Mortgage Rates Still Holding Tight Range
Mortgages rates made modest improvements after prices mortgage backed securities managed to rally for a second straight day yesterday. Although MBS prices fell following some better than expected economic data data early in the session (S&P home price index and consumer confidence), mortgage backs recovered after the 2 year Treasury note auction and many lenders repriced for the better.
The first economic report out this morning came from the Mortgage Bankers’ Association with the release of the applications activity index. This report tracks the monthly increase or decrease in mortgage applications at major lenders. Today's releaseThe report shows that purchase applications continue to improve moving higher by 1% marking the 4th consecutive increase. It appears that the government tax credit to first time home buyers is helping the overall demand for housing. The refinance activity increased by 12.7% for a third straight gain thanks to low mortgage rates. To read more, click here.
Can this stability evolve into recovery without the FTHB tax credit and record low mortgage rates?
Next to hit the wires was the Durable Goods Orders report. This data tracks the monthly change in orders placed with manufactures for items that are expected to last for more than 3 years. This includes appliances, autos, etc. Durable Goods Orders provides an indication of what manufacturing production will take place in upcoming months. When interpreting new orders for factory goods.... a jump in orders indicates factories will remain busy....a fall in orders indicates contracting production. A persistent decline in factory orders is an omen that assembly lines may soon slow to the point that less labor is needed to fulfill production demand. This can lead to laying off workers and possibly even closing down plants.
The report shows a large increase in durable orders, mainly boosted by the transportation sector. When you exclude transportation sales from the report, durable orders came in slightly lower than expected. Even though the headline number posted a significant increase, this report had no significant impact on the markets. To read more, click here.
The final report to be released today gives us a measure on the strength of demand for housing. New home sales report tracks the monthly increase or decrease in the number of newly constructed homes with a committed sale during the month. A committed sale does not always lead to a actual sale. Furthermore, with tighter underwriting guidelines and HVCC creating home valuation problems, many more loans are being denied.
In June, new home sales increased by 11% over the prior month’s report to an annualized pace of 384,000. This marked the largest monthly percentage increase in nine years. The July reort shows that new home sales continue to increase with a month over month jump of 9.6%, beating economist expectations. This sets the annualized pace at 433,000 versus expectations of 390,000. It appears that the government stimulus for first time home buyers is helping stabilize new home sales. To read more, click here.
At 1pm eastern, the U.S. Department of Treasury will auction $39billion 5 year notes. Weak demand at this auction can pressure both treasury yields and mortgage yields to rise. Matt and AQ will cover this topic in their MBS Commentary blog.
Reports from fellow mortgage professionals indicate that the par 30 year fixed conventional rate mortgage remains in the 4.875% to 5.125% range for well qualified consumers. In order to secure a par interest rate 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 one point loan origination/discount/broker fee. As always, you can elect to pay less in fees and secure a higher rate or pay additional fees to buy a lower rate.
If you are seeking a government loan such as FHA or VA, expect the rate to be about .125% higher than a conventional loan. One huge benefit of government loans is that qualifying is not as difficult. For example, to qualify for the best FHA rate you only need a FICO score of 620. A drawback to government loans is higher closing costs in the form of up front mortgage insurance. A typical FHA loan will have a upfront fee of 1.75% of the loan amount. If you are buying a $200,000 home that fee would amount to $3500. In addition to the upfront fee, FHA loans also have a monthly mortgage insurance premium that also must be paid.Many consumers have heard of and are paying FHA mortgage insurance. This is not the homeowner’s insurance that covers costs in the event your house is damaged. FHA mortgage insurance is paid directly to the FHA, it is a form of credit insurance. More simply it protects FHA mortgage investors from consumers who stop making their payments.
As I advised last week, I will continue to state that locking is the best strategy at the moment, especially if you're closing within the next 15 days. Today, rates are as good as they have been for the last few months. Although stocks are on the verge of selling off (still), at the moment there does not seem to be much motivation for lenders to offer up lower mortgage rates. Yes, rates could move lower, but there is much more room for rates to rise than to drop. In addition, rates always move higher faster than they will move lower. Adding to my stance is the fact that each time rates have hit this level over the last couple months, they did not hold there for more than a few days.