Mortgage rates held steady near the best levels of the year yesterday as both benchmark Treasury yields and mortgage-backed securities prices moved sideways despite a late day rally in stocks.
The economic calendar was a bit busier today. 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.
This data released this morning was disappointing on both the refinance front and the purchase front.
In the week ending June 4, purchase applications fell 5.7%. Since the end of the tax credit just 4 weeks ago, purchase applications have declined by a whopping 35%. Refinance activity, which has shot higher as mortgage rates have fallen recently, took a large step backward last week, dropping 14.3%. This ended a four week streak of increasing refinance demand. With mortgage rates steady at the best levels of the year, it is troubling to see refinance demand decline. This implies most people who are qualified to refinance their loan have already done so, leaving mostly underwater and jobless homeowners left in the pool of possible borrowers. If you've been considering a refinance, now is a great opportunity as mortgage rates are holding near all-time record lows. READ MORE SEE CHARTS
The Treasury conducted their second auction of the week today, this time the bond market needed to bid on $21 billion 10-year notes. Since the life of new mortgage loans is about 10 years, today’s auction is more relevant to mortgage rates vs. the 3-year note auction yesterday. Demand for this issue was strong and the Treasury market rallied after the release of the results.
At 2pm the Federal Reserve released the Beige Book, named that simply for the color of its cover. The Beige Book is a compilation of anecdotal information and data on current economic conditions across the country. The findings are not the views of Federal Reserve officials...instead, each Federal Reserve bank interviews key business contacts, economists, market experts, and other sources in their specific district. This report is published eight times a year. The findings indicated economic activity continued to improve since March, albeit at a "modest" pace. The findings stated that shadow inventory remains a constraint on housing and credit conditions continue to tighten. READ MORE . No real surprises were seen in the report.
Mortgage rates moved slightly higher this morning as stocks rallied and MBS prices ticked lower. About the time the 10-year note auction results were released stocks began to fall and interest rates improved, but not enough to warrant reprices for the better. However late in the day, right before the close, stocks sold off and MBS prices rallied to another new record high as investors moved money into risk averse U.S. Treasuries. This allowed lenders to reprice for the better which pushed mortgage loan pricing to the same levels seen yesterday.
The par 30 year conventional rate mortgage remains in the 4.50% to 4.75% 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. For consumers with lower FICO scores or higher loan to values, you should consider a FHA loan which offers similar pricing, lower FICO score requirements, but higher costs.
While the par 30 year fixed mortgage rate has fallen to 4.50%, total consumer borrowing costs haven't improved to the same extent. Most loans are still being written at 4.75-5.00% depending on the credit characteristics of the borrower. THIS POST EXPLAIN WHY...it is a must read for consumers.
After reading that commentary...I definitely still favor locking! Like yesterday, the only loans I would consider floating are those that are a day or two away from a shorter lock-in period, which offers better pricing.