Mortgage Market Snapshot – Friday June 1, 2012: The May employment data has been a huge shock to the markets and... bit.ly/Le8n1ZLatest Update ----1 day ago
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Treasury auctions had the greatest influence on mortgage rates this week. With light trading volume during the final week of the year, the reaction to news was often larger than usual. Despite the volatility, though, two strong Treasury auctions roughly offset one very weak auction, and mortgage rates ended the week nearly unchanged.
During 2010, mortgage rates dropped to record low levels, before moving higher over the final two months of the year. The primary reason for the recent increase in mortgage rates has been stronger economic growth, and the reports released this week continued the trend. The Chicago PMI manufacturing index jumped to the highest level since 1988, far exceeding the consensus forecast. Weekly Jobless Claims unexpectedly fell below 400K to the lowest level since July 2008. Pending Home Sales, a leading indicator for the housing market, also beat the consensus with an increase of 4%.
The National Association of Realtors (NAR) released their forecast for next year. Overall, they see a steady improvement from 2010. The NAR projects that existing home sales will increase 8% in 2011. New Home Sales are expected to rise 24%, and Housing Starts will increase 21%. According to the NAR, “All the indicator trends are pointing to a gradual housing recovery.” Supporting the NAR forecast, mortgage rates will start 2011 at the lowest level to begin any year in decades.
Also Notable:
Despite generally strong economic data overall, Consumer Confidence fell
Foreign demand for 7-yr Treasuries rose to the highest level since June 2009
Oil prices rose above $91 per barrel, the highest level in two years
China unexpectedly raised interest rates to fight inflation
Average 30 yr fixed rate:
Last week:
-0.01%
This week:
+0.01%
Stocks (weekly):
Dow:
11,575
+25
NASDAQ:
2,670
+10
Week Ahead
The biggest economic event next week will be the important Employment report on Friday. As usual, this data on the number of jobs, the Unemployment Rate, and wage inflation will be the most highly anticipated economic data of the month. Early estimates are for an increase of about 110K jobs in December. Before the employment data, the ISM manufacturing index will come out on Monday. The FOMC Minutes from the December 14 Fed meeting will be released on Tuesday. These detailed minutes provide additional insight into the Fed’s decisions. The ISM Service index will be released on Wednesday. Factory Orders and Construction Spending will round out the schedule.
Provides a free comprehensive look at how current home loan rates and points are set throughout each trading day including the most recent one. Also offers a look at why you need to subscribe to guard against the potential for another round of higher rates on home loans including home financing, home refinance and home purchase as well as other residential real estate refinancing of all fixed rate mortgages from future economic releases and other influences today or tomorrow.
What’s Going On With Mortgage Rates?After reaching the lowest levels in decades, mortgage rates have shot higher over the past two weeks. There is not a simple explanation for why this happened, but looking at the many factors which are influencing mortgage rates right now will help to understand what’s going on. In short, when investors look ahead, they see few reasons for mortgage rates to move lower and many possible causes for them to move higher. The major negatives for mortgage rates include stronger than expected economic growth, domestic and foreign opposition to quantitative easing, and concerns about lower foreign demand for US securities.Beginning in late August, the Fed hinted that they would initiate a new stimulus program to purchase Treasury securities, which is known as quantitative easing. In the short-term, Treasury buying by the Fed increases demand for bonds, including mortgage-backed securities (MBS). In anticipation of this added demand, investors purchased MBS, which pushed mortgage rates lower.
After the Fed’s official announcement on November 3, mortgage rates began to move higher for a variety of reasons. Stronger than expected economic data caused investors to raise their outlook for economic growth, which generally leads to higher inflation. In addition, there was substantial opposition to the quantitative easing program from other countries and from many US politicians and economists, meaning that the Fed will face strong resistance to an expansion of the program. Investors had viewed the $600 billion initial level as a first step which would likely be increased in the future. Stronger economic growth and opposition to quantitative easing has reduced the likelihood that the program will be increased.
The recent news has not been uniformly negative for mortgage rates. Current inflation levels remain extremely low. In fact, the Consumer Price Index data released this week showed that annual core inflation dropped to a record low in October. Bottom line, though, when mortgage rates reached such extremely low levels, it left them in a position to reverse direction very quickly.
