day meeting, scheduled for Tuesday. The Fed is expected to leave the Fed Funds Rate near 0.000 percent, but that doesn’t mean that mortgage rates won’t change. The FOMC’s post-meeting press release will be closely scrutinized on Wall Street. Any changes in theme, tone, or message will cause mortgage rates to dart.

This week also marks the return of housing data with Housing Starts, Building Permits, and Homebuilder Confidence due for release. Housing is believed to be key to the economic recovery so strength in these reports should lead mortgage rates higher.

In addition, several inflation-related data sets will be released including Consumer Price Index and Producer Price Index. Inflation is generally bad for mortgage rates and with gas prices rising to a multi-year high, pressure will be on for mortgage rates to rise.

Lastly, there’s Japan.

The nation’s earthquake, tsunami, and (now) looming nuclear threat will have implications on the global bond market. Mortgage rates may benefit while the crisis remains unresolved. 

If you’ve floated a mortgage rate over the past few weeks, it may be time to lock that rate down. Economic factors should be pushing rates higher, but geopolitics and natural disasters are keeping them low.

It’s a perfect time to commit to a loan.

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Mortgage markets improved last week as Wall Street’s concerns about the Middle East trumped its fears of inflation. Conforming and FHA mortgage rates in Nebraska fell to a 3-week low.

Last week marked the second straight week in which mortgage rates fell, a streak that follows four straight weeks of climbing mortgage rates.

It’s been a bout of good fortune for rate shoppers and home buyers.

In addition, according to Freddie Mac’s weekly mortgage rate survey, the average spread between conforming 30-year fixed rate mortgages and 5-year ARMs has widened further.

The two benchmark products are now separated by 1.15%. It’s the largest interest rate gap in recent history; one that yields a monthly payment difference of $68 per $100,000 borrowed.

This week, it’s unclear in what direction mortgage rates will go.

On one side, there’s ongoing unease related to protests in Libya and its neighbors, and that’s driving safe haven buying. 

“Safe haven buying” describes when investors flee risky situations and put their money in the safest places possible. Mortgage bonds are one such place, so when safe haven buying is in effect, bond demand is high so bond yields (i.e. mortgage rates) fall.

On the other side, inflation is ramping up.

Recent economic data shows that the economy is expanding, and the Federal Reserve is maintaining its accommodative growth policies. Therefore, this week, the key economic event will be Friday’s jobs report. if job creation is high, expect inflation fear to re-ignite, and mortgage rates to rise.

Another risk factor for this week’s rate shoppers is that tensions begin to settle in the Middle East, or that Wall Street gets more comfortable with rising oil prices. If that happens, safe haven buying will subside and mortgage rates will resume rising.

There appears to be more reasons for mortgage rates to rise this week than for them to fall. Plan accordingly.

If you have not locked a mortgage rate yet, this week may represent your last chance to get a low one. Talk to your loan officer and make a plan.

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Mortgage markets worsened terribly last week. Amid more reports of an improving economy and fears of pending inflation, mortgage rates skyrocketed to their highest levels since April 2010. 

According to Freddie Mac, mortgage rates made their largest 1-week jump in more than a year last week, tacking on 0.24 percent and bringing the average national 30-year fixed mortgage rate up to 5.05%.

In some markets, rates are even higher.

Since bottoming out in Freddie Mac’s November 11 survey, conforming, 30-year fixed mortgage rates are now higher by close to a full percentage point. Home buyers in Omaha and across the nation have lost more than 10% of their purchasing power during that time.

Rates have also been on a historic run higher, increasing over 9 consecutive days for the first time in almost a decade. That streak ended Friday with rates dropping slightly, and rate shoppers are hopeful the momentum lower continues into this week.

It’s not likely. The week is loaded of housing data and housing has been trending better. More strong figures will bolster stock markets at the expense of bonds, driving mortgage rates higher for the 4th week in a row.

In addition, inflation-related figures will be released. That, too, can have a negative impact on mortgage rates.

