Mortgage rates got back on track this week giving up a fair amount of last week's gains. Support came from a flight to safety in global financial markets. This generally entails stock market weakness and bond market strength. Bond markets include the mortgage-backed-securities (MBS) that dictate mortgage rates. When MBS are stronger, rates move lower.
Most lenders continue to operate in a range of 3.875%-4.0% for conventional 30yr fixed rate quotes, though some of the more aggressive lenders are moving down to 3.75%.
Today's improvements rekindle some hope that rates will begin to trend lower after remaining largely sideways in the several weeks leading up to the Fed Announcement. That said, markets seem to be doing their best to avoid committing to any new trend just yet. Risks associated with floating are still lower than they were before the Fed, but it's never a bad idea to lock when rates are this close to their 4-month lows.
Mortgage rates rose sharply for the third time this week, bringing them to levels not seen since January 15th. Today's move followed a stronger-than-expected Employment Situation report. This is the most significant economic report each month and when it's strong, rates tend to suffer. Today was no exception as job creation moved back in line with recent averages, defying the expectation that the historically harsh winter weather would make for downbeat data.
Moreover, the report still managed to offer a fairly profound commentary on the effects of winter weather as more than 6 million workers reported missing work last month due to weather. Compared to an average of 70k workers each February who miss a complete week of work due to the weather, today's data showed far more of an effect with 120k workers missing a full week. Had the numbers been more in line with the 70k average, it would have made for an even stronger read on job creation.
Bond markets reacted accordingly. MBS, the "mortgage-backed-securities" that most directly affect mortgage rates, fell immediately to their lowest levels of the week. They managed to improve slightly throughout the course of the day, but only a few lenders released improved rate sheets mid-day. The net effect is a firm move to 4.5% as the most prevalently quoted conforming 30yr Fixed rate for the best-qualified borrowers. When adjusted for day-to-day changes in closing costs, rates moved higher by an equivalent of 0.05% today, making for a .20% move on the week--the worst since August.
There are only 10 calendar days remaining in the Fed's MBS Purchase Program, as it is scheduled to end on March 31st. What does this mean for interest rates?
The program was implemented in January 2009 to help add some liquidity to the secondary lending market. The goal of the program was to provide support to mortgage and housing markets and to foster improved conditions in financial markets more generally. At the time, mortgage lending was risky and investers were hesitant to buy mortgage backed securities (MBS) and hold them in their portfolios. The Fed stepped in and agreed to buy/back $1.250 trillion of MBS, under the supervision of the FOMC. As a result, the secondary market received a much needed boost from the Fed and the refi-boom was again in full force as interest rates hit historical lows.
What happens now? Well, many investors and analysts are predicting that interest rates will start to trend upwards after the 31st, as anxiety will hit the marketplace. Interest rates are not expected to sky rocket, but some analyst have forecasted rates to hit 5.500% by early May 2010.
In the meantime, 30YR fixed interest rates remian at 4.875% to start the week of March 22, 2010. We at HomeQuest urge anyone seeking home financing needs to act now, while the interest rates remain at historical lows.
Massachusetts mortgage rates closed the month of November at a near 52 week low, causing new loan originations at many brokerage firms to soar. Many homeowners decided to take advantage of the opportunity and were able to lock-in at historically low interest rates. On November 27th, mortgage backed securities (MBS: FNMA 30YR 4.50%) traded at their highest price since January 7, 2009, driving 30 Year Fixed rates down to 4.625%. The national 30 year fixed rate mortgage averaged 4.71% for the week ending Dec. 3rd...the lowest average since Freddie Mac began its weekly survey in 1971. To benchmark, Massachusetts mortgage rates are down from 4.78% last week and 5.53% a year ago. Those tracking rates may recall mortgage rates around 6.00% this past summer.
In general, bond prices and bond yields share an inverse relationship...when mortgage backed securities are in high demand, MBS prices increase and yields decline. When bond yields decline, mortgage rates typically decrease. Bonds are a safe-haven for financial investors looking for an alternative to the risky equity markets. Last week, Fed Chairman Ben Bernanke announced that the recovery would not be an easy one, inflation will remain low and that rates will remain low for an extended period of time. As a result, the mortgage backed securities experienced a substantial sell-off, causing prices to drop and mortgage rates to increase .125-.250% by week ending Friday December 4th.
