We saw rates deteriorate quickly this morning after the jobless claims report was issued. For the first time in a long time, the claims fell below 300,000 sparking the fire that saw MBS falter and rates move up. The question is whether or not this “good economic news” will be supported by other reports of our economy moving in the right direction. Time will tell as we wait upon new insights of our “improving” economy………
Rates drifted down slightly across the board in the past week. Freddie Mac announced that for the week ending July 17, 30-year fixed rates decreased slightly to 4.13% from 4.15% the week before. The average for 15-year loans ticked down to 3.23%. Adjustables were also stable but lower in the past week with the average for one-year adjustables falling slightly to 2.39% and five-year adjustables decreasing marginally to 2.97%. A year ago 30-year fixed rates were at 4.37%. Attributed to Frank Nothaft, vice president and chief economist, Freddie Mac –”Rates were little changed amid a week of light economic reports. Of the few releases, industrial production rose by 0.2 percent in June, below the market consensus forecast. Also, the producer price index for final demand rose 0.4 percent in June, rebounding from a 0.2 percent decline the prior month.” Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.
While last week saw a light calendar of economic headlines, it still witnessed some significant news, with better-than-expected consumer credit and initial jobless claims. Also, wholesale sales and inventories saw gains, which was cause for optimism. “This says a lot about the confidence of consumers and bodes well in terms of future spending. Their ability to take on more debt, because of the firmer job market means this economy has some staying power.” (according to Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. Additionally, first-time claims for unemployment benefits filed by the newly unemployed fell further than anticipated, according to last week’s numbers from the Employment and Training Administration. The market had expected last week’s numbers to match the previous week’s total of 315,000 claims, but that wasn’t the case. Instead, claims filed in week ending July 5 dropped to 304,000, a solid decline of 11,000 from the previous week’s 315,000-claim mark. This relates to better than expected economic news which in domino-like turn, indirectly sees US Bond prices going down, yields going up and long term mortgage rates following suit and also rising.
Many consumers are overestimating the down payment they need in order to purchase a home, according to Christina Boyle, vice president and head of single-family sales at Freddie Mac. Consumers believe they need 11 percent to 15 percent in order for lenders to approve them for a loan, according to a survey of renters and non-home-owners conducted by Zelman & Associates in New York. Thirty-nine percent say they need at least 15 percent of the purchase price in order to qualify for financing. Only 28 percent of respondents say they would even qualify for a home loan. But in reality, home buyers often can qualify for a conforming, conventional home loan with a down payment of as little as 5 percent — and sometimes even 3 percent — Boyle writes. Between 2009 and 2013, Freddie Mac’s purchases of home loans with down payments of less than 10 percent more than quadrupled. So far in 2014, more than one in five borrowers who took out conforming, conventional loans put down 10 percent or less. “Letting more consumers know how down payments are determined could bring more qualified borrowers off the sidelines,” Boyle writes. “Depending on their credit history and other factors, many borrowers can expect to make a down payment of about 5 percent or 10 percent.” However, Boyle notes that any borrower who puts down less than 20 percent will be required to buy mortgage insurance. Boyle says that buyers should also be encouraged by the abundant down-payment assistance programs that exist to help break into home ownership.
Someone asked me what the rates are today and what will they be tomorrow. My fortune telling abilities have not been perfected as of yet (even though my last name, Biagini, is pronounced phonetically as Be-a-genie). This I can tell you- rates are going to change and that I can say without hesitation for it is a well documented fact that the rate environment moves up and down daily. More often than not, we see many moves intra-daily. Today, rates bounced up this morning but are settling back down as I write this article. Although I state the obvious, I want to reiterate that we have seen the rates change in both directions, but lately, after all has been said and done, the rates are about the same as they have been for the past several weeks. What they will be tomorrow; I do not know, but while the rates are low, it is a great time to buy your first (or next new) home and take advantage of this extended low rate environment that we have been enjoying (under 5% for a 30 year fixed rate mortgage) for the last several years. Rates WILL go up!
We hope that everyone enjoyed the 4th of July Holiday. There were plenty of fireworks during the weekend but the day before the holiday started the government provided their own fireworks with the release of a strong jobs report for the month of June. Most analysts were expecting a decent gain in jobs at just over 200,000 and for the unemployment to remain steady at 6.3%. The numbers were stronger than expected, especially when considering the fact that the previous months of jobs gains were revised upwards.
In June the economy added 288,000 jobs which is robust by anyone’s standards. The unemployment rate dipped to 6.1% and the decrease cannot be attributed to people leaving the workforce as the labor participation rate stayed steady. Though these numbers are subject to revision in later months, the fact that ADP released a similar number for private payroll growth the day before just confirmed the fact that the job market is indeed heating up. What does that mean?
This is just what the doctor ordered for the economy. More jobs should translate into higher levels of consumer spending and especially spending on big ticket items such as cars, furniture and houses. A stronger housing market and automobile industry should create more jobs and the virtuous cycle will be created. If job creation continues at this pace, we should expect interest rates to go up and the growth in home prices should continue. We know we have said this before — the combination of low rates and low housing prices will not last forever. While the stock market has been strong, rates have remained low. However, this news might just be the beginning of the end of the low mortgage rate era that we have been enjoying for so long.
The Federal Reserve, according to James Bullard yesterday (St. Louis Fed) will likely increase mortgage interest rates sooner than what has been thought, because he believes the US economy will see strong growth later this year. The Fed and regional Fed presidents have kept markets sitting on a hot skillet with mixed outlooks for growth but in the real world the Fed and economists are losing a little credibility when seen from the markets themselves. The dollar slumped to its lowest level against a basket of major peers in seven weeks as reports this week highlighted speculation the U.S. economic recovery hasn’t fully gained traction. The US interest rate markets are declining, we believe that both the dollar trade and the move to somewhat lower rates is happening due to less confidence on future forecasts of better growth; the recent history speaks volumes to the misses from about every source.
Two more days, today and Monday, before the end of the quarter and the end of the first half of 2014. The stock market is beginning to look a little tired but should not experience any major declines today or Monday as firms and funds want to dress up their quarterly reports. Next Tuesday may not be so easy for stock investors though. This morning the DJIA opened -17, NASDAQ and &p -3, not much change. The 10 at 2.51% -1 bp and 30 yr MBS prices +14 bps from yesterday’s close at +23 bps better than 9:30 yesterday
New Home Sales broke above 500K with a reading of 504K
Consumer Confidence much hotter than expectected (85.2 vs est of 83.5)
Remember, good news for the economy is generally bad news for long term mortgage interest rates
May Existing Home Sales 4.89M vs est of 4.73M, plus April sales were
Most times when there is good news for the economy, we will probably notice that it is bad news for mortgage interest rates as they will typically go up.
MBS were trading above our ceiling of resistance prior to this report and this
data could help MBS move back below that resistance level.
MBS (mortgage backed securities) continue to retreat after testing our 25 day moving average and have now fallen back below our 10 day moving average and are on their way to testing our support at our 50 day moving average.
The initial sell off ocurred as the market waited for Obama’s press conference.
Now that we have it, the MBS market is selling off due to the statement that the “U.S. prepared to take targeted and precise military action”
Instead of a flight to safety in bonds…this is causing a sell off on higher oil price concerns which of course may lead to higher mortgage interest rates. Please call the office to speak with your loan officer about locking in.