Consumer Confidence May Lead To Rising Home Prices And Mortgage Loan Interest Rates

June 8, 2010 By Leave a Comment

Consumer Confidence Index May 2008-May 2010The Consumer Confidence Index is rising, a potentially double-edged sword for residents of Tempe and for Americans, in general.

According to The Conference Board, economic confidence is as high as it’s been since August 2007 — 4 months before the start of the recession.  Americans are optimistic again.

Confidence matters to the economy because as confidence increases, in theory, consumer spending follows.  Consumer spending accounts for 70 percent of the U.S. economy.

It’s why Wall Street is responsive to confidence data.

When consumer confidence is rising, households start to make big-ticket purchases they may have otherwise put off indefinitely.  Maybe it’s a replacing old appliances; or, trading in an old automobiles; or, splurging on a vacation.

Rising confidence can also spur real estate sales.

When confidence is rising, a growing family that chose to “make do” in their 3-bedroom, 1.5-bathroom starter home may opt to move-up to a 4-bedroom, 3-bath instead at a slightly higher monthly carrying cost.  And there are families in every city in every state making those same decisions.

As a result, the housing market gets a boost — especially in the mid-to-upper price ranges. Values rise on higher demand for homes.

The downside is that growing confidence tends to push conforming and FHA mortgage rates up.  This is because an expanding economy draws investment dollars away from bonds and into stocks — including mortgage bonds.

The reduced demand for mortgage-backed bonds leads bond prices to fall and mortgage rates to rise.  Sometimes by a little, sometimes by lot.

So, if you’re buying a home or thinking of a refinance, rising confidence in the economy may be a signal to act sooner rather than later.  Talk to your real estate agent and/or your loan officer about next steps and get your plan in place.

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Wondering Why Home Sales Were Not Worse This Winter? The March Federal Reserve Minutes Explains Why

April 7, 2010 By Leave a Comment

FOMC March 2010 MinutesMortgage markets improved yesterday after the Federal Reserve released its March 16, 2010 meeting minutes. It’s good news for Gilbert home buyers and rate shoppers — rates could have just as easily gone the other way.

The Fed Minutes is a detailed recap of the debate and discussion that shapes the nation’s monetary policy. The notes are dense; it takes 3 weeks to compile them for publication.

As compared to the more well-known, post-meeting press release, the Fed Minutes are extremely lengthy. For example:

  • March 16 press release : 451 words
  • March 16 meeting minutes : 6,152 words

If the press release is the executive summary, the Fed Minutes are the novel.

The extra words matter.The minutes recount what the Fed did, how the Fed did it, and what the Fed plans to do next. And, in the minutes, Wall Street looks for clues.

This is why the report is important to every rate shopper in the country.

When the Federal Reserve publishes the minutes from its meetings, it leave clues about the group’s next policy-making steps.  For example, in March’s Fed Minutes, it’s clear that the Fed’s concern about inflation is hugely diminished and that’s a major plus for the mortgage bond market.

Inflation causes mortgage rates to rise. The absence of inflation, therefore, helps them to fall.  This improves home affordability, among other things.

Similarly, the Fed Minutes note that real estate sales may have been worse throughout the winter months if not for low mortgage rates and the sense among Americans that home prices were troughing. We may infer, therefore, that rising rates may suppress home sales later this year.

Markets are always looking for clues from inside the Fed and the last meeting’s minute signal that the economy is on its way up.  If you’re looking for a bargain in the housing market, your window to act may be closing.

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FHA Loan Fees Increase 1/2 Percent By April 5, 2010

March 30, 2010 By Leave a Comment

FHA closing costs increase by 1/2 percent April 5 2010Starting Monday, April 5, 2010, getting an FHA mortgage in Gilbert and nationwide will be more expensive for borrowers.

In new guidelines set forth earlier this year, the FHA announced plans to raise additional revenue and reduce the overall risk of its mortgage portfolio.

The changes include the following:

  1. Increase Upfront Mortgage Insurance Premiums from 1.75% to 2.25% for everyone
  2. A plan to reduce seller concessions from 6 percent to 3 percent
  3. An increase in minimum downpayment for FICOs 580 or lower

For your own loan, to avoid being subject to higher loan costs, make sure to have your FHA Case Number assigned prior to Monday, April 5, 2010.  That means you’ll want to give a full mortgage application before the weekend so your lender can register your loan in time for the deadline.

