Mortgage Rates Sheltered From Related Markets. Holding Near Summer Lows
Despite a rally in equity markets, prices of mortgage-backed securities moved higher yesterday. No economic data was released, trading volume was very thin, however MBS closed at their highest level since early this summer which allowed some lenders to reissue rate sheets with lower consumer borrowing costs. For the last half of the summer and all of September, prices of MBS have been stuck in a range, yesterday was the first time they closed outside of that range (highest prices since May). We must remind that this occurred in a low volume environment. Also, with the third quarter coming to an end, it is expected that market participants will be adding AAA rated assets to their balance sheets, so we are not too excited about the extent to which this rally continues....YET. We will grow more optimistic if the recent breakout holds when the fourth quarter begins on October 1.
Keep in mind, we have some market moving economic data coming on Friday.
Our day began with the release of Case Shiller Home Price index data. This report tracks the monthly changes in the value of residential homes in 20 metropolitan regions across the United States. Many economists believe that until home prices stabilize, consumers will be reluctant to spend money, a bad omen for economic growth. As home prices have declined we have seen a shift away from spending in favor of saving as homeowners attempt to recover lost wealth. Recent reports have shown a stabilization of home price declines while some markets, like Dallas, are posting modest monthly gains.
Today's read indicates that home values across the 20 metropolitan regions posted a monthly gain of 1.6%. The year over year shows a smaller than expected decline of 13.3%. The only regions posting a decline in the month over month reading were Las Vegas and Seattle. On an annual basis, Cleveland posted the smallest decline at 1.3% while Las Vegas posted the largest decline of 31%. Following the release of this better than expected economic data, MBS gave back some of the gains which they enjoyed from yesterday. If you would like to see how your city is doing, the MND news story has published the data tables. READ MORE
Our final data set to be released today was a read on how the consumer is feeling about the economic environment....the Consumer Confidence report. This data is a survey of consumer attitudes on present economic conditions and their outlooks. A confident consumer is more likely to spend money while a pessimistic consumer is more likely so save. Last month’s report indicated a higher than expected increase in consumer confidence and more optimistic outlooks.
This month’s report indicated a reversal in confidence with the index falling to 53.1 from last month’s revised read of 54.5. This was below expectations for an improvement to 57.0. The main cause for the slip in confidence is the outlook on the labor market. Jobs are harder to get. READ MND STORY
Might this point to a disappointing employment situation report on Friday? Following the release of this worse than expected economic data, MBS have recaptured the morning losses.
Reports from fellow mortgage professionals indicate that the par 30 year conventional rate mortgage remains in the 4.75% to 5.00% range for the best qualified consumer. 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 1 point loan origination/discount/broker fee.
I have received some questions from readers asking why I state 1 point loan origination/discount/broker fee. I do that because loan originators do not write loans for free. If you are working with a broker and they are showing you any amount of money as a broker fee, ask them to move that fee into origination. WHY? The origination fee is tax deductible while the broker fee is not. Whether it is shown as broker fee or origination, it is the same money, might as well place it where you receive additional benefit due to the tax deductibility. As always, get with your tax advisor for the proper method of deducting the points.