Mortgage Rates Not Following the Directional Guidance of MBS Market
After spending the previous week in their own little perfect world, mortgage rates hit the reset button yesterday. Borrowers who were floating their note rate saw closing costs rise by about 0.125% (of the loan amount). This modest increase in cost was however not large enough to push the best par mortgage rates out of the 4.375% to 4.625% range.
On the scheduled economic data front, the housing sector was in focus today. The Commerce Department released "New Residential Construction" at 8:30am eastern. This report is more commonly known as Housing Starts and Building Permits. Housing starts data estimates how much new residential real estate construction occurred in the previous month. Building Permits data provides an estimate on the number of homes planning on being built.
Recent reports on housing have been quite disappointing, especially after the homebuyer tax credit expired in April. The one bright spot for the mortgage industry has been the pick-up in refinance demand as homeowners have taken advantage of record low mortgage rates. This trend continued today....
BUILDING PERMITS: Privately-owned housing units authorized by building permits in June were at a seasonally adjusted annual rate of 586,000. This is 2.1 percent above the revised May rate of 574,000, but is 2.3 percent below the June 2009 estimate of 600,000. Single-family authorizations in June were at a rate of 421,000; this is 3.4 percent below the revised May figure of 436,000. Authorizations of units in buildings with five units or more were at a rate of 145,000 in June. BETTER THAN EXPECTED
HOUSING STARTS: Privately-owned housing starts in June were at a seasonally adjusted annual rate of 549,000. This is 5.0 percent below the revised May estimate of 578,000 and is 5.8 percent below the June 2009 rate of 583,000. Single-family housing starts in June were at a rate of 454,000; this is 0.7 percent below the revised May figure of 457,000. The June rate for units in buildings with five units or more was 88,000. WORSE THAN EXPECTED
On the surface the jump in Building Permits seems like good news for the housing industry, but upon closer inspection you'll notice building permits for single-family homes actually fell 15,000 units while multi-family permits led the charge higher. On the bright side, the decline in housing starts was not led by single-family units. After a huge improvement in May, multi-family housing starts led the overall "starts" number lower with a 26,000 unit decline. Single-family starts fell only 3,000 units. HERE are charts and more color.
Stocks started the session with a sell-off and MBS prices rallied, yet lenders still increased total consumer borrowing costs. In the past two sessions, on average, consumer borrowing costs are about 25 basis points higher (0.25% of your loan amount).
It looks like the movement of mortgage rates is still a bigger factor of lender capacity contraints and the competitive environment than the ups and downs in the MBS market. AQ discussed this concept last week. Here are a few comments from that post:
One example of why two similar-sized lenders would be offering different base mortgage rates (before Loan Level Price Adjustments) is the amount of new loan applications they have taken in over the past month. If a lender is operating near full capacity, they can slow down production by worsening their loan pricing. The opposite strategy can be employed if a lender wanted to increase loan production.
The best par 30 year fixed conventional mortgage rates remain in the 4.375% to 4.625% range for well qualified consumers, but closing costs are 0.25% (of the loan amount) more expensive. If you are seeking a 15 year term, you should expect a par rate in the 3.875% to 4.125% range. To secure a par mortgage rate you must have a FICO credit score of 740 and minimal loan level pricing adjustments. You may elect to pay less in fees or no costs at all, but you will have to accept a higher interest rate. This can be a good option for consumers who are not planning on owning their current home for more than five years. The rate on a no cost loan should be around 4.875-5.00%% for well-qualified consumers.
To lock or float? Mortgage rates have not been following the directional guidance of MBS prices lately. The best mortgage rates have been holding in the 4.375 to 4.625% range for the last few weeks. While we've seen some ups and downs more recently, mortgage rates are generally unchanged on a week over week basis. With that in mind, the only loans I would consider floating are those not scheduled to close in the next 30 days. If your closing date is within 30 days, I don't see much benefit in floating.