Call CU Mortgage Division in Lacey, Washington at (360) 539-4687 for a free mortgage loan pre-approval or visit www.williamatuning.com .
Also Notable:
The Jobless Claims four-week average declined to the lowest level since Sept. 2008
Bernanke testified that the $600B quantitative easing could create 700K jobs over two years
The Treasury will auction $99 billion in 2-yr, 5-yr, and 7-yr securities next week
Oil prices dropped 6% from the high for the year reached last week
Average 30 yr fixed rate:
Last week:
+0.15%
This week:
+0.10%
Stocks (weekly):
Dow:
11,150
-50
NASDAQ:
2,500
-25
Week AheadDue to the Thanksgiving holiday, all of next week’s economic reports will come out before Thursday. Revisions to third quarter GDP and Existing Home Sales will be released on Tuesday. Durable Orders, New Home Sales, Personal Income, Consumer Sentiment, and the Fed Minutes from the November 3 meeting will come out on Wednesday. There will be Treasury auctions on Monday, Tuesday, and Wednesday. Mortgage markets will be closed on Thursday and will close early on Friday.
Monday’s bond market as opened well in positive territory after news broke that there was a net gain in foreign holdings of U.S. Treasuries during June. The stock markets were unaffected by the news. The Dow and Nasdaq are both starting the week with 13 points gains. The bond market is currently up 20/32, which should improve this morning’s mortgage rates by approximately .125 – .250 of a discount point from Friday’s morning rates.
There is no relevant economic data scheduled for release today, but three of the week’s four reports will be posted tomorrow morning. The first is July’s Producer Price Index (PPI) that gives us an indication of inflation at the producer level of the economy. There are two readings in the report- the overall index and the core data reading. The core data is more important because it excludes more volatile food and energy prices that can change significantly from month to month. Current forecasts call for a n increase of 0.2% in the overall and a 0.1% increase in the core data reading. A larger increase in the core data could push mortgage rates higher Tuesday morning. If it reveals weaker than expected readings, we may see mortgage rates improve as a result.
The second report of the day is July’s Housing Starts data. This report gives us an indication of housing sector strength and future mortgage credit demand. However, it isn’t considered to be of high importance to the bond market or mortgage pricing and usually doesn’t cause much movement in mortgage rates unless it varies greatly from forecasts. It is the least important of the week’s reports and is expected to show a small increase in construction starts of new homes. The lower the number of starts, the better the news for the bond market, as it would indicate a weaker than expected housing sector.
July’s Industrial Production is the third. It gives us a measurement of man ufacturing sector strength by tracking output at U.S. factories, mines and utilities. It is considered to be moderately important to the markets, but will likely not have much if an impact on mortgage rates due to the importance of the PPI reading. Current forecasts are calling for a 0.6% increase in production.
Overall, look for tomorrow to be the busiest day of the week, although today’s activity was a pleasant surprise. The rest of the week will likely be influenced more by stock prices than anything else, which may be quite volatile. Therefore, keep an eye on the markets and maintain contact with your mortgage professional if you have not locked an interest rate yet.
Monday’s bond market has opened flat despite stronger than expected economic data and stock gains. The stock markets are starting the week in positive ground with the Dow up 60 points and the Nasdaq up 13 points. The bond market is currently unchanged from Friday’s level, but we will probably see a slight increase in this morning’s mortgage rates as a result of weakness late Friday.
June’s New Home Sales was today’s only relevant economic news posted this morning. The Commerce Department said late this morning that sales of newly constructed homes rose last month by more than analysts had expected. However, this data is not important enough to cause noticeable movement in the markets or mortgage pricing.
The rest of the week brings us six more economic reports and a couple of Treasury auctions that may influence mortgage rates. Today’s data was one of the least important of the week and there is no relevant data being posted Thursday. This mea ns that we have six relevant reports for the markets to digest over only three days, which should translate into an active week for mortgage rates.
The Conference Board will post their Consumer Confidence Index (CCI) for July late tomorrow morning. This index measures consumer sentiment, giving us an idea of consumer willingness to spend. If consumers are confident in their own financial situations, they are more apt to make large purchases in the near future. This is important because consumer spending makes up two-thirds of the U.S. economy. If the CCI reading is weaker than expected, meaning that consumers were less confident than thought, we may see bond prices rise and mortgage rates drop Tuesday. Current forecasts are calling for a reading of 51.0, which would be a lower reading than June’s and indicate consumers are becoming less comfortable with their finances.
