Mortgage News Daily

by Victor Burek -

Last week ended on a very sour note for mortgage rates...

After a better than expected read on 2nd quarter GDP and a not so scary speech from the Federal Reserve Chairman, the 10 year Treasury note yield rose 16.6 basis points and mortgage-backed securities prices fell significantly. This forced lenders to reprice for the worse, which increased mortgage rates.  Although consumer borrowing costs rose by about 10 basis points on the week (0.10% of the loan amount), the best 30 year fixed mortgage rates remained in a range between 4.25% and 4.50%.

The economic calendar is quite busy this week.  The most influential report will be released on Friday; the Employment Situation Report. Because this data provides an in-depth look at the health of the driving force behind consumer spending, the labor market, investing sentiment is highly dependent on the findings of the Employment Situation Report.  While this data is the most anticipated event of the week, the economic calendar is filled with several potential market movers including three reports on housing and the minutes of the August 10th FOMC meeting.

Here is a look at what might impact mortgage rates in the week ahead:

Tuesday

• S&P/Case-Shiller Home Price Index.  This data tracks the monthly change in the value of residential real estate across the United States. (medium impact)
• Chicago Purchasing Managers Index (low to medium impact)
• Consumer Confidence (medium impact).  An optimistic consumer is more likely to spend money which benefits stocks while a pessimistic consumer is more likely to save or pay off debt which benefits the bond market.
• FOMC Minutes (potential for high impact)

Wednesday

• MBA Applications Index (low impact)
• ADP Employment Report (medium impact)  This data is not as influential as the official Employment Situation Report but it does provide market participants with a sneak peak of the health of the labor market. The farther away this number is from expectations, the more important it will be to investors.
• ISM Manufacturing Index (medium to high impact)
• Construction Spending(low impact)

Thursday

• Weekly Jobless Claims (low to medium impact)
• Productivity and Costs (low to medium impact)
• Factory Orders (low to medium impact)
• Pending Home Sales Index (medium impact)
• Announcement from Department of Treasury of new debt supply. Issues to be sold: 3 year notes, 10 year notes (biggest impact on mortgage rates), and 30 year bonds. (more of an impact next week)

Friday

• Employment Situation (HIGH IMPACT). The data is expected to show our economy lost 99,000 jobs last month following the prior month’s worse than expected loss of 131,000 jobs.  The unemployment rate is expected to climb from 9.5% to 9.6%.
• ISM Non-Manufacturing Index(low impact)

HERE is the full calendar including economist expectations and more color on the week ahead.

We had one economic release today, Personal Income and Outlays.  This monthly report provides market watchers with a view into the strength of consumers by tracking what Americans earn and what they spend.  A stronger consumer benefits the stock market while a weaker consumer helps keep mortgage rates low.

This data contains three separate reads on the health of consumers.

1. Personal Income: the monthly change in income that households receive from all sources (before taxes). 
2. Personal Outlays (consumer spending): the monthly change in the amount of money consumers are spending on durable and non-durable goods and services.  
3. Personal Savings Rate: the monthly change in the amount of money consumers are saving instead of spending

From the Bureau of Economic Analysis:

1. Personal Income: Increased 0.2% in July, less than the 0.3% that was expected.  
2. Personal Outlays: Increased 0.4% in July, better than the 0.3% that was expected.  This was the largest increase in spending since March.
3. Personal Savings: Decreased from 6.2% in June to 5.9% in July.  Less savings by consumers might indicate more confidence in the economy.

This data also provides a read on consumer level price inflation: the PCE price index.  The price index for PCE increased 0.2% helping to ease concerns of deflation. At this point we need to see price levels move a bit higher because deflation doesn't bode well for any asset, especially a house!  The core PCE price index, excluding food and energy, increased 0.1% after no change in the prior month.  Year over year, headline PCE rose from 1.4% in June to 1.5% in July while the core rate held steady at 1.4%.

The week began with mortgage rates continuing to inch higher, however the tide turned just before lunch when Treasuries started to rally and mortgage-backed securities prices followed. This led lenders to reprice for the better. After all was said and done, the rise in consumer borrowing costs that occurred on Friday was essentially erased today.

The best 30 year conventional mortgage rates remain in the 4.25% to 4.50% range for well qualified consumers.  To secure a par interest rate on a conventional mortgage you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs including an estimated one point loan origination/discount/broker fee.  You may elect to pay less in costs but you will have to accept a higher interest rate.

I continue to see very little benefit in floating.  Mortgage rates appear to have bottomed out for the time being and the prospects for them going lower are still small. If you want to gamble on lower rates, keep an eye on stocks.  If stocks rally, rates will be pressured higher.  If stocks sell off, rates will either hold steady or move lower. But again, there really isn’t much room for mortgage rates to drop. The reward is definitely not worth the risk.

NEW YORK (Reuters) – Home loan rates set new lows in the latest week on more evidence of a soft U.S. economy and high unemployment, home funding company Freddie Mac said on Thursday.

The average 30-year mortgage rate fell to 4.44 percent in the week ended August 12, the lowest since Freddie Mac records began in 1971. The prior record low was 4.49 percent a week ago, which was well below 5.29 percent a year ago.

