Interest Rate Related News

#Mortgage Rates Rise For The 7th Straight Day

February 9, 2011
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Mortgage rates risingMortgage markets worsened for the 7th straight day Tuesday, equaling the longest losing streak of the last 5 years.

Conventional, 30-year fixed mortgage rates are now scratching 5 percent, with FHA mortgage rates running roughly the same.

This is a huge increase from just 11 weeks ago when mortgage rates were riding an 8-month-long hot streak, and appeared headed into the 3s. Then the Federal Reserve intervened.

On November 3, as additional support for markets, the Fed announced its second round of bond buys, a $600 billion program dubbed QEII — short for Quantitative Easing, Round II. Wall Street got spooked on the news; investors feared runaway inflation.

That’s when low rates ended. Here’s why:

(A) Inflation makes the U.S. dollar lose its value,

And, (B) U.S. mortgage bond payments are paid in U.S. dollars.

Therefore, (C) Inflation makes mortgage bond repayments lose their value.

When mortgage bond repayments are worth less, bond demand falls among the global investor set and that causes bond prices to fall along with it. When bond prices fall, mortgage rates rise and that’s exactly what we’re seeing right now.

Since the Fed’s QEII announcement, mortgage rates have soared and home affordability is taking a hit.

Given recent trends, it’s probably safe to declare the Refi Boom “officially over” and the era of low mortgage rates may be over, too.  Home prices may move up or down in Lacey this year, but rising mortgage rates could render the point moot. If you’re looking for a great “deal” with low, long-term payments, the time to get in contract may be now.

Because of rising rates, homeowners have lost roughly 10% of their purchasing power since November.

Image Copyright (c) 123RF Stock Photos

Adjustable Rate #Mortgages Adjusting To 3.50 Percent Right Now

February 8, 2011
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ARM adjustment rates for 2011

If your ARM is due to adjust this spring, your best move may be to allow it. Don’t rush to refinance — your rate may be adjusting lower.

It’s because of how adjusted mortgage rates are calculated.

First, let’s look at the lifecycle of a conventional, adjustable rate mortgage:

  1. There’s a “starter period” of several years in which the interest rate remains fixed.
  2. There’s an initial adjustment to rate after the starter period. This is called the “first adjustment”.
  3. There’s a subsequent adjustment until the loan’s term expires. The adjustment is usually annual.

The starter period will vary from 1 to 10 years, but once that timeframe ends, and the first adjustment occurs, conventional ARMs enter a lifecycle phase that is common among all ARMs — regular rate adjustments based on some pre-set formula until the loan is paid in full, and retired.

For conventional ARMs adjusting in 2011, that formula is most commonly defined as:

(12-Month LIBOR) + (2.250 Percent) = (Adjusted Mortgage Rate)

LIBOR is an acronym for London Interbank Offered Rate. It’s the rate at which banks borrow money from each other. It’s also the variable portion of the adjustable mortgage rate equation. The corresponding constant is typically 2.25%.

Since March 2010, LIBOR has been low and, as a result, adjusting mortgage rates have been low, too.

In 2009, 5-year ARMs adjusted to 6 percent or higher. Today, they’re adjusting near 3.000 percent.

That’s a big shift. 

Therefore, strictly based on mathematics, letting your ARM adjust this year could be smarter than refinancing it. You may get yourself a lower rate.

Either way, talk to your loan officer. With mortgage rates still near historical lows, Lacey homeowners have interesting options. Just don’t wait too long. LIBOR — and mortgage rates in general — are known to change quickly.

For all your mortgage related questions call William Tuning at CU Mortgage Division in Lacey, Washington at (360) 539-4687 or visit www.cumortgagedivision.com .

What’s Ahead For #Mortgage Rates This Week : February 7, 2011

February 7, 2011
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Unemployment Rate (2009-2011)Mortgage markets worsened last week as Wall Street came to terms with the expanding economy; and realized the Federal Reserve may be trying to induce inflation.

Better-than-expected retail sales and positive job growth buoyed stock markets and sank bonds.

Mortgage rates in Washington State rose for the 4th time in 5 weeks last week, extending a losing streak which dates back 4 months.

Today, fixed, conforming rates are three-quarters of a percent higher as compared to the market’s low point, November 3, 2010. For a $200,000 home loan, that size rate hike equates to an increase in a monthly mortgage payment of $89 per month.

Mortgage rates are at their highest levels of the year and, this week, they may continue ticking higher.

There isn’t much data set for release this week so markets will take their cues from two major events — one economic and one political.

The major economic event is Fed Chairman Ben Bernanke’s testimony to the House Budget Committee late-Wednesday. Chairman Bernanke is expected to speak about employment, but will likely touch on other topics of import including economic growth, the U.S. dollar, and the nation’s debt ceiling.