• Monday : NAHB Homebuilder Confidence Survey
• Tuesday : Retail Sales, Consumer Confidence
• Wednesday : Building Permits, Housing Starts, Producer Price Index, FOMC Minutes
• Thursday : Consumer Price Index

Markets should increase in volatility as the week progresses because of the looming 3-day weekend. Volume will be light Friday in advance of President’s Day.

If you haven’t yet locked your mortgage rate, the time to act is soon — possibly now. Mortgage rates are well off their historical lows, but still relatively inexpensive. Before long, that may no longer be the case.

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Mortgage markets worsened last week as Wall Street came to terms with the expanding economy; and realized the Federal Reserve may be trying to induce inflation.

Better-than-expected retail sales and positive job growth buoyed stock markets and sank bonds.

Mortgage rates in Nebraska rose for the 4th time in 5 weeks last week, extending a losing streak which dates back 4 months.

Today, fixed, conforming rates are three-quarters of a percent higher as compared to the market’s low point, November 3, 2010. For a $200,000 home loan, that size rate hike equates to an increase in a monthly mortgage payment of $89 per month.

Mortgage rates are at their highest levels of the year and, this week, they may continue ticking higher.

There isn’t much data set for release this week so markets will take their cues from two major events — one economic and one political.

The major economic event is Fed Chairman Ben Bernanke’s testimony to the House Budget Committee late-Wednesday. Chairman Bernanke is expected to speak about employment, but will likely touch on other topics of import including economic growth, the U.S. dollar, and the nation’s debt ceiling.

The Fed Chairman’s comments will move mortgage rates in one direction or the other, so locking in advance of his testimony may be prudent. Mortgage rates have more room to rise than to fall, after all.

The second major event is Egypt’s ongoing political strife. By Thursday of last week, Wall Street had shrugged off the region’s crisis and unwound the safe-haven trades that had helped mortgage rates during the week prior.

If instability returns, mortgage rates, once again, will be pressured lower.

Regardless of your rate-locking plan for this week, it’s important to recognize that, although rates have risen, they’re still well below historical average. Therefore, rates may have a lot of room to move higher, still.

If you’re shopping for a mortgage, or are now under contract, consider locking your rate as soon as possible.

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Mortgage markets improved this week as positive economic data was overshadowed by geopolitical strife. A flight-to-quality drove buy-side activity in mortgage bond markets, which, in turn, helped conforming rates fall across the state of Nebraska.

Last week marks the first time this year that mortgage rates fell on a week-over-week basis, and considering why rates fell, it points to the fragile nature of the global economy.

By all accounts, last week showed that the U.S. economy is in recovery.

1. Housing data rises to its best levels in 8 months (LA Times)
2. Consumer sentiment hit a 7-month high (NPR)
3. Business investment increased 1.4% in December

Furthermore, the Federal Open Market Committee met last week and said that the economy continues to expand (although the pace is slower-than-optimal).

Normally, positive news like this would drive mortgage rates higher, and during the early part of the week, it did. But then, as political problems in Egypt grew larger, international investors began to shift money from their risky assets into the relative safety of the U.S. bond market.

This includes mortgage-backed bonds, of course. The buyer influx pushed up prices and, because bond yields move opposite price, mortgage rates dropped.

The week ended with rates at their lowest levels of the week.

Next week, though, rates could reverse. There’s two developing stories rate shoppers should watch.

The first is related to Egypt. In addition to buying mortgage-backed bonds, investors are gambling that oil prices will rise, too. Egypt is the world’s 21st largest oil producer and a disruption of its supply could send gas prices soaring. This circumstance would be inflationary and inflation is the enemy of mortgage bonds.

Crude oil jumped 4.3% Friday afternoon. If that continues, mortgage rates should start rising.

The second is tied to jobs. Last month’s jobs data was weaker-than-expected on Wall Street and it sparked a mini-rally in mortgage rates to start the year. Jobs are paramount to economic recovery so if this month’s figures are lower than the consensus figure of 150,000, expect mortgage rates in Omaha to fall.  If the number is stronger than 150,000, expect mortgage rates to rise.

