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Mortgage Rates Continue to Move Lower as Investor Sentiment Changes

by Victor Burek -
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It seems that market particapants have fallen back in love with fixed income.  Mortgage backed securities and treasuries each posted a healthy rally yesterday. MBS improved by another 50 basis points which allowed all lenders to reissue new rate sheets after the gains held through close.  Helping to promote fixed income is changing investor sentiment regarding inflation, demand for US debt, and prospects for economic recovery. 

We did receive 3 pieces of economic data on Tuesday, of which 2 were favorable for MBS.  First out was Housing Starts which came in considerably higher than economists' expectations.  This news would normally help stocks as new home construction leads to higher appliance sales, flooring sales, furniture, etc... But stocks still lost out, suggesting the recent rally may be overbought as some have argued. We also got the monthly Producer Price index which gives a measure on inflation.  This report came in better than expectations reaffirming that inflation is not a concern right now.  Lastly, we got Industrial Production which indicated that manufacturing fell more than expected last month.  Less manufacturing is a sign of less demand which is not good for corporate profits thus equities sell off while fixed income benefits.  

More inflation data hit the tape today in the form of the Consumer Price Index (CPI), which measures a fixed basket of goods at the consumer level.  This came in at .1%, better than the .3% forecast.  The core was in line with estimates coming in at .1%.  The core reading strips out food and energy due to their volatility and is the favored measure on inflation to the Fed.  Ben Bernanke and other Fed officials have sounded no alarms regarding inflation and hopefully that will be supported by this data set.   The report continues to confirm that inflation is not an immediate concern. 

Of lesser signifance is the release of the Mortgage Bankers' Association Purchase applications index which simply gives a measure of whether new loan applications for purchase and refinances are increasing or decreasing.  With the recent run up in mortgage rates, we were expecting a drop and we got it.  The index has just been posted indicating that purchase applications dropped by 3.5% in June while the refinance activity posted a much larger decline of 23%. 

We also have some headline news items.  Federal Reserve Chairman Ben Bernanke and FDIC chair Sheila Bair on tap, giving a speech to the Operation Hope Financial Literacy Summit in Washington.  Any time that he or she speaks, market particapants will be listening closely for any hint at future monetary polcy and their outlook on the economy.  In addition, President Obama will be announcing new reforms for the financial industry.  Matt and AQ will keep you posted on any relavant news items from the conference and the President. 

Due to the priviledge of serving as a juror, I will be sitting in a jury box before the first rate sheet hits my mailbox.  If we can hold current levels, I suspect that most lenders will offer par 30 year fixed rate mortgages in the 5.00% to 5.25% for the best qualified consumers.   So far this morning, things appear to be setting up nicely for another positive day.  Stock markets across Europe are posting declines' our own Dow futures point to a lower opening and inflation is contained for now.  Even though mortgage rates are trending lower, we must remain defensive as sentiment can shift quickly. 

Many consumers missed the last refi wave when rates hit the 4.5% range for a 30 year fixed rate mortgage.  Many of those consumers were under the belief that rates would go lower and lower so they held out instead of taking advantage of what was in front of them.  The talk around the water cooler was rates going to 4%.  If you are still on the sidelines, what rate are you waiting on before you pull the trigger?

If you would like to get intraday updates on what is happening in the MBS market, click over to the MBS Commentary blog.  Matt and AQ post updates throughout the day regarding the movement of MBS and it's affect on mortgage rates. 


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on
I'm waiting for a rate below 5%. Hopefully we'll get there. Things are looking good this week. Let us all hope this trend continues...
on
Does anyone really think we'll hit below 5% in the next week???
on
I am skeptical about rates going below 5 soon. . . I am buying a home and unfortunately the closing is scheduled for Sept. 15, but can get moved to Oct. 15th due to a 30 day extension clause. I am contemplating a 120 day or 90 day lock b/c I fear rates will go up. Any advice?
on
Below 5% might be a stretch. We've had a lot of positive days in a row here...which usually means an "adjustment" in the other direction at some point. Hopefully i'm wrong... Terry G - how much does each lock cost? Locks for that long usually aren't worth the cost.
on
Hi Chris- The 90 day lock costs about $1600. 120 day lock costs about $4000. . .
on
Just wondering right know...I can lock and get 4.75 but with 3.5 points...about 14000. Wondering if anyone thinks to wait to lower the points paid. Thoughts???
on
Go to a mortgage calculator website and punch in your loan amount at different rates. See how much your monthly payment changes. Then see if it's worth paying all that money to lock to save "x" amount per month. 90-day lock isn't a bad price, but still $1,600 out of your pocket. And I wouldn't recommend paying $4,000 to lock right now. That's just my opinion.
on
We are seeing some lenders pricing 5% as a par rate today for very well qualified borrowers willing to pay or roll in closing costs and about 1 point origination.
on
Hello All, I am considering locking a 5.00% fixed 30 year super conforming in Calif. 800 fico, $564,000 refi. This has a .629% buydown from AIMloan.com with $6557 in closing costs. Anyone had experience with aimloan.com and does anyone think this market could get to 5% with no points? Lastly, if anyone knows of another company to check pricing on, I am all ears! Cheers Christian
on
im buying a house also... closing is scheduled for sept 06... it will cost me a 1000 dollars if i lock before july 06....should i lock if mortgage rates hit 5 ????? or just wait it out on the month of july and august....
on
Thanks for all the comments. Some responses, i do think we will see rates under 5% but doubtful they get into the mid to low 4's. As always, if you are happy with the rate you can get now, lock and move on. Darin, in my opinion, dont pay all those points for 4.75%, your break eve point will be to far into the future. You should be able to get a 5% rate with a point assuming good credit, etc... Abe, tough question, if you lock now, you eliminate all risk of higher rates so what is that worth to you. As always when considering locking or floating this question should help you determine what to do. What would hurt you the most, locking now and rates drop or floating and rates increase. Nothing wrong with locking now in the low 5% range which in historical perspective is fantastic.
on
If anyone has had any luck with any of these companies, could you please post it for the ones that cannot find one to work with you. We've almost lost once and just got a second chance that want last long so I need to get something done now, so if anyone knows the right number to call, i am sure a lot of people that hasn't found them would appreciate it but check out http://obamamortgage2009.blogspot.com or obamamortgage2009.blogspot.com
on
Mr. President why are the banking,and loan company not making loans as you promised they would do for the american people we are all hurting and not getting any help. Time for them to answer to you for not helping us the little people that keep them in business, maybe we should boycott their business. Check http://obamamortgage2009.blogspot.com/2009/03/obamas-mortgage-modification-do-you.html#comments