The Fed Chairman’s comments will move mortgage rates in one direction or the other, so locking in advance of his testimony may be prudent. Mortgage rates have more room to rise than to fall, after all.

The second major event is Egypt’s ongoing political strife. By Thursday of last week, Wall Street had shrugged off the region’s crisis and unwound the safe-haven trades that had helped mortgage rates during the week prior.

If instability returns, mortgage rates, once again, will be pressured lower.

Regardless of your rate-locking plan for this week, it’s important to recognize that, although rates have risen, they’re still well below historical average. Therefore, rates may have a lot of room to move higher, still.

If you’re shopping for a mortgage, or are now under contract, consider locking your rate as soon as possible.

What’s Ahead For #Mortgage Rates This Week : January 31, 2011

January 31, 2011
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Jobs in focus this weekMortgage markets improved this week as positive economic data was overshadowed by geopolitical strife. A flight-to-quality drove buy-side activity in mortgage bond markets, which, in turn, helped conforming rates fall across the state of Washington State.

Last week marks the first time this year that mortgage rates fell on a week-over-week basis, and considering why rates fell, it points to the fragile nature of the global economy.

By all accounts, last week showed that the U.S. economy is in recovery.

  1. Housing data rises to its best levels in 8 months (LA Times)
  2. Consumer sentiment hit a 7-month high (NPR)
  3. Business investment increased 1.4% in December

Furthermore, the Federal Open Market Committee met last week and said that the economy continues to expand (although the pace is slower-than-optimal).

Normally, positive news like this would drive mortgage rates higher, and during the early part of the week, it did. But then, as political problems in Egypt grew larger, international investors began to shift money from their risky assets into the relative safety of the U.S. bond market.

This includes mortgage-backed bonds, of course. The buyer influx pushed up prices and, because bond yields move opposite price, mortgage rates dropped.

The week ended with rates at their lowest levels of the week.

Next week, though, rates could reverse. There’s two developing stories rate shoppers should watch.

The first is related to Egypt. In addition to buying mortgage-backed bonds, investors are gambling that oil prices will rise, too. Egypt is the world’s 21st largest oil producer and a disruption of its supply could send gas prices soaring. This circumstance would be inflationary and inflation is the enemy of mortgage bonds.

Crude oil jumped 4.3% Friday afternoon. If that continues, mortgage rates should start rising.

The second is tied to jobs. Last month’s jobs data was weaker-than-expected on Wall Street and it sparked a mini-rally in mortgage rates to start the year. Jobs are paramount to economic recovery so if this month’s figures are lower than the consensus figure of 150,000, expect mortgage rates in Lacey to fall.  If the number is stronger than 150,000, expect mortgage rates to rise.

The jobs report is released Friday at 8:30 AM ET.

A Simple Explanation Of The Federal Reserve Statement – January 26, 2011 Edition

January 26, 2011
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Putting the FOMC statement in plain EnglishToday, the Federal Open Market Committee voted 10-to-0 to leave the Fed Funds Rate unchanged within its target range of 0.000-0.250 percent.

In its press release, the FOMC noted that since December’s meeting, economic growth is ongoing, but at a pace deemed “insufficient” to make a material impact on the jobs market. In addition, the Fed said household spending “picked up” late last year, although it continues to be held back by joblessness, tight credit and lower housing wealth.

This is similar to the language used in the FOMC’s November and December 2010 statements.

Also like its last two statements, the Fed used this month’s press release to re-affirm its plan to keep the Fed Funds Rate near zero percent “for an extended period”, and to keep its $600 billion bond market support package in place.

And finally, of particular interest to King County home buyers and mortgage rate shoppers, for the second straight month, the Federal Open Market Committee’s statement contained an entire paragraph detailing the Federal Reserve’s dual mandate of managing inflation levels, while fostering maximum employment. 

The Fed acknowledges progress toward this goal, but calls that progress “disappointingly slow”. Inflation is too low right now, and joblessness too high.

Over time, the Fed expects both measurements to improve.

Mortgage market reaction to the FOMC has been positive since the statement’s release. Mortgage rates in Tumwater are unchanged, but poised to improve.

The FOMC’s next scheduled meeting is a 1-day event, March 15, 2011.

The Fed Meets Today. What It Means To Mortgage Rates.

January 25, 2011
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Fed Funds Rate vs Conforming Fixed Rate (2000-2010)The Federal Open Market Committee begins a 2-day meeting today in Washington D.C. It’s the group’s first meeting of 2011 — one of 8 scheduled for the year.

The Fed meets every 45 days, on average. Its last meeting was December 14, 2010.

