Mortgage rates moved a few basis points lower yesterday after lenders passed along the loan pricing improvements we should have been awarded on Friday afternoon. It was a volatile day in most financial markets, with the exception of mortgage-backed securities which traded in a very tight range. No lenders repriced for the worse. No lenders repriced for the better. It was a sideways day for mortgage rates. READ MORE
This morning we received two economic reports that provided a look into the health of the U.S. housing market. First out was the Weekly Mortgage Bankers Association Applications Index.
The Mortgage Bankers Association application survey covers over 50% 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. In a low mortgage rate environment, a trend of increasing refinance applications implies consumers are seeking out a lower monthly payment which can increase disposable income and consumer spending (or give consumers a chance to pay down other debts like credit cards). A falling trend of purchase applications indicates a decline in home buying interest, a negative for the housing industry and the economy as a whole.
Since the homebuyer tax credit expired on April 30, purchase applications have declined sharply. This was to be expected though. On the other hand, a global stock market sell-off and flight to safety into risk averse assets like U.S. Treasuries has helped push mortgage rates almost as far as the record lows we witnessed last spring. Low mortgage rates have led more borrowers to consider a refinance so the MBA's refinance application index has greatly improved over the past month. More of the same was offered by today's report....
In the week ending May 28, purchase applications fell 4.1% to a new 13 year low while refinances rose 2.4%, which marked the fourth consecutive week of increasing refinance demand. If you have been considering a refinance, now is a great opportunity as mortgage rates are still near the all time record low.
Our final report on the day was Pending Home Sales. Released by the National Association of Realtors(NAR), the Pending Home Sales Index measures the number of sales contracts signed to purchase existing homes, not newly constructed houses. A sale is listed as "pending" when a contract to purchase an existing home (single-family, condos, and co-ops) has been signed but the transaction has not closed. A signed contract is not counted as an actual existing home sale until the transaction closes. This data has a two month lag, so today's release looks at sales contracts signed in April, before the homebuyer tax credit expired.
The NAR reported that Pending Home Sales rose 6% in April, which was higher than the 5% increase economists had forecast. On a year over year basis, pending home sales are up 22%. With homebuyer tax credit officially expired, market participants will be paying a great deal of attention to housing data released in June that covers buyer demand in May. Many economists believe the economy will undergo a slow recovery unless housing picks up momentum in the months to come. READ MORE
Reports from fellow mortgage professionals indicate loan pricing to be similar to the rate sheets offered by lenders yesterday. This leaves the best par 30 year fixed conventional mortgage rate in the 4.625% to 4.875% range for well qualified consumers. 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 accessing equity in your home, you should expect either higher closing costs or a slight bump to the interest rate.
Like yesterday, I continue to favor locking as mortgage rates are holding steady near historically low levels. If you wish to float in hopes of rates dipping further, keep an eye on stocks. If stocks move higher, rates will move higher. If stocks sell-off, rates will either hold at present levels or decline further. There isn’t much room for rates to move lower, so there is more risk involved in floating compared to the rewards of floating. Remember, mortgage rates always rise much faster than they decline. The only borrowers who should be waiting to lock are those who are close to being able to get 15 day pricing or 30 day pricing as opposed to 30 or 45 day pricing. If you are one of these folks, you might want to consider locking before the Employment Report is released on Friday morning. Economists say that May was a strong month for the labor market. If the report is as expected, it will likely drive mortgage rates higher.