Rate Sheet Rebate Worse, Mortgage Rates Still Holding Near Record Lows

Prices of mortgage backed securities hit a new all time high yesterday.  To remind readers, as prices of mortgage backed securities move higher,  lenders are able to offer lower mortgage rates.  Unfortunately, despite the move higher in MBS prices, lenders have been reluctant to push mortgage rates much lower than 4.50% (base rate for well- qualified borrowers).

Economic data started out the day with a survey from the Institute for Supply Management, which measures the strength of our manufacturing sector.  Readings above 50 indicate a growing sector while readings below 50 indicate contraction.  Last month’s survey registered the highest ISM number since the summer of 2006, coming in at 55.7. Expectations were calling for this month’s report to come in at 55.0.  The release indicated that the manufacturing sector of our economy is still expanding but at a slower than expected pace with a reading of 53.6.

Here is a table of the data. Notice the large drop in prices...deflation remains a bigger concern than inflation.

The final two reports for the day gave us a look into the housing sector. 

First was Construction Spending, which measures the monthly change in the amount of money spent on new construction of residential and non-residential projects.  An increasing trend would suggest positive economic momentum as companies would have to be fairly confident regarding the economy before they start to invest money on construction projects.   In addition, more construction spending could lead to more construction jobs which puts more income in the wallets of American consumers...which means more money to spend!

The U.S. Department of Commerce reported that construction spending in October (this report has a 2 month lag) was $910.8 billion, essentially unchanged from the sharply revised for the worse September read of $910.4 billion.  READ THE MND STORY

The final report today cames from the National Association of Realtors,  the Pending Home Sales Index.   A pending home sale is one in which a contract has been placed on a home but the transaction is yet to close.  With tougher underwriting guidelines, many more transactions fail to close but market participants still track this data for an indication of the demand for housing.   This report is similar to the construction spending report as it also has a two month lag, so today’s data reported on pending home sales in October.   When someone buys a home, there are many other items that they will also purchase such as flooring, furniture, etc… so an increasing trend in pending home sales would be a signal of positive economic growth. 

The prior two months posted large gains mainly due to the government stimulus for first time home buyers...this trend continued in October as pending home sales were up 3.7%,  the ninth consecutive month of gains.  Year over year, pending home sales are up by 31.8% from record low levels. READ THE MND STORY

Reports from fellow mortgage professionals indicate the par 30 year conventional rate mortgage remains in the 4.50% to 4.75% range for well qualified consumers (rebate is marginally worse today though).  There are, HOWEVER, several lenders rewarding high FICO, low LTC borrowers with 4.375% rates.  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 associated with the loan including an estimated one point loan origination/discount/broker fee.   If you are seeking a 15 year term, you should expect a par rate between 4.00% to 4.25% with similar costs.  

While AQ and MG do believe that benchmark rates have room to fall further, we all agree that mortgage rates are not likely to continue to  decline. That said, I  continue to recommend locking over floating.   At this point we are seeing about the best rates in history and lenders continue to be reluctant to offer lower rates.  

I would like to hear from you on this topic.  Do you feel that mortgage rates will move lower and if so why?

With Christmas fast approaching and a movement towards all things green, Jann Swanson’s blog, The Green Home, offers green gift ideas for outdoor enthusiasts.   If you are having problems figuring out what to buy loved ones for Christmas, check out her blog by clicking here, or by finding in the drop down list under Blog/News.