Mortgage Rates On Hold Near 5.00%

Mortgage rates continued to tick higher yesterday as benchmark Treasury yields rose and prices of mortgage backed securities fell for the sixth consecutive session.   Most of the losses occurred early in the day, so price weakness was already accounted for on lender rate sheets when theywere issued.

The only market moving event that took place yesterday was the auction of $44 billion 2 year Treasury notes.  Demand was slightly above the yearly average but much lower than the previous 3 auctions.  Demand from foreign investors, known as the indirect bid, was much less than normal.  For a recap of the results, check out AQ’s commentary.   

Today at 1pm,  the Treasury will auction $42 billion 5 year notes.  If demand is strong, we could see an improvement in mortgage rates.  Matt and AQ will cover the auction results on the MBS Commentary once it is complete.

The S&P/Case Shiller Home Price Index was released this morning.  This report tracks the monthly changes in the value of residential real estate in 20 metropolitan regions across the United States.   Since our economy is driven by consumer spending, falling or rising home equity (values) affects the psyche of consumers.   During periods of declining home values, consumers are much more likely to save money and pay off debt as they watch the value of their largest investment depreciate.  Rising home values encourage new construction, remodeling, etc… which increases consumer spending.   Many economists believe that until home prices start to move higher, our economy will have a difficult time growing.  This makes tracking home sales data much more important now than in previous years. 

The report indicated that home prices were flat in October.   The 20 city index rose 0.0% from 146.51 to 146.58 in November, this follows a 0.2% increase in October.  The biggest month over month gain was in San Francisco which saw home prices increasing at a month over month rate of 1.2%. The biggest decline was recorded in Tampa,  where a 1.6% contraction printed.   Across the country, home prices are down 7.3% compared to November 2008. This was slightly worse than the 7.2% decline that was expected. 

The final report of the day was a survey on the mindset of consumers...Consumer Confidence.   An optimistic consumer is much more likely to spend money while a pessimistic consumer is more likely to save.    Economists surveyed for this month’s report expected a read of 52.5.  The report came in at 52.9; consumers were more optimistic than anticipated in December.   Yay! The market had no immediate reaction to the news.

Reports from fellow mortgage professionals indicate mortgage rates to be similar to yesterday’s.  The par 30 year conventional rate mortgage remains in the 5.00% to 5.25% range for well qualified consumers.  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 an estimated one point loan origination/discount/broker fee.  If you are seeking a 15 year term, you should expect a par rate of 4.375% to  4.50% with similar costs. 

There are currently two thoughts regarding the recent move higher with mortgage rates.  One side is saying that this is the start of higher mortgage rates which will continue into next year as the economy continues to improve.  The other side of the argument is the recent move higher isn’t an indication of a trend for rates next year but rather due to very low volume of activity due to market participants being on vacation over the last two weeks of the year.  What is your opinion?  Do you feel the move higher in rates will continue into next year and the days of rates under 5% are over?  Or do you feel once the first team traders come back to work from their Christmas vacations that much of the losses we have suffered will be recaptured and rates will once again move below 5.00%?