Mortgage rates just had another one of those "back and forth" weeks. Fortunately, while the road was rocky (lots of reprice alerts), total consumer borrowing costs went into the weekend near their most aggressive levels of the year, only slightly above record lows. The latest round of "ups and downs" was different though. Since early April mortgage rates have generally mirrored the movements of stocks. As equities rallied, loan pricing worsened and mortgage rates rose. As stocks sold, loan pricing improved and mortgage rates fell. This relationship generally dictated the direction of mortgage rates, that is until late last week when the "stock lever" began to lose its predictive abilities.
Although the economic calendar isn't jammed packed in the week ahead, the data and events on the ballot carry more potential to move interest rates. We have two important housing releases on Tuesday and Wednesday followed by the FOMC monetary policy decision on Wednesday. After that we get a view into consumer demand with Durable Goods Orders and final revisions to first quarter Gross Domestic Product. Also in the mix are three Treasury auctions and the release of new housing policy strategies from the Obama Administration.
Here is a closer look at some of the events that will move markets in the week ahead:
- Existing Home Sales: Many economists believe housing must fully stabilize and begin to improve before the overall economy can gain recovery momentum. This makes tracking home sales data of much more importance today than in past years. (potentially high impact)
- FOMC Meeting Starts: The Federal Open Market Committee meets 8 times a year to set our nation’s monetary policy. If economic growth is weak, the FOMC can lower interest rates (or keep them low) to give the economy a jump start. However, in times of aggressive economic growth the FOMC may raise short-term borrowing costs to slow economic activity and prevent inflation. (will slow down trading in markets)
- Treasury Auction: $40 billion 2 year notes. (low to medium impact)
- Weekly Mortgage Applications (low to medium impact)
- New Home Sales: The Home Buyer Tax Credit has expired and market participants are looking to get a sense of future economic activity without the support of government incentives (potentially high impact)
- Treasury auction: $38 billion 5 year notes. Since the life of a mortgage is much closer to 5 years than 2 years, this auction has more potential to move mortgage rates.(medium to high impact)
- FOMC Meeting Ends: The Federal Reserve will release their statement on monetary policy at 2:15pm. If the statement gives any hint of inflationary concerns, mortgage rates will be pressured higher. We expect to the Fed to show more concern for the health of housing. (potentially high impact)
- Durable Goods Orders: This data tell us the month over month change in new orders for durable goods. A busy factory means there is demand for durable goods, which implies the engines of American economic growth are running. (high impact)
- Weekly Jobless Claims: Recent reports have shown jobless claims holding at stubbornly high levels. This implies companies are still hesitant to hire new staff as economic conditions remain uncertain. (medium impact)
- Treasury auction: $30 billion 7 year notes. This new supply is $1billion less than last auction of similar notes. Since the life of a mortgage is closer to 7 years than 2 years, this auction has more potential to move mortgage rates. (medium to high impact)
- Gross Domestic Product(GDP): This is the second and final revision to the first estimate of U.S. Economic Output. The "Advance" print was +3.2%, the Preliminary was +3.0%. (Medium impact)
- Consumer Sentiment(medium impact)
HERE is the full economic calendar
HERE is more perspective on the behavior of markets
The economic calendar was empty today and mortgage rates reconnected with stocks. The day began with equities rally and interest rates selling off. This forced lenders to worsen loan pricing, which increased consumer borrowing costs. However around mid-day stocks sold off and benchmark interest rates improved. This pushed mortgage-backed security prices higher and allowed most lenders to reprice for the better. After new rate sheets were published by lenders, mortgage rates were priced similar to Friday.
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. In terms of total consumer borrowing costs, we continue to see most borrowers closing their loan around 4.875%. If you have lower FICO scores or a higher loan to value, you should consider a FHA loan which offers similar rates but higher costs.
I continue to see limited benefit in floating your mortgage rate as improvements have been minimal and the par mortgage rate has generally held steady in a tight range. Plus lenders have proved themselves unwilling to push the par mortgage rates below 4.50%. If you are within 30 days of closing I recommend locking at current rates.