But don’t leave your application to the last minute.

Friday is Good Friday so most banks will be closed. Your true FHA deadline, therefore, is Thursday April 1.

Also worth noting is that the FHA isn’t done with its changes.

In its policy statement, the group also announced its plans to petition Congress to raise monthly mortgage insurance premiums.  The FHA’s formal request, in summary:

  1. Raise monthly premiums by roughly 0.30%, or $25 per $100,000 borrowed per month
  2. Lower upfront mortgage insurance premiums by 1.25%, or $1,250 per $100,000 borrowed at closing

For now, the request is neither approved nor acknowledged by Congress. It’s merely a request. And in the event that Congress does approves it, the FHA reserves the right to change its projections.  Either way, it means higher costs for consumers.

The best plan, therefore, is to get your FHA mortgage into underwriting ahead of the switches because borrowing money will be harder, and more costly.

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Lock Mortgage Rates Before Tuesday’s FOMC Meeting

March 16, 2010 By Leave a Comment

Fed Funds Rate (Feb 2007 - March 2010)The Federal Open Market Committee adjourns from a scheduled 1-day meeting today, its second of the year.

The FOMC has held the Fed Funds Rate in a target range of 0.000-0.250 percent since December 16, 2008, and the voting members of the Fed are expected to vote “no change” again today.

However, no change in the Fed Funds Rate doesn’t necessarily mean no change in mortgage rates.  This is because the Fed Funds Rate is a different interest rate from the rates Tempe home buyers get from a loan officer.

  • Fed Funds Rate : Short-term rate at which banks borrow from each other
  • Mortgage Rate : Long-term rate of interest a homeowner pays on a mortgage

Mortgage rates are more responsive to what the Fed says as compared to what the Fed does.

After each FOMC meeting, Fed Chairman Ben Bernanke & Co issue a formal press release to the markets.  At roughly 400 words, the statement is a brief commentary on the strengths, weaknesses, and threats for the U.S. economy.

Wall Street watches the statement with great interest and this is why mortgage rates are often volatile on the days of an FOMC adjournment. One mention of a word like “inflation” and traders rush to dump their mortgage bond positions.

Inflation is the enemy of mortgage rates.

After the Fed’s last meeting in January, it told us that the economy had “weakened further”, led by steep declines both in housing and employment. Global demand was off, too.  The negative tone of the Fed’s statement caused mortgage rates to fall to near an all-time low.

This month, expect a less gloomy message.

Since January, there’s been a modest rebound in housing, employment appears more stable, and Retail Sales just posted huge gains.  If the Fed alludes to improvement in any or all three, mortgage rates will likely reverse and zoom higher.

We can’t know what the Fed today will say so if you’re floating a mortgage rate and wondering whether to lock, the safe approach would be to do it today, prior to 2:15 PM ET.

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Wait To Refinance That ARM: Interest Rates May Adjust To 3 Percent Or Lower

March 10, 2010 By Leave a Comment

Pending ARM Adjustment March 2010

If your mortgage is set to adjust this year, the smart move may be to let it. Today’s conforming mortgages are adjusting lower than ever before — as low as 3 percent.  It may not be what you expected when you signed for your ARM several years ago.

The reason why ARMs are adjusting lower is because of how they’re made.

When conforming adjustable-rate mortgages adjust, they adjust according to a pre-determined formula. The formula is the sum of a constant and a variable.  The constant is usually 2.25 percent and the variable is a daily-changing interest rate called LIBOR.

The formula looks like this:

New Mortgage Rate = LIBOR + 2.250 percent

LIBOR is an acronym for London Interbank Offered Rate.  It’s an interest rate at which banks borrow money from each other. In Fall 2008, when Lehman Brothers fell and sparked a global banking fear, LIBOR spiked as the risk of inter-bank borrowing jumped.

Since then, however, LIBOR is down.

Normalcy is returning to banking and the timing couldn’t be better for Tempe homeowners with ARMs. 15 months ago, a homeowner’s ARM may have adjusted to 6 1/2 percent.  Today, that same ARM falls to just above 3.

As a strategy play, it might make sense to let your ARM adjust. Or, because fixed rates are still near 5 percent, converting that ARM to a long-term fixed-rate product might make sense, too.  The decision is a balance between how low do you want your payment, and how long might you live in your home.