Record low mortgage rates have lifted demand to refinance loans and buy homes. But the pace has nonetheless been tepid with unemployment flirting with 10 percent, consumer confidence dim and lending standards restrictive.

The refi applications index remains at least 40 percent below the peak seen last year.

Fifteen-year mortgage rates dropped 0.03 percentage point to average 3.92 percent, the lowest since records began in 1991. And five-year Treasury-indexed adjustable-rate mortgages (ARMs) at 3.56 percent also set a record low, dating back to 2005.

"Interest rates for fixed mortgages and five-year hybrid ARMs again broke record lows this week following reports of a sluggish job market," Frank Nothaft, chief economist at Freddie Mac said in a statement.

The Federal Reserve this week downgraded its outlook for economic growth and initiated steps to keep interest rates low to help stimulate the economy.

"Whether on-the-fence homebuyers and potential refinancers will soon take advantage of the historic opportunities presented by the lowest mortgage rates in five decades remains to be seen, but we're not counting on a change anytime soon," Freddie Mac said on Wednesday in a separate report.

JPMorgan estimates that every 1/8 percentage point drop in 30-year mortgages from here would entice refinancing on an added $200 billion in conventional mortgages, assuming at least 1/2 percentage point in rate savings for qualified borrowers.

Ninety-five percent of borrowers who did refinance in the second quarter chose fixed-rate loans, Freddie Mac said. With all rates low, though, more homeowners shifted to shorter-term fixed loans.

The 30 percent share of borrowers refinancing a 30-year loan and taking out a 15- and 20-year mortgage in the second quarter was the highest since 2004.

If the borrower had a 30-year 6.5 percent loan with a $200,000 principal balance, they could save about $250 a month at the new lower 30-year rate. For about the same monthly payment as their old loan, Freddie Mac said, they could shave about $70,000 in interest over the life of the loan with a shorter 20-year mortgage.

July 21, 2010, 10:30 AM ET

THE WALL STREET JOURNAL | BLOGS

By Nick Timiraos

Finally.

Record low mortgage rates spurred an uptick in new-purchase mortgage applications last week for just the second time in the past two months, while more Americans also applied to refinance, according to the Mortgage Bankers Association.

Rates fell last week to 4.59% on an average 30-year fixed-rate mortgage, which is down from 4.69% one week ago and the lowest ever recorded by the trade group since its survey began in 1972. Other measures show that rates continued to fall this week: Zillow’s Mortgage Marketplace quoted an average of 4.37% on Tuesday.

Those low rates haven’t done much to drive up demand for new home loans in recent weeks. Purchase activity is still more than 40% down from its highs of April, though it ticked up by 3.4% last week. That’s largely because home-buyer tax credits pulled demand forward. But the recent drop in applications to 14-year lows “smacks of more than a temporary, one-off fall in activity,” says Paul Dales, chief economist at Capital Economics.

Refinance activity has held up better because it’s driven much more by low rates than other economic factors that go into buying a house. Refinance applications were up by 9% last week and are up by almost 30% over the past four weeks, though activity is still below the near-term May 2009 peak. Around 80% of mortgage activity last week was for refinances, the highest refinance share since April 2009.

Still, refinancing activity isn’t as high as would be expected at current rates, in part because it’s harder to get a loan today. Also, many borrowers have lost equity or taken a hit to their incomes or credit and either can’t qualify or aren’t willing to pay extra fees that come with being a bigger credit risk.

Of course, it doesn’t make sense for everyone to refinance. Borrowers who plan to sell in the next few years will want to think twice about paying closing costs to get a low rate.  Also, borrowers who’ve had their loans for a long time—and are therefore paying a greater share of their payment towards their loan principal, as opposed to interest—may not want to refinance.

Bay Area $500K-Plus Home Sales Jump; Median Price Tops $400K

June 17, 2010

La Jolla, CA.----Sales rose across the Bay Area last month in many mid- to high-end neighborhoods, helping to push the median sale price over $400,000 for the first time in 21 months. But as tax credits, low mortgage rates and an ample supply of homes for sale fueled the $500,000-plus market, sales fell in many affordable inland areas where investors and first-time buyers faced a dwindling inventory of low-cost foreclosures, a real estate information service reported.

Last month a total of 8,264 homes closed escrows in the nine-county Bay Area, up 18.0 percent from 7,003 in April and up 11.0 percent from 7,447 in May 2009, according to MDA DataQuick of San Diego.

On average, Bay Area sales have risen 6.9 percent between April and May since 1988, when DataQuick’s statistics begin. Last month’s sales tally was the highest for a May since 9,935 homes sold in May 2006, but it was 16.0 percent below the May average of 9,842 sales since 1988.

Last month sales over $500,000 rose 33.8 percent from May 2009, when the high-end was just starting to emerge from a deep slump. Conversely, May sales of homes priced below $300,000 fell nearly 22.7 percent below the year-ago level. Last spring, sub-$300,000 sales were unusually high thanks to robust sales of low-cost inland foreclosures.

