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Little Room For Mortgage Rates to Continue Improving

by Victor Burek -
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In honor of Veteran’s Day, the fixed income market was closed yesterday.   A few lenders did issue rate sheets, most were priced conservatively,  which is a common strategy on bank holidays.  

After a slow start to the week, we finally got some economic data to digest this morning.   First out was the Mortgage Bankers’ Association’s Weekly Application Index.  This data tracks the weekly change in mortgage applications at major lenders.  An increasing trend is positive for stocks since the purchase of a new home leads to many other purchases.   Additionally, an increasing trend in refinances should also lead to more consumer spending as home owners refinance to lower mortgage rates and lower mortgage payments giving them more cash flow. 

The report indicated that purchase applications fell by almost 12% last week while refinance activity posted an 11.3% increase.   With mortgage rates declining last week it isn’t surprising to see the surge in refinance activity.  However, the plunge in purchase applications may indicate future problems in the housing sector.  READ THE MND STORY

At 8:30, Weekly Jobless Claims data hit newswires.  This data totals the number of Americans who filed for first time unemployment benefits in the prior week.   Additionally, we get received continuing claims data which totals the number of Americans who continue to file for benefits due to the lack of finding a new job.   Recent reports have shown the number of people filing for benefits to be decreasing.

The Department of Labor reported first time claims fell more than expected by 12,000 to 502,000 for the week ending November 7th.   Economists had expected a reading of 510,000.  This is the lowest level of initial claims since January.   Continuing claims also fell more than expected by 139,000 to 5.63 million, the eighth consecutive decline.   Continuing claims do not take into account the number of Americans that are receiving extended benefits under current stimulus programs.   However, the number of Americans in this category also declined by 6,000 to 4.04 million.   

At 1pm, the Treasury will announce the results of this week's final auction, offering $16 billion 30 year bonds.  As always with treasury auctions, the amount is known in advance so market participants look at the demand for our nation’s debt to gauge the auctions success.  Strong demand, especially by foreign investors, is one of the many factors that have contributed to record low mortgage rates.   AQ and Matt will cover the auction once it is complete shortly after 1pm on the MBS Commentary blog.

Reports from fellow mortgage professionals indicate mortgage rates holding steady.  The par 30 year conventional rate mortgage remains in the 4.75% to 5.00% range for well qualified consumers.   To secure a par interest rate 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.   You can elect to pay less in fees and secure a higher interest rate which is ideal for consumers not planning on keeping their home for more than three years.  Remember, securing a mortgage rate is like buying anything else, you can pay more in fees and get a better rate or pay less in fees and secure a higher rate. 

There is not much room for MBS prices to move higher or for mortgage rates to move lower at the moment.   If you are happy with the rate being offered to you and don’t want to risk rates moving higher, you should lock today. While there still is some room for MBS prices to tick higher, it is better to have locked when you should have floated than it is to float when you should have locked. 

Tomorrow is another light data day with the only significant reports being International Trade and Consumer Sentiment.    International Trade is expected to show our trade imbalance increasing while Consumer Sentiment is expected to post modest improvement in consumers attitudes. 


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on
Victor, With the Fed purchase program scheduled to continue through the end of Q1 next year, does anything make you believe that rates will move significantly outside of our current range between now and then? Obviously it is a crapshoot, but I thought I would grab your opinion on this. Thanks!
on
I think once the Fed does leave, rates will rise but not as high as some may think. The supply of MBS should be much lower at that time as most consumers have refi'd to lower rates.
on
Hi Victor, It's me again, just couldn't stop reading this blog even after I closed, LOL. I have some questions regarding the Home Buyer Tax Credit... I was re-reading your daily blogs, and on 11/06 reader Ryan Kelly asked about "extended Home Buyer Tax Credit" and it was confusing to me. I thought if I already own a home then I am not qualify for ANY tax credit when buying another home?? My situation: I just closed on my new townhome in Allen, TX on 10/29. I also own another home: bought in Feb. 2005 and still own it now, I lived there as primary residence for 3.5 years and rented it out since July 2008. I lived in a rental apartment from June '08 through October '09, then I moved into my new townhome in Allen. Sounded confusing but basically I own 2 homes: lived in the 1st for 3.5 years then turned it into rental property, then lived in apartment for 1.5 years until I bought this new home last month and moved in as primary residence. Question: Do I qualify for any kind of tax credit or benefit? Thanks in advance!!!
on
Hello David, If I have interpreted the eligibility for tax credit correctly, you do NOT qualify for one. You must have lived in your previous home for at least 5 years,,,, even if it is not consecutive 5 years. reg,
on
Thanks, Chida, I believe you are correct. I googled more info on it and think I got disqualified for the $6500 credit on the Closing Date alone already... I closed on my new townhome on 10/29, before Obama signed/enacted the bill. Plus I have not lived in my previous home totaling 5 yrs. Bummer~
on
David, Chida's interpretation is correct, you need to have lived in your primary residence for 5 out of the last 8 years to qualify for the new "move up" buyers rule. Even if you had owned it for 5 years, you would have had to have closed on or after 11/06. And to qualify for the regular First Time Home Buyer you are not allowed to have owned a primary residence in the last 3 years.
on
Yep, Ralph, I missed out on both stimulus plans... But will remind myself to stay on the happy side and enjoy my new townhome: because I bought in a down market, got a good discount and free upgrades, Took Victor's advice and got an awesome 4.75% interest for 30 yrs fixed mortgage (on a FICO of 704 only). Plus I got builder incentive to cover closing cost, paid less than $800 out-of-pocket at Closing.
on
Sounds like you got a great deal David, your response post to Chida hadn't shown up yet when I answered, but good to hear that you're okay with how things played out. I bought my house in early 2006 so not only missed out on the tax credits but also bought right before the housing market bubble burst. Doh!
on
Hi Ralph, I am with you half-way: my first house was purchased in Feb. 2005, when the market was hot and rising fast, I had to compete with another bidder and end up at $5000 above the asking price, with a 6.0% interest for 30 yrs. I was fortunate enough to rent it out in 2008 at just few hundred dollars shy of covering both mortgage + property tax. but I recovered to a wash after IRS refund on the mortgage interest portion. it's how I managed to hold on to that "expensive" home in this down market. I'm gonna refinance and/or sell it when the market pick up hopefully in '10 or '11. I am keeping a happy attitude because I have learned so much and know I will do even better on the next home. Until then I will enjoy this new townhome (at a much lower energy/utility cost to me). Good fortune to all who dwell and share and learn on MND website~
on
Ralph and Chida, thanks for the help.