The jobs report is released Friday at 8:30 AM ET.

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Mortgage markets worsened last week as the U.S. economy showed additional signs of strength; and global demand for mortgage bonds slipped.

Conforming mortgage rates rose in Nebraska and around the country for the fifth straight week. It’s a streak that’s been marked by volatile pricing that’s rendered rate shopping difficult.

Last week, lenders published as many as 5 rate sheets per day where, by comparison, over the past 12 months, lenders have averaged closer to 2 rate sheets per day.

This week, with a bevy of data set for release and a Federal Open Market Committee meeting, expect volatility to remain high. Wall Street remains undecided on the future of the U.S. economy and there will be plenty on information on which to trade:

• Tuesday : Producer Price Index, Retail Sales
• Wednesday : Consumer Price Index, Housing Market Index
• Thursday : Housing Starts, Initial and Continuing Jobless Claims

Despite the high impact of this week’s economic releases, though, it will be Tuesday’s FOMC meeting that sets the tone for the mortgage bond market and, consequently, for mortgage rates in Omaha.

The Fed’s last meeting in early-November provided the spark to the recent rise in mortgage rates. In the group’s post-meeting press release, it acknowledged growth while committing $600 billion to bond markets. The move triggered a massive bond sell-off that has since pushed conforming mortgage rates to a 5-month high.

The Fed adjourns at 2:15 PM ET Tuesday afternoon.

If you’re still floating a mortgage rate or have otherwise yet to lock, consider executing a rate lock agreement early in the week. Once the Federal Open Market Committee adjourns, mortgage rates could spike again. And, although rates are up since November, they remain historically low.

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Mortgage markets lost ground last week on growing optimism for the economy, a poor run for the dollar versus the euro, plus the lingering concerns that inflation will grip the U.S. long-term.

Conforming mortgage rates in Nebraska rose for the fourth week in a row, stymying rate shoppers and raising the effective cost of homeownership for new buyers in need of a mortgage.

After a spectacular run that drew 30-year fixed rates to near 4.00, mortgage rates have returned to their highest levels since late-June.

Last week was heavy on news. Bond traders were hit with the Beige Book; with the ADP Challenger Report; with the ISM Manufacturing Report; and, with Pending Home Sales data for October. Each release moved markets.

Only Friday’s Non-Farm Payrolls report kept mortgage rates from really soaring.

According to the government, 39,000 net new jobs were created in November, and September’s and October’s data was revised higher by a combined 38,000.  The sum of these figures fell well short of Wall Street expectations — investors has expected 146,000 net new jobs in November.

As a result, mortgage rates made their largest, intra-day improvement of the year Friday morning, although they slid higher through the afternoon. Rates fell 1/8 percent Friday as compared to Thursday and rate shoppers may see that momentum carry forward into this week.

Fed Chairman Ben Bernanke gave a televised interview Sunday evening in which he said, among other things:

1. “The fear of inflation is way overstated.”
2. Additional bond market support is “certainly possible”.

Both comments should help to allay inflation concerns, and may lead mortgage rates lower this week. If you’re floating a mortgage rate, keep a watchful eye on markets and be especially wary if mortgage rates start to rise again. November was rough on mortgage bonds.

If December follows suit, expect mortgage rates to approach 6 percent.

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In a holiday-shortened week on Wall Street, mortgage markets improved on 3 of 4 days, but still posted its fourth consecutive losing week.

Unfortunately for rate shoppers and home buyers in Nebraska , last week’s 3 days of gains were mild improvements; the one day of deterioration was among the Top 10 worst days for mortgage bonds this year.

Mortgage rates in Omaha are at their highest levels since mid-July. The Refi Boom is unwinding quickly.

Last week underscores the importance of the global community to the future of the U.S. mortgage market. Two of the main reasons why mortgage rates increased were non-domestic.

