Last week was a very nice for mortgage rates. The economic data was mixed, some pointing toward economic growth, while some hinted at difficulty ahead for the recovery. Despite the mixed data, the prices of mortgage backed securities approached the highest levels of the year bringing mortgage rates to 5 month lows. After hitting the highs of the year early on Friday, MBS lost ground and many lenders repriced for the worse. But it's important to note that closing prices merely returned to morning levels. There is a possibility that we are beginning to see a shift in economic outlook away from the quick V shaped recovery toward a more painful W(double dip) shaped recovery. If this holds true stocks could move lower benefiting MBS and treasuries.
Following last week’s plethora of tier one economic reports, the week ahead (full MND STORY as always) is rather light on data. ISM Non-Manufacturing Index. The Institute for Supply Management survey was today's only release and was very close to expectations. This report measures about 400 firms including agriculture, mining, construction, retail, etc… on their economic outlook. Readings above 50 indicate expansion while readings below 50 indicate contraction. Unlike its sister report, ISM Manufacturing index which measures the strength of the manufacturing sector of our economy, this report has yet to register a reading over 50 but economists surveyed expect this month’s report to come in at the breakeven level of 50. The report indicates that the non-manufacturing sector of our economy is expanding with a 50.9 reading.
Tuesday brings us no economic data but we do have round one of scheduled Treasury auctions which were announced last week. The U.S. Department of Treasury will offer up $39billion of 3 year notes to the highest bidder. Since the supply is already known, market participants will gauge the success of the auction by looking at the demand including that of foreign investors. Despite record amounts of government borrowing, investor appetite for US debt has remained robust. This helps mortgage rates remain near historic lows. Later in the evening, Kansas City Federal Reserve Bank President Thomas Hoenig will speak to an economic forum in Denver. Any time fed members and voting member of the FOMC speak, market participants pay attention for any hint at future monetary policy and their outlook on the economy.
Though not empty, Wednesday's calendar is also light with the only relevant report being the weekly Mortgage Bankers’ Association applications index (measures the weekly change in mortgage applications). Despite record low mortgage rates, very affordable home prices and government incentives for first time home buyers, last week’s report fell over 6% indicating slowing home sales). Round two of Treasury auctions arrives later in the day with the U.S. Department of Treasury offering up $20billion in 10 year notes.
Thursday brings us the weekly jobless numbers which are expected to show less claims than the prior week continuing the recent trend of improvement. Additionally, the last auction of the week will be held with $12billion of 30 year bonds. Lastly, Thomas Hoenig will deliver his second speech of the week but this time to an economic forum in Oklahoma.
The week wraps up with the highest impacting report, International Trade numbers. This data measures the difference between what our country imports and exports. Last month’s report showed our trade balance widening significantly to $32billion from a revised $27.5 billion in July, and economists surveyed expect further widening in this month’s report to $33billion.
Update On First Time Homebuyer Tax Credit!
As I have mentioned quite frequently on the blog, the first time home buyer tax credit which gives up to a $8000 tax credit to first time home buyers is set to expire on November 30th. YOUR LOAN MUST CLOSE ON OR BEFORE THAT DATE TO TAKE ADVANTAGE OF THE GOVERNMENT STIMULUS!!! The Wall Street Journal reports that congress is considering extending the tax credit (read story...) .
Since many believe that our economy will have a difficult time recovering until the housing market improves, the extension is possible. However, if you are looking to take advantage of this incentive do not count on it being extended. The aforementioned article gives viewpoints on both sides of the debate. As the deadline approaches, volume at lenders should pick up as applicants rush to take advantage so I expect lenders turn times to be extended. Additionally, we are seeing the best rates since early this year which is also increasing volume at lenders so be prepared for longer turn times. As it is right now, if your loan for any reason closes after November 30th, there will be no soup for you.
Early reports from fellow mortgage professionals are indicating that the par 30 year conventional rate mortgage is in the 4.625% to 4.875% range for the best qualified consumers. In order to secure a par interest rate on a 30 year 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.
The last time rates were at the current levels, lenders got slammed with business as applicants rushed to take advantage of the low rates. With the increased volume, lenders started to raise rates as a way to slow down the submission of applications and not because MBS moved lower in price! Granted, many people that could refinance have done so already but the possibility exists that lenders may repeat what they did in the past. Looking at recent history and learning from it, makes me continue to caution you on floating. MG discussed this as well in his opening commentary (MG and AQ write for the mortgage professional, so it's more abstruse to the average consumer, but if you can glean the wisdom, it's valuable stuff).