In summary, I encourage anyone pondering the thought of refinancing to act now and take advantage of the all-time low rates...don't attempt to time the market! Many homeowners are hesitant to pull the trigger in hopes of obtaining a lower rate and end up missing the opportunity. Often times, the media/publications can confuse borrowers. Rate shoppers become frustrated when they call their mortgage broker inquiring about current rates to find out the rates are different then what they're reading online or in the newspaper. It's important that shoppers understand mortgage backed securities are indeed "securities" that trade in "real time" and are subject to change hourly due to market volatility. Many online advertising websites are updated 3-4 times daily, however it is too cumbersome a project to modify websites an a minute-by-minute basis. Newspaper rates are typically due the Wednesday before the Sunday publication, thus mortgage rates are nearly 4 days out-dated by the time shoppers are reading the mortgage grids.
Lastly, Fannie Mae announced it will be tightening their lending guidelines on December 12th...no doubt causing headaches for borrowers looking to obtain financing.
HomeQuest Mortgage offers a FREE Rate Alert program to assist our customers. Simply tell us what rate you desire and our team of analyst will contact you once your target rate is available. To learn more, visit www.HQWorksForMe.com.
Mortgage interest rates are currently at the lowest levels of all time surpassing the best levels from January of this year. The new run lower in mortgage rates has been spurred on by tightening spreads between mortgage backed securities and US treasury debt. The Federal Reserve still has money left in their program to keep mortgage rates low but they have begun to wind it down.
Mortgage rates are at all time lows across the board from 30 year fixed rates to 20, 15 and 10 year fixed all the way to 5/1 and 7/1 adjustable rate loans.
Other good news in the mortgage market to go along with all time low interest rates is the announcement of the first time homebuyer tax credit being extended into next year. Also, the expanded conforming jumbo loan limits will also be carried over into next year. Both of these programs were originally going to expire in 2009. This helps open up the guidelines and allow more borrowers to take advantage of the low mortgage interest rates that are available.
The big current event that is impacting both the mortgage market and the equity markets today is news out of Dubai that Dubai World, the city-state's largest corporate entity, has asked it's creditors for a 6 month break on payments of $60 billion (60,000,000,000) in debts. This has caused concern that the worst of the financial crisis might not be over. Yields on US treasuries have moved lower this morning as stocks have been declining. US treasuries are used as a benchmark for Mortgage Backed Securities which have also seen their yields dropping (leads to lower mortgage rates) this morning.
Mortgage interest rates have been falling over the past month back to the best levels of the year. This drop in mortgage rates has happened despite a strong rally in the stock market. Usually when stocks rally, mortgage rates get worse.
Many analysts think that the stock market is overbought and will sell off soon. If that were to happen then we could see mortgage rates move even lower. One thing working against mortgage rates is the Federal Reserve beginning to wind down their purchase of Mortgage Backed Securities (MBS). This program was started at the beginning of the year in an effort to tighten the spread on MBS and bring mortgage rates down. Originally the Fed was going to use $1.25 trillion dollars to buy mortgage backed securities by the end of this year. On Wednesday the Fed announced that instead of spending all $1.25 trillion by the end of this year, they would be slowing their daily purchases of MBS so that the funds are not gone until the end of March 2010. As the Fed buys less MBS each day in order to make the $1.25 trillion last longer and gradually exit the market, mortgage rates could begin to go up.
It is always hard to predict where mortgage rates are headed. In the current times it is even more difficult because of the unprecedented Fed involvement and the uncertainty about how much rates will increase up when the Fed exits the market.
Mortgage interest rates have begun to come off the all time lows from early January and seem to have settled in the low 5% range on 30 year fixed mortgages with no points. One of the reasons that rates have begun to increase is all of the planned stimulus packages and spending that newly elected President Obama has on the table. The way these packages will be financed is through increased government borrowing in the form of increased supply of treasury notes. This expectation of increased supply in the bond market has lead to higher yields in all bond markets and caused mortgage backed securities (MBS) to follow with higher yields as well. Along with increased supply pulling the price of bonds down and thus increasing the yield; there is fear among investors that inflation will eventually pick up if the stimulus packages spark an economic recovery.
The Fed is going forward with their program of purchasing MBS on the open market. They have consistently been buying 3 to 4 billion of agency MBS each day. If it were not for this constant demand provided by the Fed, mortgage rates would be much higher than they are today.
On the bright side, as lenders get caught up on loans in their pipeline over the next month they should get more aggressive in the rates they offer on their daily rate sheets in an effort to keep the new loans coming in. This tightening of the spread between lenders rate sheets and MBS pricing could lead to lower rates again sometime in the next month.
While 30 year rates in the high 4% range were nice while they lasted, rates in the low 5% range are nothing to complain about either, especially with the home purchase season fast approaching.