1. Concerns for a full-blown North Korea/South Korea conflict lessened quickly
2. The likelihood of a speedy, $85 billion bailout Ireland increased

The two events stemmed the typical safe-haven buying patterns that accompany geo-political and economic uncertainty, and drive down mortgage rates.

This week, mortgage rates may rise again.

First, Ireland’s bailout package was signed Sunday morning and that relieves some pressure on the European Union.  Second, this week’s economic releases should show that the U.S. economy is still expanding, and that U.S. consumers are still spending — both are tied to higher rates.

A sampling of the week’s releases include:

• Tuesday : Case-Shiller Index; Consumer Confidence surveys
• Thursday : Initial and Continuing Jobless Claims; Pending Home Sales
• Friday : Non-Farm Payrolls; Unemployment Rate

If you haven’t locked a mortgage rate and are waiting for “the bottom”, remember that the mortgage market waits for no one. Rates are much higher since the start of November and look ready to rise even higher.  Call your loan officer and get your application in process this week.

The longer you wait, the higher that rates could go.

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Mortgage markets worsened last week as the U.S. dollar gave up ground in currency markets, and inflation concerns mounted. In response to the events, conforming mortgage rates in Nebraska rose for the third straight week.

Mortgage rates have now climbed by as much as half-percent since the start of the month, and Freddie Mac reports average loan fees to be higher, too.

The 7-month rally in rates may be nearing its end. The 30-year fixed rate mortgage is at a 4-month high after reaching an all-time low just 3 weeks ago.

The abrupt change in rates makes for an interesting study in expectations, and how they can influence a market.

Remember, inflation is bad for mortgage rates. Inflation devalues the dollar which, as a consequence, devalues repayments made to mortgage bond holders. As a result, when inflation is present, mortgage bonds tend to sell-off which causes mortgage rates to rise.

This is what’s been happening these past 3 weeks. However, we’re not in an inflationary environment. To the contrary:

1. The Federal Reserve has said inflation is too low to be economically healthy
2. Last week, the Cost of Living posted its lowest year-over-year gain in history

But mortgage rates are rising anyway. This is because global investors believe the Fed’s most recent market intervention — a $600 billion bond purchase program — will later lead to inflation. Just on the expectation, markets are behaving like inflation is already here.

This week is holiday-shortened, and rates should remain volatile. There’s a bevy of data including the Existing and New Home Sales reports, consumer confidence data, and the FOMC Minutes from the November 3 meeting.

If you haven’t locked a mortgage rate, consider locking one today. Rates have farther to climb than the fall.

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In a holiday-shortened trading week, mortgage markets tanked last week, casting doubt on whether the bond market’s 7-month bull run will continue. Fears of inflation caused conforming mortgage rates to rise in Nebraska.

Last week marked the first sizable mortgage rate increase over the course of 7 days since April.

The biggest reason why rates rose last week was because of concerns that the Federal Reserve’s latest round of stimulus will devalue the U.S. dollar.

The Fed pledged an additional $600 billion to the bond markets two weeks ago and, to meet this obligation, the group will have to, quite literally, print new money.

It’s Supply and Demand. With more dollars in circulation, every existing dollar is worth less.

It’s also inflationary.

As the Fed’s pledge ties back to mortgage rates, remember that mortgage bondholders are paid in U.S. dollars. So, if those dollars are expected to be worth less in the future, we would expect mortgage bond demand to fall. And that’s exactly what happened last week — investors rarely clamor for assets whose value drops over time.

The falling demand dropped down prices, and pushed up yields. Mortgage rates spiked.

This week, the trend could continue. There’s a lot of inflation-signaling data on tap:

• Monday : Retail Sales
• Tuesday : Producer Price Index; Consumer Confidence; Housing Market Index
• Wednesday : Consumer Price Index; Housing Starts
• Thursday : Initial and Continuing Jobless Claims

Analysts are calling for lukewarm data this week; none of the releases is expected to show strong growth. If the analysts are wrong, look for rates to rise again.

Momentum is moving away from rate shoppers. If you’ve yet to lock in a rate, consider doing it now.

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