Archive for Rates
Bond Market Review and Forecast – for Week Ending 01/08/10
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There was no strong data indicating a reason to believe in an economic recovery in 2010, and mortgage rates ended a little better last week.
Construction Spending for November fell -0.6% worse than expected, continuing to support the notion that any real growth is still a long ways off.
Factory Orders came in at 1.1% increase, double the expectation, and greater than the October reading of 0.6. The durable goods portion was relatively flat, with just a slight decrease from October.
Minutes from last FOMC meeting showed an uneasy feeling of when the purchasing of Mortgage backed securities should end. The purchasing of mortgage backed securities by the Fed has been largely attributed with keeping mortgage interest rates low. The report did maintain that inflation is still tame, and the recovery will be gradual.
Initial Jobless claims showed an increase of 1,000 to 434,000, which was less than expected.
Decembers Unemployment Rate came in at 10%; however, November was revised to show a gain of 4,000. The pace of people no longer counted in the unemployment rate is growing steadily. The continued weakness in employment is giving people hope that the Fed will not increase interest rates soon.
Today is the only day this week without any economic news scheduled for release. The most important data doesn’t report until Thursday.
The U.S. trade balance reports on Tuesday with an expected deficit of $34.8 billion for November from $32.9 billion in October. Don’t expect this number to cause much fan fare.
The Federal Reserve’s Beige book, details economic conditions throughout the U.S by region, will be posted on Wednesday. The Fed puts a lot of weight on the findings during it’s FOMC meetings. Any unexpected news will have a large impact on the financial market and mortgage rates.
There is a Treasury auction scheduled for Wednesday and Thursday. If the auctions are met with strong demand we could see a slight improvement in mortgage rates. I see investors appetite for long-term US securities waning, which will lead to slightly higher rates.
December retail sales will be released on Thursday the expectation is 0.4%, versus the 1.3% gain in November. Strong retail sales growth is important to an economic recovery, thus better than expected numbers will lead to pressure on Treasuries that would probably carry over to mortgage rates. Initial jobless claims for the week of January 09 will be released on Thursday. The estimate is for a 430,000 new claims.
Consumer Price Index (CPI) from December reports on Friday, estimates are for a 0.2% increase versus 0.4% in November. The Core CPI, eliminating food and energy from CPI, is expected to rise 0.1% from 0% in November.
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Determining the Right Rate Lock Period
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A rate lock is a promise to hold an interest rate and discount points for you for a specified period of time while your loan application is underwritten. Locking in your rate guarantees the rate as long as your loan closes and funds before the rate lock expires, preventing you from going through your whole process and finding out the interest rate has gone up.
A rate lock period can vary in length, and longer ones usually cost more. Typical rate lock time frames are 15, 30, 45, and 60 days. Most investors will only allow a 15 day rate lock if the loan is already approved. A lender will agree to “hold” your interest rate and discount for a longer period, say 60 days, but they’ll want a free item from your first garage sale, and pick of the litter if your dog ever has puppies, actually the rate and maybe discount (cost) is higher than with a shorter rate lock period.
There are three things you can do to get a lower interest rate:
- A larger down payment will result in a lower interest rate, because you’ll have a lower Loan to Value.
- You can pay discount points to lower your rate over the life of the loan, but that means you pay more up front. For many people, this makes sense and is a good deal.
- Increase your credit score.
With a purchase you will want to review the purchase contract to help determine the right lock length based on the estimate closing date on the purchase agreement.
The most important thing for you to do is to work with a competent and qualified mortgage broker.
Bond Market Review and Forecast – for Week Ending 01/01
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Last week was pretty ugly for mortgage rates with positive economic data, and not so strong demand for all of the government’s treasury auctions.
Case-Shiller HPI for October declined 7.3% for the 20 city index, slightly better than estimates. Overall the number was described as flat with only 7 of the 20 cities showing a month-to-month increase. This is about 9 months of improving numbers, the fear is that this may begin a second decrease in the index; with the current consistent Fed policy this is not something to worry about.
