Many mortgage lenders began yeserday with a conservative rates strategy after ealy weakness in the mortgage backed securities market. But as the day progressed, and it became apparent that stocks were languishing, both treasuries and MBS improved to the best levels in nearly two months. This allowed many of the lenders, who were priced conservatively at the outset, to issue price improvements by day's end.
Though Friday brings us the extremely important Employment Situation report, today's data is certainly causing some commotion. First up was the ISM data, which came in at the highest level since 2006. That would normally be a huge benefits to stocks, but that was not the case. Stocks moved much lower and treasury prices rose after this "better than expected" data was released. Perhaps the stock market has run out of gas? To read more on this data click here.
We also received two housing related reports this morning. First was Construction Spending which measures the monthly change in the dollar value of new construction activity. With a glut of existing homes on the market, the less new construction would help to liquidate the existing inventory. Last month’s reading on construction spending unexpectedly improved over the prior month and economists surveyed are expecting a flat reading for this report. The report indicates that construction spending for July declined more than expected posting a month over month decrease in construction spending of 0.2%. READ FULL STORY
The final report today was the Pending Home Sales Index from the National Association of Realtors. This tracks purchase transactions that are in process, but not yet closed. With tougher underwriting standards and the Home Valuation Code of Conduct creating roadblocks to qualification, many more purchase contracts are falling out. Despite that, today's number were improved and in fact marked the sixth consecutive increase. The current index level is the highest since June of 2007. It appears that the government stimulus for first time home buyers is having a positive effect on the housing sector along with low prices and attractive mortgage rates. I suppose the catastrophically lower prices might have something to do with it as well. For more on this report, click here.
While on the subject of pending home sales, I would like to hear from you. Have any of you started to buy a home but the loan did not close? Or if you are in the industry, what percentage of new home purchases are falling out in your pipeline and what is the major cause of the fallout?
Reports from fellow mortgage professionals are indicating that the par 30 year conventional rate mortgage remains in the 4.875% to 5.125% range for well qualified consumers. If you are looking to secure a 15 year fixed rate mortgage, you should expect a par rate between 4.375% to 4.625%. As always, to secure a par interest rate you must have a loan to value of 80% or less and pay all closing costs including one point loan origination/discount/broker fee. If you are securing a 30 year fixed rate, you must have a FICO credit score of 740 to get a par rate. If your credit score is lower you will either have to pay additional fees or take a higher interest rate. For consumers looking to secure a 15 year fixed rate, you only need a FICO score of 620 to qualify for the par rate.
Mortgage backed securities remain at the top of the current trading range. With the Employment Situation report looming I will continue to advise that locking is the best strategy. Rates today are as low as they have been for the last couple months. Though positive economic data is generally expected to bring about weakness in MBS, recently, the market has been fond of throwing curveballs. Keep in mind that rates move higher faster than they move lower. If you have been floating over the last few weeks, you have already picked up some gains and now is time to cash in.