Mortgage rates fell yesterday thanks to a much weaker than expected consumer confidence survey. This scheduled economic release combined with a few other unscheduled events forced investors to sell stocks and move funds over to the safest assets in the world, US Treasuries. This fueled a rally in mortgage-backed securities just as the day was getting started. Adding more momentum to the rally was a strong 2 year Treasury note auction. Most lenders did reprice for the better by day's end which pushed the best par 30 year fixed conventional mortgage rate back down to 4.75%. Only a few lenders were offering this rate though.
First out this morning was the Mortgage Bankers Association Weekly Application Survey. The MBA survey covers over 50 percent of all US residential mortgage loan applications taken by mortgage bankers, commercial banks, and thrifts. The data gives economists a look into consumer demand for mortgage loans. A rising trend of mortgage applications indicates an increase in home buying interest, a positive for the housing industry and economy as a whole. Furthermore, in a low mortgage rate environment, such a trend implies consumers are seeking out lower monthly payments which can result in increased disposable income and therefore more money to spend on discretionary items or to pay down other debt.
Recent surveys have shown consumer demand to be declining as many home owners have already refinanced and taken advantage of low interest rates. The purchase market has been slow as well.
According to today's release, which reported on loan demand in the week ending February 19, 2010, mortgage applications fell 8.5%. Refinance demand was 8.9% lower and Purchases declined 7.3%. Below is a recap of the data using the text of the release:
The Market Composite Index, a measure of mortgage loan application volume, decreased 8.5 percent on a seasonally adjusted basis from one week earlier. The Refinance Index decreased 8.9 percent from the previous week. The seasonally adjusted Purchase Index decreased 7.3 percent from one week earlier, putting the index at its lowest level since May 1997. The average contract interest rate for 30-year fixed-rate mortgages increased to 5.03 percent from 4.94 percent, with points increasing to 1.34 from 1.09 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.
Michael Fratantoni, MBA's Vice President of Research and Economics said: "As many East Coast markets were digging out from the blizzard last week, purchase applications fell, another indication that housing demand remains relatively weak....With home prices continuing to drift amid an abundant inventory of homes on the market, potential homebuyers do not see any urgency to lock in purchases."
Speaking of the effects of bad weather...New Home Sales data was released today. This survey is primarily based on a sample of houses selected from building permits. Since a “sale” is defined as a deposit taken or sales agreement signed, this can occur prior to a permit being issued. Changes in sales price data reflect changes in the distribution of houses by region, size, etc., as well as changes in the prices of houses with identical characteristics. It takes four months to establish a trend of new home purchases
The last few reports have been disappointing as new home sales have declined for three consecutive months. Economists were expecting a small increase with this month’s report. Boy were they surprised!
The release indicated new home sales plunged to a record low in January. Sales were at an annualized pace of only 309,000, that is a decline of 11%! Units sold in the Northeast fell 35.1%. Analysts were quick to point out that January was a snowy month, which, just like the mortgage applications reports, had negative effects on the New Home Sales. AQ brought up the point that snow in the Northeast was worse in February, is that a sign of more weakness to come? Check out the charts HERE
The Chairman of the Federal Reserve, Ben Bernake, gave his semi-annual report to Congress today. There were no unexpected statements made and Bernanke did not change the Fed's intentions to exit the mortgage market in March. HERE is a recap and some insight on his speech.
Lastly, the Treasury auctioned $42 billion 5 year notes today. When our government lacks the cash to pay for spending, they borrow the money by issuing treasuries. Since the supply is already known, market participants gauge the success of the auction by tracking emand. Yesterday’s 2 year note auction went very well which helped add momentum to the bond market rally already in progress. The same thing did not happen today as auction results were weaker than expected. After the release we did see some MBS price volatility but not enough for lenders to reprice for the worse.
Reports from fellow mortgage professionals indicate lender rate sheets to be about the same as yesterday. The par 30 year conventional rate mortgage is in the 4.875% to 5.00% range for well qualified consumers while a few lenders are still offering 4.75%, this rate will cost more at closing though. 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 may elect to pay less in fees, but you will have to accept a higher interest rate. Keep in mind, securing a mortgage rate is like buying anything else, you can pay more and get a better interest rate.
I have been saying all year that mortgage rates will need some sort of major shift in economic outlooks if they are to fall below 4.75% again. A surprise announcement from the Fed that extended the MBS purchase program would help to, but we find this highly unlikely at the moment. This is our long term outlook. In the short term, if you are being offered 4.75% costing 1 discount point, I would lock. If your rate moved lower by another 0.125% today (in rate, not points), I would consider locking too. If your mortgage rate did not move lower today or yesterday, it is worth it for you to float overnight again.