The relentless mortgage rate rally continued yesterday. Lenders were seen offering the most aggressive loan pricing of our lifetime, again, as stocks extended their losing streak and risk-averse investors piled funds into government guaranteed U.S. Treasuries.
High demand for risk free has bonds led mortgage-backed securities to record prices, allowing lenders to price mortgage rates at the lowest rates reported since the formation of the secondary mortgage market.
Out early this morning was the Mortgage Bankers Association's Weekly Applications Survey. The MBA loan applications survey covers over 50% of all US residential mortgage apps taken by mortgage bankers, commercial banks, and thrifts. Survey data gives economists a sample of consumer demand for mortgage loans. In a low mortgage rate environment, a trend of increasing refinance applications would imply consumers are seeking out lower monthly payments. If borrowers are able to qualify for lower payments, their disposable income would rise which could lead to increases in consumer spending (or give consumers a chance to pay down other debts like credit cards). A falling trend of purchase applications indicates consumer demand for new and existing homes is on the decline, a negative for the housing industry and the economy as a whole.
Since the homebuyer tax credit expired on April 30, purchase applications have plummeted, but that was to be expected. On the other hand, the flight to safety into government bonds has been supportive of low mortgage rates. As consumer borrowing costs have declined, more consumers have been able to refinance their home loans, and the MBA's refinance index has reflected it! That trend continued today...
The Refinance Index increased 12.6 percent from the previous week and is the highest Refinance Index observed in the survey since the week ending May 22, 2009. The refinance share of mortgage activity accounts for 76.8 percent of all loan applications, which is the highest refinance share observed in the survey since April 2009.The Purchase Index decreased 3.3 percent from one week earlier.
Michael Fratantoni, MBA’s Vice President of Research and Economics said:
“Amid continuing financial market volatility, mortgage rates dropped again last week, with rates on 15-year loans reaching a record low for the MBA survey. Refinance applications jumped in response, but remain at about half the level seen in the spring of 2009, Purchase applications declined for the seventh time in the last eight weeks, keeping the purchase index near 13-year lows.”
HERE are a few survey data charts. If you've been considering a home loan refinance, now is a great time to contact and mortgage banker or broker to begin the loan application process.
The next event on the calendar was the release of private sector job creation data: the ADP Employment Report. This release provides market watchers with a sneak peek into the health of the labor markets. The timing of this release occurs is important because it occurs when the market is anticipating the government's official job market economic report: the Employment Situation report, which is due out this Friday at 8:30am eastern.
Historically, the ADP report has varied greatly from the official employment report, but its accuracy has been improving more recently. The biggest difference between the two jobs report is the ADP numbers do not take into account government hiring, only jobs created in the private sector. Since our economy is driven by consumer spending, higher unemployment would imply consumers had less money to spend, a negative for corporate profits and stock markets but a generally positive thing for mortgage rates.
Today’s release was very disappointing. The private sector added only 13,000 jobs in June, this was well short of estimates which called for 60,000 added jobs. The report issued in May was was revised for the better though, albeit only 2,000 jobs to 57,000. The market now turns its attention to the official jobs release on Friday. It is expected that 110,000 jobs were lost in June. Economist forecasts also anticipate an uptick in the employment rate, from 9.7% to 9.8%.
The final report on the docket today: Chicago Purchasing Managers Index. This data gives us a look into the strength of the manufacturing sector of our economy. It measures the strength of business conditions in the Chicago region. Index values over 50 imply the sector is growing. Index values below 50 imply the sector is contracting. In May, the Chicago PMI came in at 59.7, down sharply from the April print of 63.8, which was the highest read in over 3 years. In June, the Chicago PMI declined again, this time to 59.1. While the matched forecasts, it is the second month where the index value failed to improve.
Lender rate sheets were priced slightly less aggressive today, but total consumer borrowing costs are generally unchanged. The par 30 year conventional rate mortgage remains in the 4.375% to 4.625% range for well qualified consumers. There are a few lenders offering 4.25%, but borrowers would have to pay up to 2 points to obtain that quote. To secure a par 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.
I still favor locking. Mortgage rates are at record lows and significant improvements are unlikely in the near future for technical reasons described in THIS POST