Rate shoppers and home buyers should make a note. Mortgage rates and home affordability could change dramatically beginning tomorrow afternoon.

Because Wall Street watches FOMC meetings closely, so should you. The meetings provide insight on the future of U.S. monetary policy, as told by the nation’s central banker. Investors make trades based on the FOMC’s commentary which is one reason why mortgage rates tend to undulate through the hours leading up to the FOMC’s adjournment, and the days immediately after.

Wall Street is shifting old bets, and placing new ones.

A terrific example of this is what happened after the Fed’s November 3, 2010 meeting.

In its post-meeting press release, the Federal Reserve announced a new, $600 billion, market-bolstering plan dubbed “QE2″. Wall Street had widely expected the Fed to create the program, but had underestimated its size.

Starting a $600 billion program sparked fears of a Fed-led inflation run, which, in turn, caused mortgage markets to deteriorate in a hurry. In the 3 days following the program’s announcement, mortgage rates spiked to multi-month highs and have not since recovered.

QE2 marked the beginning of the end of the Refi Boom and low rates. Today, conforming rates in Washington State are relatively low as compared to higher, but are much higher than they were prior to the FOMC’s November 2010 meeting.

Then, December’s FOMC meeting did little to change the direction of rates. We shouldn’t expect that January’s will, either. After the FOMC’s 2:15 PM ET adjournment Wednesday, mortgage rates should resume climbing, as they have done for the past 10 weeks.

If you’re shopping for a mortgage rate, therefore, the prudent move is to lock prior to Wednesday’s FOMC adjournment because, after once the Fed’s outlook is released, it will be too late.

What’s Ahead For Mortgage Rates This Week : January 24, 2011

January 24, 2011
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Federal Reserve Meets Jan 25-26 2011Mortgage markets worsened last week in a holiday-shortened trading week.

As the body of U.S. economic data continues to show slow, steady improvement, Wall Street is becoming a net-seller of mortgage-backed bonds. As a result, conforming mortgages rates in Washington State are rising.

This is why conforming and FHA mortgage rates rose last week in Washington State. Existing home supplies plunged to a 2-year low in December, and unemployment claims dropped more than expected, giving hope for the U.S. economy in 2011.

This week, that trend may continue. There’s a lot of news set for release.

The biggest story of the week is Federal Open Market Committee’s 2-day meeting. Scheduled for Tuesday and Wednesday, the FOMC’s meeting is the first of its 8 scheduled meetings this year.

In it, the FOMC is expected to vote the Fed Funds Rate unchanged in its target range near 0.000 percent, but it won’t be what the Fed does that’s so important to mortgage markets — it will be what the Fed says. Wall Street will be watching the FOMC’s post-meeting press release for clues about the economy, and the central banker’s next steps. From what it reads, Wall Street will react.

This week is also heavy on housing data.

Following up on last week’s Existing Home Sales and Housing Starts figures, this week features 4 additional releases:

  1. Case-Shiller Index (Tuesday)
  2. Home Price Index (Tuesday)
  3. New Home Sales (Wednesday)
  4. Pending Home Sales (Thursday)

Strength in housing should lead mortgage rates higher as it becomes more clear that the sector is on solid ground.

Since November 3, mortgage rates have been trending higher in Olympia and across the country. The Refi Boom is over, but low rates remain — for now. If you’ve yet to lock a mortgage rate, consider doing it soon. 

Before long, rates won’t be so low.

What’s Ahead For Mortgage Rates This Week : January 18, 2011

January 18, 2011
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Home sales tied to mortgage ratesMortgage markets worsened last week on a turn-around in sentiment across the Eurozone. The sort of “safe haven” buying that had buoyed mortgage bonds since the New Year dissipated, and mortgage rates resumed climbing.

Last week marked the first week since the end of 2010 that mortgage rates have risen, breaking a 2-and-a-half-week rally.

Conforming and FHA mortgages in the Lacey Washington area increased in rate by roughly 1/8 percent.

Last week was data-sparse so mortgage markets took their cues from Europe — specifically Portugal and Spain. There have been lingering concerns that the two countries might default on their respective national debts. The development has a similar feel to what transpired in Greece in April of last year, and that may be why markets are reacting in much the same manner.

At the beginning the year, the fear of default in Portugal and Spain was elevated. It drove money managers away from risky assets and toward safer ones, including U.S. mortgage bonds. Last week, however, those fears eased. Money reversed flow and, as a result, mortgage rates rose. 

Truly, this is a global market.

This week, the Eurozone story continues, but there is a lot of U.S. housing data due for release, too.