The longer you stay, the more it might make sense to switch to fixed-rate, even though ARM rates are so low.

If you’ve got an adjusting ARM, talk to your loan officer about your choices. Once March ends and the Fed withdraws its mortgage market support, mortgage rates may rise and the fixed-rate option may be gone.

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What’s Ahead For Mortgage Rates This Week : February 22, 2010

February 22, 2010 By Leave a Comment

New Home Sales Dec 2008-Dec 2009Mortgage markets had a terrible, holiday-shortened week last week as Wall Street responded to worse-than-expected inflation data and action from the Federal Reserve.  Mortgage bonds sold off with force, causing mortgage rates to rise for the second week in a row.

Last week was a bad week to float a mortgage, to say the least. Rates in Gilbert rose by the largest margin in any week since late-2009.

The two biggest stories from last week both came from the Federal Reserve.  The first was the release of the FOMC January meeting minutes which showed more confidence in the U.S. economy than Wall Street expected, and the second was the Fed’s surprise announcement to raise the nation’s Discount Rate to 0.75%. Both sparked risk-taking on Wall Street and bonds sold-off as a result.

Now, the Fed Funds Rate won’t climb anytime soon and neither will Prime Rate, but the Fed has sent a clear message to the markets — The Era of Loose Monetary Policy is over.

This week, there’s a lot of economic data set for release.

  • Tuesday : Case-Shiller Home Price Index, Consumer Confidence
  • Wednesday : New Home Sales
  • Thursday : FHFA Home Price Index, Initial Jobless Claims
  • Friday : Existing Home Sales, Personal Consumption Expenditures

With markets already on edge, any better-than-expected results should be bad for mortgage rates.

After last week’s performance, conforming mortgage rates for residents of Arizona have now unwound most of their January gains.  If you’re waiting for the right time to lock, it may have been 2 weeks ago. You may consider locking in this week to protect against any further deterioration in price. Especially if you have a closing coming up soon.

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Mortgage Rates This Week : February 1, 2010 : What Might They Do?

February 1, 2010 By Leave a Comment

Non-Farm Payrolls Net New Jobs Jan 2008-Dec 2009In a news-heavy week, mortgage markets improved last week, adding to a 3-week rally.

But, given last week’s data and domestic story lines, it’s surprising that rates actually fell.

  1. The Federal Reserve said the economy continues to strengthen
  2. Consumer Confidence pushed to a 2-year high
  3. 4th Quarter domestic output exceeded Wall Street’s expectations

Usually, events like these draw money away from the bond markets and into the stock markets and Wall Street preps for better corporate earnings. The movement pressures mortgage rates to rise.

Last week, however, different stories trumped the headlines including a report from Standard & Poor’s that said U.K. banks are no longer counted among the world’s most stable.  This research, in particular, triggered a flight-to-quality among investors that pumped the U.S. dollar and sparked new demand for mortgage bonds.

It’s one reason why we ended the week on a rally and it just goes to show how unpredictable mortgage rates can be.

This week figures to be a challenge, too.

First, we start the week with key inflation data.  When inflation runs hot, it’s usually bad for mortgage rates.  Inflation is expected to be tame, however — a point the Fed made several times in its press release last week.  That said, inflation data is closely watched by markets and can make a big impact on rates.

Then, on Wednesday, ADP releases its private sector job report.  The ADP data is a precursor to the government’s own Non-Farm Payrolls report which is due to hit Friday.  ADP is expected to show a net loss of roughly 85,000 jobs.  Depending on where the actual numbers comes in, mortgage rates could wiggle a bit.

If the ADP report shows much fewer than 85,000 jobs lost, expect mortgage rates to rise.  The same is true for Friday’s job report.  A miss on expectations will cause mortgage to ratchet higher.

Since peaking on the last day of December, mortgage rates took a slow, steady descent through January. They’ve have taken back close to two-thirds of December’s overall losses.  This week, rates could fall some more, or they could bounce back up.  The most prudent time to lock would be prior to Tuesday’s closing.

After that, the respective jobs reports will take over and rates could go either way with force.

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A Rate-Locking Strategy Before The Fed’s Meetings in 2010

January 27, 2010 By Leave a Comment

Fed Funds Rate (Jan 2007 - Jan 2010)If you are shopping for a mortgage to buy a home or refinance your mortgage you may want to take note of when the Federal Open Market Committee meets throughout the year in 2010. The outcomes of their meetings typically has an impact on Wall Street and thus Federal Treasuries which ultimately impacts mortgage interest rates.

