Mortgage Rates Take One Step Forward Then One Step Back
Mortgage rates moved modestly higher yesterday morning. There was no direct cause for the rise in rates. The previous day stocks systematically rallied following an eight day losing streak. The bond market and consequently mortgage rates opened the day higher yesterday morning. Lenders left rate sheets unchanged on the day. There has been very little volatility in the interest rate market lately. Mortgage rates have only moved a few basis points in either direction.
To remind readers, as prices of mortgage-backed securities move higher, lenders are able to offer lower mortgage rates.
The only economic data on the discussion block today is the Mortgage Bankers Association’s Weekly Applications Index. The MBA survey covers over 50 percent of all US residential mortgage loan applications taken by mortgage bankers, commercial banks, and thrifts. The data gives economists a look into consumer demand for mortgage loans. A rising trend of mortgage applications indicates an increase in home buying interest, a positive for the housing industry and economy as a whole. This is a lower tier report and generally has very little impact on the markets.
Last week we learned there was a large drop in both purchase and refinance activity over the Easter holiday. This was unexpected and disappointing as the home buyer tax credit is soon to expire. The decline in refinance activity isn’t shocking though, many eligible homeowners refinanced last year.
That lost progress was recovered this week though. The MBA reported purchase applications increased 10.1% while refinance applications rose 15.8%, in the week of April 16.
It appears the recent dip in mortgage rates helped rate shoppers get off the fence and refinance. Lower mortgage rates also restored purchase application demand. This loan demand metric should benefit from the soon expire homebuyer tax credit. AQ wonders how many people are waiting until after the tax credit expires. Or perhaps if the MBA Survey is missing out on some loan applications. READ MORE
The home buyer tax credit gives new home buyers up to an $8000 tax credit and repeat buyers up to $6500. It will expire at the end of the month. To qualify, you must be under contract by April 30 and your loan must close by June 30. It appears that this credit will not be extended so if you wish to take advantage of this stimulus program you better hurry.
Mortgage rates did improve today, but the Treasury Department will announce the terms of next week's government debt auctions at 11am tomorrow. The Treasury will sell 2 year notes, 5 year notes, and 7 year notes. New supply of debt on the market can pressure interest rates higher.
Reports from fellow mortgage professionals indicate lender rate sheets to have improved since yesterday. But we have only gained back the marginal amount of basis points we lost in pricing yesterday morning. The par 30 year conventional rate mortgage is in the 4.875% to 5.125% 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. If you have lower FICO scores and higher loan to values, you should consider an FHA loan. They offer comparable rates as conventional loans but with significantly higher costs.
With rates holding near the lowest levels of the year, I continue to favor locking loans closing and funding in the next 30 days. Even if benchmark Treasury yields do rally in the next few days, mortgage rates will find it difficult to move much lower.