Consumer Confidence for December, came in at 52.9, just slightly below the expectations of 53. The economy is considered to be on solid ground with a reading of 90, not contracting or expanding, 100 would indicate economic growth.
Chicago PMI (Purchasing Managers Index) for December, came in at 60, considerably higher than the estimate of 55, and November’s 56.1. Reinforcing the fact that we are starting to see some growth.
Jobless Claims for the week of 12/26 fell to 432,000 much better than the estimate of 460,000, which would have been an increase. This is the lowest weekly number since July 2008. The increasing employment points to an improving economy, and inflation.
Monday we have the ISM Index (Institute for Supply Management), estimates call for 54.0, which would be an increase from November of 53.6. The slight increase called for in the forecast are probably not enough to move the market. The higher the number the worse for mortgage rates, as it shows the manufacturing sector strengthening.
Construction Spending for November, estimates call for a -0.5%, worse the flat reading in October. No real weight will be put into this number until we see some strong growth, even then the number is not considered to have much impact on the market.
Tuesday kicks off with Factory Orders expected to increase by 0.5%, less than Octobers 0.6%. Not much to see here unless we see a large revision to durable goods portion.
Wednesday we will have the release of the minutes from the last FOMC meeting. This will give us a glimpse into the Fed’s thoughts on inflations and monetary policy.
Thursday will bring the initial Jobless claim, estimates call from 445,000. A fear is that the Holiday’s and weather may have skewed the numbers, meaning the number should have been worse than reported. The market has been extremely focused on this number as of late. If the number is lower it will put some pressure on Treasuries, but the traders could wait for Friday’s full report for December.
Friday will bring the release of December’s Unemployment Rate, forecasts call from a rise to 10.1%. If we see a worse number this will move the market, and cause better mortgage rates.
If we get as analysts expect to a net job gain of zero, we would have a strong psychological effect causing the stock market to risk and mortgage market to get worse.
Keep in mind positive economic data generally causes money to flow from Bonds and into Stocks, causing Bonds and home loan rates to worsen, and negative economic data will have the opposite result.
With the economy starting to show signs of expanding, don’t expect mortgage rates to stay low for long. For your personalize rate quote just complete the box to the right.
Bond Market Review and Forecast – for Week Ending 12/25
Posted by: | CommentsThis last week ended up being more of a ride than initially expected. The 10 year treasury closed at a four year high of 3.8%.
The final revision of 3rd quarter GDP was revised down to 2.2% from 2.8% from the 1st revision. This number was actually worse than expected so there was a slight improvement in mortgage rates.
Existing Home sales rose to 7.4% for an annual rate of 6.54 million units. Obviously, a large portion of this increase can be attributed to First Time Homebuyers wanting to take advantage of the tax credit, since it was originally scheduled to end in November.
Personal Income rose 0.4% the best since April, spending rose 0.2%, less than the increase seen in October. The lackluster report helped reassure bond traders that inflation is still a ways off.
University of Michigan’s Final consumer Sentiment fell to 72.5 from 73.4 two weeks earlier, although it did rise during the month, from November’s 67.4. This is 22% above last December. Much of the gain can be attributed to consumer’s opinion of the economy in general as compared to their own finances.
This week brings another shortened holiday week for trading. Trading volume is likely to be extremely low this final week of the year, which could lead to wild swings if any data points to large variances over what was predicted. While the economic data scheduled for release this week is fairly light, there are treasury auctions which can show general demand for bonds.
The first report comes out on Tuesday is Case-Shiller HPI (Home Price Index) for October. This generally has very little effect. It is expected to show home prices declined 7.45%, which is far better than the 9.36% decline reported in September. Keep in mind this index is only for the 20 largest metropolitan areas, so Indianapolis is not included.
Then the Consumer Confidence for December, the estimate calls for 53, last month gave us a reading of 49.5. If the value comes in above 54, look for a slight move in the market. The move in treasuries would be caused by consumers spending more which would help move the economy out of its slump.