  • Tuesday : National Association of Homebuilders Housing Market Index
  • Wednesday : Building Permits, Housing Starts
  • Thursday : Existing Home Sales

Housing is considered key to the country’s economic recovery, so strength in this week’s housing should lead stock markets higher on better expectation for the economy which would, in turn, cause a sell-off in mortgage bonds, driving mortgage rates higher.

Mortgage rates are decidedly higher than their lows of 2010, but have much more room to rise. If you haven’t locked your mortgage rate yet, consider taking care of it this week.

Rates have farther to rise than to fall in the medium-term.

For all your first mortgage needs in Washington State call CU Mortgage Division or visit our website at www.cumortgagedivision.com .

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Comparing #Mortgage Rates For Adjustable- And Fixed-Rate Mortgages

January 12, 2011
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Comparing FRM to ARM mortgage rates (January 2010 - January 2011)

For some homeowners in Washington State, electing to take an adjustable rate mortgage over a fixed rate one can be matter of budgeting. ARMs tend to carry lower mortgage rates and, therefore, lower monthly mortgage payment as compared to a comparable fixed rate loan.

Relative to fixed rate mortgages, current ARM pricing is excellent. Freddie Mac’s weekly Primary Mortgage Market Survey puts the 5-year ARM mortgage rate lower than the 30-year fixed rate mortgage rate by 1.02 percent.

On a $250,000 home loan, a 1.02 differential yields a payment savings of $149 per month.

ARMs are not for everyone, of course. Over time their rates can change and that can frighten people. An ARM can finish its respective 30-year lifespan with a mortgage rate as much as 6 percentage points higher from where it started. Some homeowners won’t like this.

Other homeowners, however, won’t mind it. For this group,  the ARM can be a terrific fit. Especially with the huge, relative discount in today’s pricing.

A few scenarios that should warrant consideration of a 5-year ARM include homeowners that are:

  1. Buying a new home with the intent to sell within 5 years
  2. Currently financed with a 30-year fixed mortgage with plans to sell within 5 years
  3. Interested in low payments; comfortable with longer-term rate and payment uncertainty

In addition, homeowners with existing ARMs due for adjustment may want to refinance into a new ARM, if only to push the first adjustment date farther into the future.

Before choosing to go with an ARM, speak with your loan officer about how adjustable rate mortgages work, and their near- and long-term risks. Payment savings may be tempting, but with an ARM, payments are permanent.

For all your first mortgage needs in Washington State call CU Mortgage Division located in Lacey at (360) 539-4687 or visit our website at www.cumortgagedivision.com .

What’s Ahead For #Mortgage Rates This Week : January 10, 2011 in Washington State

January 10, 2011
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Unemployment Rate (2008 - 2010)Mortgage markets gained last week as a combination of safe-haven buying and an improving economic outlook attracted new buyers. Demand for mortgage-backed bonds outweighed supply and conforming and FHA mortgage rates edged lower.

Last week marked the second straight week that mortgage rates fell in and around Washington State. Rates had risen over the previous 7 weeks.

According to Freddie Mac’s weekly mortgage rate survey, the national average rate for a 30-year fixed rate mortgage is 4.77 percent with an accompanying 0.8 points required.

This week, with no new data due for release, look for last week’s two biggest stories — jobs and debt — to carry forward. The first such story relates to jobs.

Friday, the Bureau of Labor Statistics released its monthly Non-Farm Payrolls report. Consensus estimates were for 150,000 net new jobs created December, with “whisper numbers” pegging the number as high as 250,000. Mortgage rates increased on the chance that the rumors were right. 

It turned out, they were not.

Accounting for revisions to past months’ data, December’s jobs data was in-line with expectations, resulting in a mortgage rate retreat that lasted all day Friday. That momentum should carry forward into the early part of this week.

The second story is tied to safe-haven buying.

The U.S. mortgage market benefited from growing concerns within the Eurozone that Portugal could default on its debt. The story emerged three weeks ago when Portugal’s debt was downgraded. It picked up steam last week after a weak debt offering. It’s a similar beginning to what transpired in Greece last spring.

Mindful of their respective risk, worldwide investors chose to shift risk toward safer asset classes which includes, of couse, mortgage-backed bonds. This week, those risks will remain and the flight to quality assets should continue. Mortgage rates will benefit.

Given the likelihood that mortgage rates will fall this week, it may be tempting to let your mortgage rate float. That strategy could prove foolish.

Mortgage rates fell to historic lows in 2010 and sprung higher at the first possible opportunity. Rates remain at ultra-low levels and have lots of room to rise. This week, consider buying on the dip. It may be the last chance you get.

Contact William Tuning at CU Mortgage Division at (360) 539-4687 for all your mortgage needs in Washington State or visit www.cumortgagedivison.com .