Overall, I am expecting a fairly active week in the mortgage market. With several im portant economic reports on tap, we will likely see noticeable movement in mortgage rates more than one day. The most important report of the week is Friday’s preliminary GDP reading, making it one of the most important days of the week. But it is difficult to say which day we can expect to see the most movement in rates as several of releases and scheduled events have the potential to influence mortgage rates.
If I were considering financing/refinancing a home, I would…. Lock if my closing was taking place within 7 days… Lock if my closing was taking place between 8 and 20 days… Float if my closing was taking place between 21 and 60 days… Float if my closing was taking place over 60 days from now… This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.
Thursday’s bond market has opened in negative ground, extending yesterday’s late weakness resulting from the strong stock market rally that drove the Dow up 274 points and above 10,000. The Dow is currently up 66 points while the Nasdaq has gained 11 points. The bond market is currently down 13/32, which will likely push this morning’s mortgage rates higher by approximately .250 of a discount point over yesterday’s morning rates.
Last week’s unemployment figures were posted by the Labor Department early this morning. They announced that 454,000 new claims for unemployment benefits were filed last week. This was lower than the expected 460,000 and can be considered negative news for bonds and mortgage rates. However, this data is not known to be highly important because it tracks only a single week’s worth of new claims. But since there is no important data being released this week, today’s news has influenced bond trading and mortgage rates slightly more than it usually would for a small variance from forecasts.
This morning’s losses in the bond market have pushed the yield on the benchmark 10-year Treasury Note back above 3.00% (currently 3.03%). While this is only an intra-day move at the moment, it can become more of an issue for mortgage rates if it closes above that level today. We would like to see it close below 3.00%, making that threshold a ceiling of resistance. If we do close above that level the next few days, there is a decent possibility of seeing mortgage rates move higher in the immediate future.
Tomorrow is no different than every other day this week. There are no important reports or relevant speeches, auctions or other events on the calendar for tomorrow. That leaves the stock markets as the likely candidate to influence bond trading and mortgage rates. Generally speaking, stock gains will probably lead to bond weakness and higher mortgage rates. Ideally, we would prefer to se e stocks fall, making bonds more attractive to investors. Regardless, I am not expecting to see a sizable move in rates either direction. I suspect that traders will play it safe until we get to next week’s important economic data.
If I were considering financing/refinancing a home, I would…. Lock if my closing was taking place within 7 days… Lock if my closing was taking place between 8 and 20 days… Float if my closing was taking place between 21 and 60 days… Float if my closing was taking place over 60 days from now… This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.
Tuesday’s bond market has opened well in positive territory following a surprising drop in consumer confidence and significant losses in stocks. The stock markets are reacting negatively to the economic data and concerns about the global economy. This has pushed the Dow down 280 points and the Nasdaq down 76 points. The bond market is currently up 15/32, which will likely improve this morning’s mortgage rates by approximately .250 of a discount point.
June’s Consumer Confidence Index (CCI) was posted late this morning, revealing a reading of 52.9. This was far short of the 62.0 that was expected and indicates that consumers were much less optimistic about their own financial situations than many had thought. This is very good ge rates because declining confidence usually means consumers are less likely to make large purchases in the near future. That limits economic growth because consumer spending makes up two-thirds of the U.S. economy.
Ther e is no relevant economic data scheduled for release tomorrow, so look for the stock markets to influence bond trading and mortgage rates yet again. This morning’s rally has pushed the benchmark 10-year Treasury Note below 3.00% for the first time in quite a while. The question is whether it can hold below that level. If it remains below that threshold the next day or so, we could see more gains for bonds and even lower mortgage rates. But if the resistance is too strong, proving that 3.00% is a strong floor rather than a ceiling, mortgage rates would likely give back some of their recent improvements.