Wednesday brings us the Chicago PMI (Purchasing Managers Index) for December. This typically has very little market moving value; however, it is sometimes looked at as preview of what will come from the ISM Manufacturing survey (Institute for Supply Management Manufacturing Survey). With this being the last week of the year, and a shortened trading session, this report could potentially move the market. The estimate calls for a report of 55, with last months coming in at 56.1. Market equilibrium is based off a reading of 50, so anything above 50 shows the market expanding. An item to keep a close watch on is the one two punch of Healthcare Reform (very likely to pass shortly) and Cap and Trade, which could prolong the recession or even deepen it for the next ten years.
The biggest market mover is to be released on Thursday Jobless Claims for the week of 12/26. The estimate calls for new claims to reach 460,000, where it was 452,000 during last release. The bigger item will be release next Friday, aggregating the data for the month of December.
Regulation Z Proposed Rule Would Mean More Cash to Close
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The proposed rule revising Regulation Z, specifically Docket Number R-1366, by the Federal Reserve Board would increase the amount of money consumers would need to bring to closing. This increase in cash to close comes from the elimination of Yield Spread Premium, which has long been used to help cover consumers closings costs, or offset the origination fee. The new Good Faith Estimate going into effect January 01, 2010 requires that all Yield Spread Premium be given as a credit to the consumers origination costs.
The comment period for the Proposed Rule is available until December 24, 2009. It is urgent that your voice be heard. You can read the 191 pages describing the proposed rule in the Federal Register at: http://edocket.access.gpo.gov/2009/pdf/E9-18119.pdf
- Eliminates No-Cost Loans. Consumers who already own a home will no longer be able to do No cost or no fee loans. This is significant because many consumers do not have adequate equity in their house, or cash for closing costs. This will prevent consumers from realizing the savings from lower interest rates.
- Less Flexibility. Yield Spread Premium allows for loans to be structured in the best way to benefit the consumer.
- More Cash Will be Needed. Consumers will no longer be able to have a portion of their closing costs paid on purchase through the use of Yield Spread Premium. Thus more consumers will need to wait longer, or forgo altogether, the dream of homeownership, simply from not having enough money for the down payment and closing costs. For those eligible a USDA Home Loan could potentially solve both the down payment and closing cost problem.
- Eliminates Competition. The proposed rule will cause a damage to mortgage brokers, and likely result in a further reduction in the number of mortgage brokers, which would ultimately lead to higher costs through less competition.
How your Voice can be heard on the Proposed Rule revising Regulation Z:
› Web Site: http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm Scroll down to Regulation Z – Truth in Lending – Closed-end Mortgage [R-1366], click on Submit comment on this proposal
› Federal eRulemaking Portal: Change the Select Document Type to Proposed Rule, enter keyword “R-1366″, click Search, Click on the Submit a comment balloon on far right hand side of results, the ID is: FRS-2009-0240-0001
› E-mail: regs.comments@federalreserve.gov Include the docket number: ”Docket Number R-1366″ in the subject line of the message.
› Fax: 202-452-3819 or 202-452-3102
› Mail: Jennifer J. Johnson, Secretary, Board of Governors of the Federal Reserve System, and Constitution Avenue, N.W., Washington, DC 20551
The Easiest way to comment online: http://www.federalreserve.gov/generalinfo/foia/ElectronicCommentForm.cfm?doc_id=R-1366&doc_ver=1&name=Regulation%20Z%20-%20Truth%20in%20Lending%20-%20Closed-end%20Mortgages&date=20090723a
All public comments are available at the Boards web site at: http://www.federalreserve.gov/generalinfo/foia/index.cfm?doc_id=R-1366&doc_ver=1 as submitted, unless modified for technical reasons. This means that the information you submit, including identifying information and contact information will be visible.
I sent in my comments and a proposal. Will you do the same?
