Mortgage Rates category archives

Technorati Tags: Jobs Report, Unemployment

Okay, it’s hard to believe but tomorrow morning is the first Friday of the month again.    Where has the year gone?   In some ways it has flown by and in other ways it seems like it’s been about two or three years.   Know what I mean?

Any way, tomorrow morning is the jobs report that shows the statistics for the month of September.   I’ve had a lot of people asking me what I think it’s going to show and what I think it’s going to do to mortgage rates.    I’m going to lay out what I think are the four most likely outcomes and their potential impact on mortgage rates.  At the end of the piece, I’ll put my “projections” on which one is most likely to occur.

The Jobs Report Comes In Better Than Expected – Remember, it’s not so much the actual number as it is the difference between market expectations and the actual numbers.   But, if the jobs report comes in better than expected, here’s what I expect will happen:

• People will feel better than they did about the prospects for a recovery in the economy.
• People and institutional investors will move money (lots of it – how much depends on how much better) from the bond market and cash and put it into the stock market.
• The stock market will have a very nice upward swing.
• The bond market and mortgage backed securities will suffer from the movement of money.
• Mortgage Rates will go up.

The Jobs Report Comes in about as expected – status quo, mediocre, we just sort of limp along.   If that’s the case, I expect we’d see a “non-reaction” in the markets.

The Jobs Report Comes in Worse Than Expected – a little bit worse, but not a huge amount worse.   If that’s what happens, here’s what I expect:

• People will feel worse about the prospects for recovery in the economy and we’re going to struggle for a while.
• People and institutional investors will move money (lots of it – how much depends on how much worse) from the stock market, it will sell off and the bond market and mortgage backed securities will rally.
• I put this one in bold because it’s important – While the bond market will rally, mortgage rates might fall a little bit, but they won’t fall substantially.   Why?  A couple of reasons:  1) Fannie Mae and Freddie Mac (and FHA) all need money, desperately.   They are going to attempt to pad their profit margins (actually, reduce their losses.)  2)  Banks and mortgage lenders are also going to use the opportunity to reduce losses or increase profitability.  

The Jobs Report Comes in SIGNIFICANTLY Worse Than Expected – I’m talking a really bad miss.   That would spark, in my mind, a couple of things:

• A selloff in the stock market.
• A sell off in the bond and mortgage backed securities.
• Stocks fall, interest rates rise.   Investors (not actual investors, but speculators) pull their money out of the markets and into cash.

Now look at the four possible outcomes.   Two of them would result in higher rates.   One would result in stable rates, and one would result in lower rates (but only slightly.)

I’m going to go on record and say that I think the likelihood of a downward movement in rates is significantly less than the likelihood of an upward turn in rates.   Therefore, I’m recommending that if you have the opportunity, lock now.   The risk on the upward side is greater than it is on the downward side.

Zillow Mortgage Marketplace recently launched a unique Break-Even Point graph on every loan quote borrowers receive from lenders.  This graph helps borrowers who want to refinance determine their “break-even” point, which is when they would start saving enough from a new loan to offset the costs of refinancing.

After anonymously submitting a refinance request, borrowers are presented with custom quotes from a network of thousands of lenders.  When borrowers click on an individual quote to get more information, they can view this new graph which indicates how long they need to live in their home to offset the costs refinancing.

In addition, the graph shows the cumulative savings that would occur over the entire life of the loan.  Borrowers can use the interactive feature to scroll across the graph to see the accumulated savings in each year.

On Zillow Mortgage Marketplace, the average borrower gets 24 quotes in 6 seconds.  With the launch of this new feature, Zillow calculates and creates an interactive Break-Even Point graph on each refinance quote instantly, something that would be very difficult for borrowers to do manually.

Given the historically low mortgage rates we’ve seen this year, refinancing a mortgage is something that many homeowners are considering right now.  This new graph helps borrowers quickly and easily compare the break-even point on all the refinance quotes they receive to determine which loans make the most financial sense for them.

If you are looking to refinance and want to try it out, submit a refinance loan request — anonymously — on Zillow Mortgage Marketplace.

There’s something weird going on in the Mortgage World…..Technorati Tags: Mortgage Rates

Market: So the economy is roaring back, eh? Weeeeellllll…. Some are beginning to wonder.  Mortgage-backed securities (these are the bonds issued by FNMA, etc. that directly link to mortgage interest rates - also abbreviated “mbs” in this space) are not reacting the way one would expect if everything was rosy going forward.  As the economy heats up, money should be flowing into stocks (it is) and out of bonds (it isn’t).  The benchmark 4.5% FNMA bond today is up 25bps (bps are “basis points”; 100 basis points = 1%) because existing home sales data was worse than expected.  As bond rates rise, mortgage rates fall.  A move of 25bps on the bond translates to less than .125% move in mortgages, but it’s something.

Analysis: strong economic growth is supposed to mean bad things for bonds, because investors take money from fixed-return investments - bonds being chief among them - and put it in stocks.  As bond rates fall, mortgage rates rise, all else being equal.  There are other factors, of course, like inflation, but in the main, good economic news is generally considered bad for mortgage interest rates.  So with rates sitting in the low 5% range on fixed 30-year mortgages and in the low 4% range on 5/1 ARMs and the like, why is the end of the recession not causing a move higher?

