Mortgage rates had a great day yesterday, improving twice. Once in the morning when lenders initially published rate sheets, then once again in the afternoon, following the release of the FOMC statement. Lenders were hesitant to share loan pricing improvements, but by day’s end all lenders had repriced for the better, pushing consumer borrowing costs back to where they were last Tuesday, which was the best day to lock last week.
The Fed's outlook is one of slower economic growth and below target inflation. This is a great concern to many economists and one of the main reasons the Fed hinted at another debt purchase program, more commonly known as "Quantitative Easing". This was a double whammy for the bond market, in a good way. First and foremost, the Fed's generally uncertain outlook keeps investors nervous, which helps raise demand for benchmark Treasuries and agency mortgage-backed securities. This is called "flight to safety" into risk averse assets Furthermore, if the Fed were to buy more debt, the market believes Treasuries are a potential target. This would help keep benchmark yields low as demand would be even more stable with the Fed's buying. READ MORE
We only had one economic report on the calendar today and it was not a market mover. The Mortgage Bankers Association released their weekly Applications Survey. This data shows the weekly change in the amount of loan applications taken by major lenders. The purchase index fell 3.3% while refinances slipped 0.9% for the third straight weekly decline. AQ provided additional perspective HERE
Lender rate sheets improved again this morning. The par 30 year conventional rate mortgage remains in the 4.25% to 4.50% range for well qualified consumers, but there are now several lenders offering 4.125%. 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 have a lower FICO score or a higher loan to value, you should consider a FHA loan which offers similar rates but with higher closing costs.
If you were floating your loan last week when rates started to rise, you probably kicked yourself for not locking. If you held out and continued floating, the decision paid off, you have recovered from those losses and are actually in better shape today. If you are within 15 days of closing, you should strongly consider locking today to take advantage of the improved lender pricing.
The data calendar picks up tomorrow with three reports. First will be the release of weekly jobless claims, this will print at 8:30am. Claims are seen holding steady at 450,000. This data will be followed by Existing Home Sales and Leading Indicators at 10am. Existing Home sales are estimated to have risen 8.4% to an annualized pace of 4.10 million. In July, existing home sales fell to a 15-year low. Leading indicators are forecast to have moved 0.1% higher.
For folks who are a little further away from their closing date or simply cannot lock in their rate yet, the HIGH RISK ALERT has been called off. This means we do not expect mortgage rates to skyrocket anytime soon. If you've been having trouble sleeping, I hope this helps (dramatic I know). If you're ready to lock in and looking to call a bottom, our strategy has been to lock at the MBS price highs and float at the MBS price lows… we are currently near the top half of that MBS price range, this is a signal to lock. From another perspective, once lenders fill up their pipeline with new applications (capacity constraints), loan pricing tends to suffer, so don't wait too long because lenders might take it upon themselves to push rates higher in an effort to slow down their loan production. This will likely play a major role in lender loan pricing strategies in the day's ahead. READ MORE ABOUT THIS ISSUE