“For now, at least, we’re seeing a more normal mix of sales across the region and across price categories, thanks in large part to the state and federal tax credits coupled with incredibly low mortgage rates. It also appears that high-end financing is gradually loosening up,” said John Walsh, MDA DataQuick president.

“In the second half of the year, there’s obviously going to be less wind in the market’s sails, given the fading tax credits,” he said. “A healthier job market and low mortgage rates will be key to driving demand. Price stability would be threatened if lenders suddenly pushed much larger numbers of distressed properties onto the market.”

Foreclosure resales – homes that had been foreclosed on in the prior 12 months – fell to 27.3 percent of the Bay Area’s resale market last month. That was the lowest since April 2008 and was down from 29.5 percent in April and 40.5 percent in May 2009. Foreclosure resales peaked at 52.0 percent in February 2009.

The continued decline in sales of low-cost inland foreclosures helps explain how the Bay Area’s median sale price could rise more than 20 percent in a year. Last month the median paid for all new and resale houses and condos combined jumped to $410,000, up 10.8 percent from $370,000 in April and up 20.1 percent from $341,500 in May 2009.

The median has risen on a year-over-year basis for eight straight months, though in May it was still 38.3 percent below the $665,000 peak in June/July 2007.

The May median’s 20.1 percent annual gain reflects several factors, including the decline in foreclosure resales, price stability and modest price pressure in some areas, and the shift toward more high-end sales. Activity has picked up in the higher-cost areas in part because distress has increased over the last year and sellers have become more motivated and realistic.

Last month 40.7 percent of the homes sold in the Bay Area were priced $500,000 or above, up from 36.9 percent in April and up from 31.3 percent a year ago. The May figure was the highest since $500,000-plus transactions were 44.7 percent of all sales in August 2008.

Viewed another way, zip codes in the top one-third of the Bay Area market, based on their historical prices, accounted for 35.3 percent of existing single-family house sales last month – the highest in two years. Last month’s level was up from 31.6 percent in April and 27.2 percent a year ago. Over the past decade, the top third of the market averaged 32.1 percent of total regional sales, while the low point was 17.9 percent of sales in January 2009 and the high point was 43.5 percent in June 2007, just before the credit crisis began.

Today’s high-end sales could be stronger if jumbo and adjustable-rate mortgages (ARMs) were easier to obtain.

Jumbo loans, mortgages above the old conforming limit of $417,000, accounted for 35.1 percent of last month’s purchase lending, up from 31.5 percent in April and 25.8 percent in May 2009. Last month’s figure was the highest since it was 38.7 percent in December 2007. However, before the August 2007 credit crunch hit, jumbos accounted for nearly 60 percent of the market.

In May, 13.1 percent of all home purchase loans were ARMs, up from 11.1 percent in April and up from 3.5 percent a year ago. May’s ARM level was the highest since September 2008, but was still well below the monthly average ARM rate of nearly 50 percent over the last decade.

Meantime, federally-insured FHA loans continue to drive many first-time buyer purchases and some move-up activity. The low-down-payment loans made up 24.6 percent of Bay Area purchase lending last month, down from 25.4 percent in April but up from 23.9 percent a year ago and 8.1 percent two years ago.

Last month absentee buyers – mostly investors – purchased 14.6 percent of all Bay Area homes sold, paying a median $270,000. That’s down from 18.2 percent in April and 17.6 percent a year ago, when the median paid was $220,000. Buyers who appeared to have paid all cash – meaning there was no corresponding purchase loan found in the public record – accounted for 21.2 percent of sales in May, paying a median $275,000, which is up from a median $210,000 a year ago. The cash rate was 23.5 percent of sales in April this year and 26.2 percent in May 2009.

Home flipping has trended higher over the last year but eased in May. Last month 2.1 percent of the homes that sold on the open market had been flipped, meaning bought and re-sold within a six-month period. That was down from a Bay Area flipping rate of 2.6 percent in April and up from 1.1 percent a year earlier. Last month’s flipping rates varied from 1.2 percent in San Francisco to 2.9 percent in Solano County.

San Diego-based MDA DataQuick is a division of MDA Lending Solutions, a subsidiary of Vancouver-based MacDonald Dettwiler and Associates. MDA DataQuick monitors real estate activity nationwide and provides information to consumers, educational institutions, public agencies, lending institutions, title companies and industry analysts. Because of late data availability, sales were estimated in Alameda and San Mateo counties.

The typical monthly mortgage payment that Bay Area buyers committed themselves to paying was $1,739 last month, up from $1,607 the previous month, and up from $1,443 a year ago. Adjusted for inflation, last month’s payment was 34.7 percent below the typical payment in the spring of 1989, the peak of the prior real estate cycle. It was 51.7 percent below the current cycle's peak in July 2007.

Indicators of market distress continue to move in different directions. Foreclosure activity remains high by historical standards but below peak levels reached over the last two years. Financing with multiple mortgages is low, down payment sizes are stable, and non-owner occupied buying remains slightly above average, MDA DataQuick reported.

Source: MDA DataQuick Information Systems, www.DQNews.com