The Federal Open Market Committee meets generally 8-9 times per year for either one day or two day meetings. Here is the schedule for 2010:

  • January 26-27
  • March 16
  • April 27-28
  • June 22-23
  • August 10
  • September 21
  • November 203
  • December 14

As is customary, upon adjournment, the Fed will issue a press release to the markets recapping its views of the country’s current economic condition, and the outlook for the near-term future.

The post-meeting statements from the Fed are brief but comprehensive. And Wall Street eats them up.  Every word, sentence and phrase is carefully dissected in the hope of gaining an investment edge over other active traders.

It’s for this reason that mortgage rates tend to be jittery on days the FOMC adjourns. Wall Street is frantically rebalancing its bets.

If you are in a position to lock your interest rate around these times, you may want to check with your loan officer to get their general assessment of what might happen with rates.

One trend to keep your eye on might be this: if you hear that the economy is slowing just prior to one of these meetings you may consider holding on your lock because this could point to investors pulling money out of Wall Street and putting their money in Treasure Bonds which will tend to lower rates. Conversely, if the economy is being reported as speeding up or growing, you may want to lock ahead of the meeting as Wall Street may surge after a positive Fed report. With Wall Street booming, investors pull money out of the Treasury Bonds which would tend to push mortgage interest rates up.

If I can offer guidance in this area around rate locks, I tend to think that if you are happy with the rate you are quoted and you are qualified at that rate, you may think twice about playing with rates too much. What happens if you don’t lock and rates go up just before you are supposed to settle on your home? Bad things may happen like you may not qualify or you may get stuck with a higher payment than you wanted. So be aware of rates and locking – it may not be the risk to monkey around with them too much.

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What Are Mortgage Rates Going To Do For The Week Of January 25, 2010?

January 25, 2010 By Leave a Comment

The FOMC meets this week -- mortgage rates will be volatile If you are watching the stock market and mortgage interest rates to time your home buying efforts the following rule of thumb may help you.

In general the rule of thumb is that as the stock market goes down (money is pulled out of the stock market) mortgage interest rates go down (money pulled from the stock market is used to purchase treasury bills).

Last week, the week of January 18, 2010, was no different as Conforming and FHA mortgage rates improved as the stock market fell. The stock market fell based on the combination of an announcement that China will take steps to slow its economic growth and President Obama’s proposed new restrictions on the activities of financial institutions.

As a result of national interest rates going down so did Arizona mortgage rates.

Since shedding 300 basis points in December, mortgage bond pricing has recovered a bit more than half of those losses.  It’s helping with home affordability and opening new refinance opportunities in Mesa, Gilbert and other communities located in the east valley.

This week, though, mortgage rates could rise back up.  There’s a lot going on.

First, on Monday, the December Existing Homes Sales report will be released.  The report is expected to be extremely weak as compared to November.  This is because of a combination of factors including:

  1. The initial tax credit expiration date of November 30, 2009
  2. Sharply rising mortgage rates throughout the month of December
  3. A general slowdown from the holidays and from the weather

Therefore, don’t be surprised by the newspaper headlines you see Tuesday morning.

Other data this week includes the Case-Shiller Index – a measure of home prices nationwide — and the New Home Sales report. The Case-Shiller Index has registered mild home price improvement over the past 8 months and its latest report is expected to show the same.  New Home Sales should be similarly strong.

But, the biggest news of the week is the first Federal Open Market Committee meeting of 2010.

The Fed meets Tuesday and Wednesday this week and Wall Street will be watching closely.  The Fed is not expected to change the Fed Funds Rate from its current target range of 0.000-0.250 percent, so, instead, markets will watching for the Fed’s post-meeting press release.

What the Fed says about the economy will be much more important that what it specifically does about the economy for now.  If the Fed says the economy is growing as expected, look for mortgage rates to rise. Conversely, if the Fed says the economy is at risk, expect mortgage rates to fall.

The safest rate lock strategy this week is to lock your mortgage rate before the Fed’s 2:15 PM ET adjournment Wednesday.  Rates will be bouncy all week, but once the Fed’s press release hits the wires, it’s anyone’s guess what will happen.

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