On Tuesday December 16th
the Federal Open Market Committee (FOMC or "The Fed") will release a statement after its scheduled meeting. Many economists are expecting the Prime rate to be lowered to 3.5% at this meeting. One important thing to remember is that a lower Prime rate does not translate into lower fixed mortgage rates. See our article from November 16th http://www.hqworksforme.com/mortgage-blog/bid/6768/What-determines-mortgage-rates
for more information on what determines mortgage rates.
There are a couple of other news items coming out this week that could have an impact on mortgage rates. The first piece of data will be released on Tuesday is the Consumer Price Index (CPI). The CPI will give investors an idea of what direction prices for goods and services in the economy are going. A higher than expected reading (more inflationary) will be bad for mortgage rates while a lower than expected number (less inflationary or even deflationary) could provide support.
On Thursday the Philadelphia Fed Index is released. This reports on the level of manufacturing activity in the Philadelphia region and is seen as a strong indicator for national manufacturing activities. If this number is worse than expected it should provide support to mortgage rates because generally a weak economy leads to increased investment in fixed income, like mortgage backed securities (MBS).
Current 30 year fixed mortgage rates remain at all time lows and depending on how things look this week in the economic reports, they could be sticking around into the new year.
We will be starting to post an article as often as possible recapping what happened in the market for the current day and what impact it had on mortgage rates.
Today was a very big news day for the market at the start off what is normally a slow holiday week. Over the weekend the Treasury Department announced that it is bailing out Citigroup by investing $20 billion in the company in an effort to stabilize their balance sheets. The Treasury along with the FDIC is also guaranteeing against the "possibility of unusually large losses" for Citi on $306 billion worth of risky mortgage backed securities that they hold.
This bailout helped lead to a rally in the stock markets which many times results in a bad day for mortgage rates. While the yield on government bonds increased today as stocks also increased, the spread between Mortgage Backed Securities and comparable government bonds got tighter (good for rates) after reaching all time high levels last week (bad for rates). While the yield on bonds went up today, MBS was able to fight back and not lose much ground. One reason for this is that MBS investors see the government investing in mortgage securities as a good sign of support for future mortgage investments. What normally would have been a bad day for mortgage rates turned out to be not so bad.
The current mortgage rates held steady today on the 30 year fixed at 5.875% and the 15 year fixed at 5.50%, both with no points.
Since HomeQuest Mortgage is located in Massachusetts we will also be giving updates in our blog about what Massachusetts mortgage rates did for the day in addition to overall mortgage rates in New England. Today the mortgage rates in Massachusetts held steady at 5.875% on the 30 year fixed mortgage and 5.50% on the 15 year fixed mortgage.
Many consumers are misinformed about the different factors in the economy that impact mortgage rates. A common misconception among borrowers and also some members of the media is that the Federal Funds Rate set by the Federal Reserve is tied to mortgage rates. When the Fed cuts the Fed Funds Rate and mortgage rates don't go down accordingly many people are left scratching their heads wondering why.
The reason for this is that mortgage rates are determined by Mortgage Backed Securities (MBS) and the current coupon they are trading at. MBS are traded every business day just like stocks and other bonds. As investor demand for MBS increases, the price of MBS goes up and the yield goes down resulting in lower mortgage rates.
A simple way to think about mortgage rates is anything that increases investor demand to buy mortgages results in lower mortgage rates. For example when an investor pulls money out of stocks they usually turn to safer fixed income investments to put their money and MBS is one option they have. So when stocks decline that is one possible reason demand for MBS could increase. Another factor that can help investor demand for mortgages is low inflation. MBS and other bonds are fixed income investments so inflation diminishes the returns on that type of investment. If inflation is low then the fixed investments remain attractive. On the other side, if inflation is high then investments like MBS are less attractive and demand decreases causing mortgage interest rates to increase.
The reason that mortgage rates often increase when the Fed lowers rates is because the lower Fed rate is a stimulus for the economy and often leads to higher inflation in the future. This is bad for mortgage bonds which is why mortgage rates usually increase when the Fed cuts their rate.
Another misconception some people have is that mortgage rates are based on the US 10 year Treasury Bond. Often times the MBS market moves within a certain spread compared to the 10yr but at times there is a large disconnect between the two. This is the problem we are currently experiencing that is keeping mortgage rates higher than they could be given more traditional spreads. There are days where the yield on the 10yr will drop while the yield for MBS will increase when normally they would move in a similar path.
Daily trading prices and yields for Mortgage Backed Securities are not as readily available as information on stocks markets and government bonds. At HomeQuest Mortgage we subscribe to a service that gives us access to track the daily trading yields of MBS. This allows us to give our borrowers the most up to the minute advice on whether to lock or float their interest rate depending on current market conditions.