The next data scheduled this week comes late Thursday morning when the Institute of Supply Management (ISM) will release their manufacturing index for June. This important index measures manufacturer sentiment by surveying trade executives on current business conditions. A reading above 50 means that more surveyed executives felt business improved during the mon th than those who felt it had worsened. Analysts are expecting a reading of 59.0. That would indicate that manufacturers felt business worsened from the previous month, when we saw a 59.7 reading. Good news for bonds and mortgage rates would be a weaker than expected reading.
If I were considering financing/refinancing a home, I would…. Lock if my closing was taking place within 7 days… Lock if my closing was taking place between 8 and 20 days… Float if my closing was taking place between 21 and 60 days… Float if my closing was taking place over 60 days from now… This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.
Thursday’s bond market has opened in negative territory following early gains in stocks. The Dow is currently up 32 points while the Nasdaq has gained 7 points. The bond market is currently down 7/32, which should push this morning’s mortgage rates higher by approximately .250 – .375 of a discount point.
The first piece of data posted this morning was the revised 1st Quarter Productivity and Costs report that showed worker productivity rose at an annual pace of 2.8% last quarter. This was lower than the previous estimate of 3.6% and forecasts of 3.3%, meaning workers were not as productive during the first three months of the year as many had thought. Also worth noting was a smaller than expected decline in the labor costs index. Both of these readings can be considered negative news for bonds and mortgage rates.
The Commerce Department said that new orders at U.S. factories rose only 1.2% in April. This was a smaller than expected increase, i ndicating manufacturing activity was not as strong as many had thought. That is good news for bonds and mortgage rates, but unfortunately this data does not carry the influence to heavily move rates.
The third report came from the Institute for Supply Management, who announced a 55.4 reading in their service index. This nearly matched forecasts and has not affected this morning’s bond trading or mortgage pricing.
Also posted this morning were weekly unemployment numbers from the Labor Department. They announced that 453,000 new claims for unemployment benefits were filed last week. This was close to analysts’ expectations of 455,000, so it had no impact on today’s rates. Besides, market participants would be much more interested in tomorrow’s monthly figures than just a single week’s worth of data.
Tomorrow’s sole report is arguably the single most important report that we see each month. The Labor Department will post May’s Employment da ta early tomorrow morning. This report gives us key employment readings such as the U.S. unemployment rate and the number of jobs added or lost during the month. Analysts are expecting to see the unemployment rate slip from 9.9% in April to 9.8% this month with approximately 500,000 jobs added to the economy during the month. A higher than expected unemployment rate and fewer than 500,000 new payrolls would be great news for the bond market. It would probably create a sizable rally in bonds, leading to lower mortgage rates. However, stronger than expected numbers may lead to a spike in mortgage rates tomorrow morning.
If I were considering financing/refinancing a home, I would…. Lock if my closing was taking place within 7 days… Lock if my closing was taking place between 8 and 20 days… Lock if my closing was taking place between 21 and 60 days… Lock if my closing was taking place over 60 days from now… This is only my opinion of what I would do if I wer e financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.
Tuesday’s bond market has opened relatively flat considering the past few trading sessions. The stock markets are showing early losses with the Dow down 32 points and the Nasdaq down 7 points. The bond market is currently up 2/32, but I don’t believe this will be enough to cause much change to mortgage rates.
There is no relevant economic news scheduled for release today. This will leave the bond market and mortgage rates subject to stock market movements again. As long as the major stock indexes remain near current levels, I suspect that mortgage rates will follow suit. However, afternoon strength or selling in stocks could make bonds less or more appealing to investors and lead to afternoon changes in mortgage rates.
Tomorrow does bring us some economic data, but it is the week’s least important news. March’s Goods and Services Trade Balance report will be released early tomorrow morning, giving us the size of the U.S. trade deficit. It is ex pected to show a $40.5 billion trade deficit. This report likely will have little impact on tomorrow’s mortgage rates unless it shows a significant variance between forecasts and its actual results.
10-year Treasury Notes will be sold tomorrow and could impact bond prices and mortgage rates. The 30-year Bond sale will take place Thursday. Results of the auctions will be posted at 1:30 PM ET each day. If they are met with a strong demand from investors, we could see bond prices rise enough during afternoon trading to cause downward revisions to mortgage rates. However, lackluster bidding in the sale could lead to higher mortgage pricing those afternoons.
