Mortgage rates held steady near aggressive levels yesterday. While we had more than one scheduled economic release to digest, trading in the bond market was slow as several overseas markets were out on holiday.
Over the past week mortgage rates have slowly improved thanks to market participants allocating their investments into risk-free Treasuries. This "flight to safety" has been driven by concerns that Greece and possibly other members of the European Union may end up defaulting on their government debt obligations (called sovereign default risk). This rush to risk averse assets led to lower benchmark Treasury yields and higher mortgage-backed security prices, which allowed lenders to offer lower mortgage rates. Unfortunately lenders have been slow to pass along improvements and mortgage rates have held to a relatively tight range.
We have two economic reports to discuss today. Factory Orders and Pending Home Sales.
The Department of Commerce released the monthly Factory Orders report at 10am. This data represents the value of new orders placed for both durable and non-durable goods. Durable goods are products that have a life expectancy of at least three years such as autos, computers, machinery. Non-durable goods are products that can only be used one time or a product with less than a three year life expectancy. New orders is a forward looking indicating of industrial output. If orders are increasing, it indicates manufactures will be busier in the months ahead as they ramp up production to meet the demand. Busier factories can lead to additional hiring which is good for the overall economy and the equities market. To remind readers, as a general rule positive economic data benefits the stock market while negative economic data benefits the bond market and low mortgage rates.
The report showed factory orders were much higher than expected. New orders for manufactured goods rose 1.3% in March. On top of that, last month’s report was revised higher to match today’s increase of 1.3%. On the downside, orders for Durable Goods fell 0.6% which snapped a four month streak of improved orders.
The second economic release of the day gives market watchers a look into the housing sector: Pending Home Sales. This data shows the monthly change in the amount of existing homes, not new construction, in which a contract has been signed, but has not closed. This is a leading indicator of housing activity and economic momentum as consumers would have to feel pretty confident about their own finances to purchase a home. Additionally, when a home is purchased, there are many other items needed to furnish the home, this adds to consumer spending which benefits the overall economy.
The data in this report has a one month lag, so today’s data is for the month of March. The National Association of Realtors reported that Pending Home Sales rose 5.3% in March, which was better than economist forecasts. Year over year, Pending Home Sales are up 21% thanks to the Home Buyer Tax Credit and very low mortgage rates. It will be interesting to see over the next couple months the impact of the expiration of the tax credit on housing demand which is so crucial to our overall economic recovery. AQ wrote on some of the factors that go into a stabilization of the housing market. READ MORE
The market's nervous sentiment surrounding Greece carried over into today's trading session which has once again led to a flight to safety into the bond market. Benchmark Treasury yields moved lower as investors flocked to risk averse assets, this pushed MBS prices higher and allowed lenders to pass along modestly improved mortgage rates.
Reports from fellow mortgage professionals indicate the par 30 year conventional mortgage rate still remains in the 4.875% to 5.125% range for well qualified consumers. There are a few lenders offering 4.75%. To secure a par interest rate on a conventional mortgage 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. If you are seeking a 15 year term, you should expect par in the 4.25% to 4.50% range with similar costs but lower FICO score requirements.
This morning’s rate sheets are the best ones we have seen since the Fed ended its MBS purchase program at the end of March. I favor locking all loans closing within 30 days.
On a side note, if your loan amount is over Fannie Mae and Freddie Mac limits, CitiMortgage sharply reduced rates on jumbo loans today. The CEO announced that the company cut rates (raised prices) on 30-year fixed-rate and 5/1 adjustable-rate loans.