Answer: we don’t know.  But the suspicion is that the recession’s end might be oversold just a tad.  Remember, in the last giant downturn, we had a fool’s rally in 1930 that almost got us back to the level before the 1929 crash.  Then the bottom fell out, and we didn’t see those highs again for 20 years.  Not saying here that history is repeating itself, by any means.  But the possibility that history will repeat itself is in the back of every trader’s mind, I assure you.  Caution is warranted.  Therefore I fairly confidently predict that the thing you should worry about, if you’re buying a house, is getting it done before the $8000 federal tax credit vanishes on December 1, rather than the interest rate you’ll get.

My recommendation is that you have your house under contract by Hallowe’en, if you want to have a chance to be closed by Thanksgiving.  And not every mortgage guy can get you done that fast.  Please understand and remember this.

Refinance requests on Zillow Mortgage Marketplace are up 20% so far this month versus August.  The chart below shows that lower mortgage rates appear to be driving this spike in demand.

In an effort to continute to prop up the financial markets, the Federal Reserve’s policy-setting panel just announced that it plans to continue purchasing mortgage-backed securities into next year.  This activity should help to keep mortgage rates at low levels.

So with rates this low, now is a great time to see if it makes sense to refinance.

It’s getting a little nervous……

Let me explain:

• Retail sales were up and they weren’t up strictly because of the “Cash for Clunkers” program.   That’s a good thing economically but not so much from an inflation standpoint.
• The Producer Price Index was higher than expected.
• A relatively minor manufacturing report came in better than expected.

All three of them are not “market moving reports” in themselves.   But all three of them provide insight into a chain of events that might be building up.   Let me lay out that scenario:

• Retail sales are up.
• Inflation on the wholesale level is up.
• Manufacturing is up.
• All of these could potentially be signs of inflation.
• Inflation brings higher rates.

Have rates changed today?   Very little.   But the nerves are a little more “jumpy.”

So, with the Consumer Price Index coming out tomorrow morning, what’s my recommendation?   I’ve adjusted it a little.   I’m changing from “cautiously floating” to VERY Cautiously floating.   Why’s that?

Basically, the news that came out today is tipping the scales slightly towards higher rates rather than lower rates.   Not enough to make me recommend “lock” but closer than we were yesterday.

Well….I figured I would give YouTube a whirl… I finally got around to putting some before and after photos together from a K loan I closed on 12/28/2008.

Purchase Price $192,000

Cost of Renovation $32,642

After Improved Value $260,000

Equity After Renovations $35,000+…..$33,000 can make a HUGE Difference!
I sent my clients a link to my blog when I posted it….This was her response:
“Wow, so cool that you used my pics :)   A month ago another lady was driving by and said she was an appraiser using my house as a comp.  She came in to see the improvements and then when we queried her on what she thought we’d be able to get for this house today she hemmed and hawed, then said, prices have dropped since we bought so we’d probably lose money…. because she can see we’ve put in a ton of money (not true, but that’s what she thought).   Then she said in this market with the economy so bad, I’d be able to get $350,000
That made me very happy :)”     -Owner of the home in the video

This was the name of the presentation I was lucky enough to attend today that was presented by Doug Duncan Vice President and Chief Economist for Fannie Mae.

I gleaned a couple of things from the presentation.  As always these are my understanding of his presentation and as he had in his presentation I would also like to add a 10 page disclosure essentially saying that I cannot be held accountable for any of these predictions…If they come true…I accept credit…If they don’t…I was never here and never made these predictions!

1. The economic models we use to predict what we expect to happen are pretty much useless since we have no historical data that is similar to what has occurred over the past two years!  This really supports my theory that no one has a clue about what to expect…Even the folks we think should!
2. The Fed is going to have to start talking about an exit strategy from the credit and MBS markets.  Oh boy…I can only see this adding to the volatility of the MBS Markets regardless of what they do.  Investors don’t like uncertainty. At some point they will have to say how they intend to get out…Investors will have to figure out how that will impact the markets.  I have serious concerns that the unknown will have many investors sitting on the sidelines trying to figure out the new rules of the game before they start playing the game!
3. Rates will be going up.  The conventional rate markets are being artificially held low…when that stops margins and risk factors will likely rise.  I think a better gauge of were rates will be is to look at the real Jumbo Market rates.  Those rates are being set by the market and may paint a more accurate picture of what rates will be adjusting too.
4. The recovery will be SLOWWWWWW.  The majority of Americans’ are way over leveraged and it will take time for this to get back to sustainable levels.

What this all means…I am really not sure…But at least I know folks that are much smarter than I aren’t really sure either!

So what’s driving the  market today?  A couple of main things are impacting them today:

• Mergers and Acquistions - there are a few deals (mainly involving food) out there that are suggesting that the stock market isn’t dead.   This is pushing money into the stock market and away from bonds.
• On the “flip” side, oil prices, gold prices and other commodities are all higher, predominantly due to the value of the dollar falling.

So we’ve got a “point/counter point” pressure on mortgage rates going on.   One is pushing down, the other is pushing up.    This afternoon there’s another Treasury auction, but it’s the very short term Treasuries, so I don’t anticipate it having much impact on the mortgage world.

Recommendation for this morning is to carefully float.   At any time, the pressures could flip one way or the other and send rates up or down, but my feeling is that today could be a fairly decent one for mortgage rates.