The remaining three economic reports will be released Friday morning. This is when we will get April’s Retail Sales data (highly important), April’s Industrial Production (moderately important) and May’s University of Michigan’s Index of Consumer Sentiment (moderately important).
If I were co nsidering financing/refinancing a home, I would…. Lock if my closing was taking place within 7 days… Lock if my closing was taking place between 8 and 20 days… Lock if my closing was taking place between 21 and 60 days… Lock if my closing was taking place over 60 days from now… This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.
As of today (01/01/2010) all residential lenders and mortgage brokers will be required to use a new Good Faith Estimate (“GFE”) that clearly discloses loan terms and closing costs. Settlement agents will be using a new settlement statement for all residential loan closings. The statement will mirror the GFE and disclose any variances from the original figures. Lenders may start using the new GFE prior to the January 1 deadline. If the new GFE is used by the lender, the new settlement statement must also be used by the settlement agent.
While GFEs have been around for years, the new GFE is a whole new ballgame. Will it help the consumer? HUD projects that the new rules will save consumers an average of $700 at the closing table!
The main differences between the new and old GFEs are (1) standardization of the form, (2) grouping of fees, and (3) tolerance for variations from the GFE amounts at settlement. The following is an overview of these differences:
THE FORM: The new GFE has been formatted by HUD. It is a three page standardized document that gives loan terms and an estimate of settlement charges. The consumer should easily be able to compare GFEs from various lenders when shopping for loans.
THE FEES: On the new GFE, certain fees have been grouped together. This allows the consumer to see a total cost for each category, rather than a random list of fees.
The “Origination Charge” is the total of all fees incurred for originating the loan. This would include old cost breakdowns, such as “underwriting fees” “loan handling fees” “commitment fees” and “document preparation fees” which were payable to the Lender or Broker.
“Required Services Selected by the Lender”, such as appraisals, credit reports, and flood certifications and tax service fees are grouped, but each charge is listed separately.
“Title Services” includes the settlement agent’s charges for lender’s title insurance, the settlement fee, title searches, title examinations, commitments, and ALL other charges payable to the settlement agent. There is a separate line item for Owner’s title insurance, since this is an optional purchase.
“Required Services that You Can Shop For”, which includes surveys, home warranties, pest reports, etc. (For “Title Services” and “Required Services that You Can Shop For”, the borrower can shop for and choose his own providers but the fees will not be controlled by the RESPA tolerances from the GFE as described below.)
In addition to these groupings, there are separate line items for “Government Recording Charges”, “Transfer Taxes”, “Initial Escrow Deposit”, “Daily Interest” and “Homeowner’s Insurance”.
THE TOLERANCES: The new rules mandate that the final charges on the settlement statement can vary from those on the GFE only as follows:
For the Origination Charge and Transfer Taxes: Zero Tolerance. The GFE and settlement statement must match exactly.
For Required Services selected by the Lender, Title Services, Owner Title Insurance, Required Services That You Can Shop For (if you use companies identified by the lender) and Government recording charges: There is a tolerance for a 10 percent increase for the total of these charges.
For the Initial Escrow Deposit, Daily Interest and Homeowner’s Insurance: There is an unlimited tolerance for increases from the GFE.
Other items with unlimited tolerances for increases from the GFE include any Service provider selected by the Borrower rather than the Lender. There is no restriction on decreases.
The new settlement statement mirrors the GFE, with similar line items and groupings. On a new third page, there is a comparison of the original GFE figures and the settlement statement figures, with an explanation of the tolerances. There is also a summary of the loan, including amount, term, rates, initial monthly payment, prepayment penalties and other loan terms.
With these changes, the consumer can be a better shopper. He can truly compare the cost of loan products offered by various lenders, and he is protected from any unexpected additions at closing. There will also be more straightforward disclosures of prices by settlement companies, since most charges will be grouped into one amount. The consumer can easily compare the total “Title Services” charges for his loan from several title companies.
There are still many questions about the implementation and enforcement of the New Rules. Hopefully the consumer benefits will meet HUD’s expectations. Here is a link to HUD’s info on the new RESPA rules, just click here.
Here is a link to get a copy of the New Settlement Costs Booklet produced by HUD, just click here.
Here is a link to a copy of what the New Good Faith Estimate looks like, just click here.
