Entries from April 2010 ↓
April 28th, 2010 — Mortgage Industry News
Today, the Federal Open Market Committee voted 9-to-1 to leave the Fed Funds Rate unchanged within in its current target range of 0.000-0.250.
In its press release, the FOMC noted that, since March, the U.S. economy “has continued to strengthen” and that the jobs markets “is beginning to improve”. This is a step up from the last meeting after which the Fed said jobs were “stabilizing”. It also reiterated that business spending “has risen significantly”.
Today’s statement marks the 7th straight press release in which the Fed shows optimism for the U.S. economy. Furthermore, the Fed has now closed all but one of the programs it created to support markets during last year’s financial crisis.
Threats remain to growth, however. The Fed fingered a few:
- Employers are reluctant to hire new workers
- High unemployment threatens consumer spending
- Consumer credit (still) remains tight
Also in its statement, the Fed re-acknowledged its plan to hold the Fed Funds Rate near zero percent “for an extended period”.This was expected.
Overall, the statement’s tone was positive and the Fed noted that inflation is within tolerance. Mortgage market reaction has been muted thus far.
The FOMC’s next scheduled meeting is a 2-day affair, June 22-23, 2010. The 55-day span between meetings will be the FOMC’s longest of 2010.
April 28th, 2010 — Mortgage Industry News
The Federal Reserve adjourns from a scheduled, 2-day meeting today. It’s one of 8 scheduled Fed meetings for 2010.
Upon adjournment, Fed Chairman Ben Bernanke & Co. will release a formal statement to the market. In it, the Fed is expected to announce “no change” in the Fed Funds Rate.
The Fed Funds Rate is currently in a target range of 0.000-0.250 percent.
The Fed Funds Rate is an inter-bank lending rate. It’s also the basis for, a consumer interest rate on which credit card payments are based, among other consumer loans. Prime Rate is equal to the Fed Funds Rate + 3 percent. Credit card rates, therefore, will likely stay flat today, too.
Mortgage rates, however, should change. Possibly by a lot. The 30-year fixed mortgage does not correlate with the Fed Funds Rate.
The reason mortgage rates will change today is because, in its statement, the Federal Reserve will highlight various parts of the economy, identifying strengths, weaknesses and probable threats to growth.
These observations influence investors with a stake in bond markets and future returns and, with Wall Street on edge right now — unsure of whether recent economic growth is a longer-term trend or a short-lived blip — mortgage rates could shoot higher or they could drop, depending on how traders interpret the Fed.
Further complicating matters is Greece’s recent debt downgrade to junk status. A small contagion fear is budding worldwide and, as a result, the flight-to-quality has picked up steam. Mortgage rates are down because of it but could reverse higher at any moment.
It may be prudent to lock your rate ahead of the Fed’s announcement and any major market reversal. Mortgage rates may fall today, but there’s very little room for them to fall. There is, however, a lot of room for them to rise.
The Fed adjourns at 2:15 PM ET.
April 27th, 2010 — Real Estate Information
The sales of newly-built homes soared in March, even more than what was expected. But the news may not be as glowing as what the mainstream media is telling us.
Take a look at the headlines from last Friday:
- Sales of new homes rocketed up 27 percent in March (WaPo)
- New-home sales rise fastest in 47 years (CNNMoney)
- Sales of New Homes Climb by Most Since 1963 (Business Week)
None of these statements is false, per se, but each is somewhat misleading. The biggest reason why March’s New Home Sales was even able to rise 27 percent is because data from the month before it — February — was the worst in New Home Sales history.
In February, new homes sold posted its lowest level in recorded history.
A better comparison would be against March a year earlier; or October 2009, the month before the home buyer tax credit’s initial expiration date.
Against both of those time periods, March 2010 fared well.
Home buyers – first-timers and repeats alike — went under contract last month, taking advantage of the soon-to-expire federal home buyer tax credit program. The credit gives up to $8,000 for first-time buyers and up to $6,500 for repeat ones.
Buyers must be in mutual contract on or before April 30, 2010 to be eligible for the credit, and must closed on or before June 30, 2010.
The New Home Sales data included other strong housing data, too. The current supply of new homes nationwide is at a multi-year low. Along with stronger home demand, this should push home prices higher throughout the coming months.
It’s no wonder builders are bullish on the economy.
April 26th, 2010 — Mortgage Industry News
Mortgage markets worsened last week in up and down trading. By the time Friday’s market closed, mortgage rates were higher across the board — ARMs, fixed, FHA and conventional.
