Mortgage rates improved to new record lows last week, rallying in five straight sessions before finally reversing course following the release of the Employment Situation Report. There was no fundamental reason behind the late week rise in mortgage rates. Profit taking in a quiet trading environment was blamed for the weakness. After lenders repriced for the worse, par 30 year fixed mortgage rates still went into the weekend priced under 4.25%. We actually saw some lenders offering 3.75% plus points!
The bond market was closed yesterday in honor of Columbus day, shortening the week ahead by one business day. One less day or not, there is plenty of data and several events that carry the potential to move the markets.
First and foremost, the Federal Reserve released the Minutes of their September 21 monetary policy meeting today. This was a highly anticipated event as most investors are assuming the Federal Reserve is planning to announce another "Quantitative Easing" (QE) program sometime before their first meeting of 2011. QE is expected to be highly supportive of record low mortgage rates, but there has yet to be any indication that consumer borrowing costs will move to levels more aggressive than what lenders were offering last week.
The FOMC's meeting Minutes were not surprising to market participants. They basically reaffirmed what we already knew, that the FOMC is planning another QE program. READ MORE
As for the rest of the week, tomorrow is a slow day but the economic calendar picks up on Thursday and Friday. On Thursday we get International Trade, Weekly Jobless Claims and the Producer Price Index. The Producer Price Index(PPI) tracks inflationary pressures at the producer level and is the most important release of the day. The Fed has stated over and over that inflation is of little concern today and all recent reports have even indicated that deflation is creeping into our economy. This is one of the reports the Fed is watching closely. A weak read on PPI will further cement more QE.
The most important data of the week will be released on Friday: CPI and Retail Sales. The Consumer Price Index measures inflationary pressures at the consumer level while Retail Sales measures the monthly change in the total receipts at stores that sell durable and non-durable goods. Bonds and mortgage rates would benefit from lower than expected inflation and retail sales. We also get the University of Michigan’s Consumer Sentiment survey. This report lets market participants know whether consumers are optimistic about the economy or pessimistic. An optimistic consumer is more likely to spend which benefits stocks and corporate profits, while a pessimistic consumer is more likely to save and pay down debt which supports low interest rates. Unfortunately a pessimistic consumer is unlikely to buy a home, so the positives of low mortgage rates seem to be outweighed by the negatives of less demand for home purchase loans.
Other important events in the week ahead include Treasury auctions, Federal Reserve speakers, and the beginning of earnings season. With interest rates so low and the data calendar empty tomorrow, we wouldn't be surprised to see borrowing costs rise tomorrow morning before Treasury auctions 10 year notes.
HERE is the full events calendar
Mortgage rates rose slightly today but all-time lows are still available, these quotes will however cost borrowers a little more at the closing table. The best par 30 year fixed conventional mortgage rates remain in the 4.00% to 4.25% range for well qualified consumers. Rates below 4.00% are still available but closing costs are higher than they were last week. If you're seeking a shorter term mortgage loan, 15 year rates are holding in the 3.50% to 3.75% range. To be considered well qualified, you must have a FICO credit score of 740 or higher. Lower FICO scores will either have to take a higher interest rate or pay additional costs due to Loan Level Price Adjusters(LLPA’s). A consumer with a 680 FICO score and a loan to value at 80% will have to pay an additional 1.5% of the loan amount to get the same rate quote as a person with a 740 score. As a note, LLPA’s are not factored in when choosing a 15 year term so a 680 score gets the same quote as a 740 score.
If you're being quoted a base rate at or below 4.125%, we think you'd be crazy not to lock it up. If your base rate is above 4.25%, there is room for you to float in hopes of being quoted a lower note rate (without seeing a big change in your borrowing costs on a day to day basis).
If you are a consumer looking to refinance your loan, we recommend you submit a loan application as soon as possible. This will ensure you are capable of locking in your borrowing costs if mortgage rates touch record lows again or begin to rise.