The biggest stories of last week were actually non-stories.
First, the ash cloud from Iceland’s Eyjafjallajökull volcano dissipated, allowing warehouses to move inventory, airlines to move people, and businesses to move product. In addition, Greece moved closer to securing emergency funding that will help it stave off default.
When these two issues were threats earlier in the month, mortgage bonds rallied on safe haven buying, driving rates down. As the threats lessened over the course of last week, however, mortgage bonds sold off and mortgage rates rose.
By contrast, this week features lots of stories. Economic data will be at the forefront, as will the Federal Reserve which meets for one of its 8 scheduled meetings of the year.
- Monday : Greece is expected to announce an aid package
- Tuesday : Case-Shiller Index reports on home values from February
- Wednesday : Fed adjourns from its 2-day meeting
- Thursday : Initial Unemployment Claims are released
- Friday : GDP and consumer confidence numbers are released
Furthermore, Wall Street will have its eye on the Senate’s questioning of key Goldman Sachs employees in the wake of the SEC’s fraud charge.
In general, news that’s “good” for the U.S. economy will be bad for mortgage rates, and vice verse. And with mortgage rates changing as quickly as they have been, rates could really rise in a hurry.
The best defense against rising mortgage rates is to execute a rate lock.
April 23rd, 2010 — Real Estate Information
Existing Home Sales rose in March, as expected. U.S. home buyers closed on 7 percent more homes as compared to February.
Furthermore, versus March 2009 — a month many people equate to the low point of the U.S. economy — sales volume was up 16 percent.
“Existing home sale” is the technical term for a home resale; a home previously inhabited by a person. It’s the opposite of a “new home sale” which is a sale of a newly-constructed home.
Existing Homes Data is tracked by the National Association of Realtors® and a closer look at the March data reveals some other interesting notes:
- Year-over-year sales are higher for the 9th straight month
- Real estate investors represented 19 percent of all homes purchased
- First-time home buyers account for 44 percent of all buyers
Also worth noting is that the supply of available homes is down on a broader basis. At the current rate of sales, the existing home inventory will be exhausted in 8 months.
Despite banks releasing foreclosures and REO into the market, that’s still one half-month less from February.
When supplies drops, home prices tend to rise. It suggests an underlying strength in housing that should support home prices through the next few months — especially as the home buyer tax credit finishes working its way through the system.
April 20th, 2010 — Real Estate Information
After a strong March showing and a surprise upward-revision for February, Housing Starts are, once again, trending better.
It’s yet another signal that the housing market is stabilized.
A Housing Start is a new home on which construction has started and, over the last 6 months, home builders are averaging one half-million starts per month.
This marks the highest 6-month average since 2008 and a reading one-fifth percent better from 12 months ago. Revisions to prior data have all been higher, too.
Even more interesting, though, is that the number of newly-issued building permits is exploding. Permits were up more than 5 percent last month and have climbed back to the levels of late-2008.
Housing permits are an important data point in housing because permits are precursors to actual housing starts. According to the Census Bureau, 82% of homes start construction within 60 days of permit-issuance.
Therefore, because March’s housing permits increased, we should expect Housing Starts to continue to rise into the early months of summer.
This, too, reflects well on housing because the federal home buyer tax credit won’t be in existence this summer. The simple fact the homes are being built now shows that housing is likely to expand even after the tax credit expires.
Non-military members must be under contract by April 30, 2010 and closed by June 30, 2010 in order to claim up to $8,000 in federal tax credits.
April 19th, 2010 — Mortgage Industry News
Mortgage markets improved last week for the second week in a row. And, also for the second week in a row, rates were down on “safe haven” buying — just not for the same safe haven reasons as before.
If you’ll remember, safe haven buying is when investors sense market risk, then move money toward less risky investments.
Well, because the U.S. government backs the bonds of Fannie Mae and Freddie Mac, mortgage bonds tend to fit the “less risky” description and as Iceland’s volcanoes shut down air traffic in Europe, mortgage bonds benefited.
That was early in the week.
Then, on Friday, when the SEC announced fraud charges against Goldman Sachs, a second wave of bond buying began as Wall Street fled the stock market. Mortgage rates fell a second time and the improvement carried through the market’s weekly close.
Conforming and FHA rates are as low as they’ve been since March.
This week, there’s not much data due until Thursday, but even Thursday’s releases won’t make a huge impact on rates.
- Initial Jobless Claims : Important vis-a-vis broader employment figures. A strong number could push rates up.
- Existing Home Sales : Housing remains a key part of the economy. Strong sales are expected because of the tax credit.
- Producer Price Index : A “Cost of Living” index of business. A weak reading is expected because inflation is low.
Then, Friday, New Home Sales is released.
The bigger risk to mortgage rates this week than data is the reversal of the safe haven buying patterns that have kept mortgage rates down over the past 10 days. Keep an eye on the markets and your lock requests ready. Markets can — and do — change quickly.
You’ll want to time your lock accordingly.
April 16th, 2010 — Mortgage Industry News
According to the most recent mortgage rate survey published by Freddie Mac, the relative rate of a 5-year ARM is extremely low compared to a 30-year fixed-rate. The survey is published weekly and includes data from 125 banks across the country.
Consider this comparison:
- In April 2009, the two products ran neck-and-neck with respect to rates
- In April 2010, the two products are split by 0.99 percent
On a $200,000 home loan, that’s a difference of $117 per month to a mortgage payment.
Adjustable-rate mortgages aren’t suitable for everyone, but they can be a terrific fit given individual circumstances. For example, any one of the following scenarios could warrant a 5-year ARM:
- Buying a home with an intent to sell within 5 years
- Currently financed with a 30-year fixed mortgage with plans to sell within 5 years
- Interested in low payments and comfortable with longer-term interest rate and payment uncertainty
Additionally, homeowners with existing ARMs may want to refinance into a brand-new ARM, if only to extend the initial change date on the current note.
April 15th, 2010 — Real Estate Information
Foreclosure filings rose around 20 percent nationwide in March versus February, according to foreclosure-tracking firm RealtyTrac.com, and for the 13th straight month, total filings topped 300,000.
In addition, bank repossessions reached an all-time, quarterly record. Through the first three months of 2010, banks reclaimed more than 257,000 homes.
Nonetheless, 4 states dominated foreclosure activity nationwide.
California, Florida, Arizona and Georgia accounted for more than half of all bank repossessions. It’s a disproportionate distribution of foreclosures. Together, the 4 states represent just 23 percent of the overall U.S. population.
The RealtyTrac report revealed some other interesting statistics, too.
- Foreclosure activity was up in 40 out of 50 states last month
- Bank repossessions rose 9 percent versus the same quarter last year
- For the 13th straight quarter, Nevada topped the state foreclosure rate
Regardless of where you’re buying, foreclosures and REO are making a profound impact on pricing and product. Distressed homes are 35 percent of the overall resale market.
There’s excellent value in foreclosures out there if you know where to look, but keep these points in mind:
- Buying bank-owned homes can take 120 days to close or more. Be flexible.
- Foreclosures aren’t always listed for sale publicly. Some inventory is privately-held.
- Bank-owned homes are often sold “as is”. There may be defects that render the homes mortgage-ineligible.
The REO market can be different from the traditional “existing home” market. Therefore, if you have an interest in buying REO, be sure to talk with an experienced real estate agent first.
April 12th, 2010 — Mortgage Industry News
Mortgage markets improved last week. Against a sparse economic calendar, Wall Street turned its attention to geopolitics in Greece and the Eurozone. It didn’t like what it saw. Safe haven buying buoyed mortgage bond markets last week as pricing recaptured two-thirds of its monumental losses from the week prior.
Despite last week’s surge, however, conforming and FHA mortgage rates remain near their worst levels of the year and appear poised to increase throughout the summer months.
The U.S. economy is improving. From last week:
Pending Home Sales posted a strong monthly improvement
Wholesale Trade data pointed to higher consumer spending ahead
Inflationary threats on the economy are receding, according to the Fed
Furthermore, continuing jobless claims were down again.
Good news for the economy is generally bad news for mortgage rates. Last week, that wasn’t the case because of Wall Street’s want for “safe” assets right now. This includes mortgage bonds and is helping to keep consumer rates low. When the safe haven buying eases, rates should climb.
Meanwhile, this week, the calendar is back-heavy.
There’s no real data until Wednesday’s Consumer Price Index, and then there’s a flurry of new releases through Friday’s market close including Retail Sales, Consumer Confidence and Housing Starts.
Strength in these issues should push mortgage rates back up.
If you’re floating loans right now, be wary of market volatility. Rates have been jumpy since April 1 and mortgage rates are changing quickly. This week, locking in before Wednesday may be your safest, near-term rate locking strategy.
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