Last week consumers who were floating loans watched mortgage rates rise almost 0.25% by Friday. After touching five month lows in the previous week, better than expected economic data and corporate earnings reports pressured prices of mortgage backed securities lower which resulted in lender's raising the par 30 year mortgage rate to 4.875% (at best) . To remind readers, as the prices of MBS move lower, lenders offer higher mortgage rates.
Today brings little for the markets to digest, however ederal Reserve Chairman Ben Bernanke will be delivering a speech in California. Anytime he speaks, market participants pay attention for any hint at future monetary policy and his economic outlook. His words definitely have the ability to move the markets. Additionally, we are still in the midst of corporate earnings season with many companies announcing third quarter results. More than 130 companies in the S&P 500 are scheduled to report this week alone.
Tuesday brings a few noteworthy reports. First is monthly Housing Starts. This data totals the number of homes in which construction has begun. Recent reports have shown new home construction moving higher and economists’ surveyed are expecting that trend to continue this month. This data is very significant for the ripple effect it can create throughout our economy. More new homes being built leads to more construction jobs, increased buying of materials to build and items to fill the home which helps to increase retail sales and corporate profits. We also get a read on inflation with the Producer Price Index which measures the monthly change in the average price level of a fixed basket of capital and goods received by producers. Last month’s report did show a large increase in producer prices led by a surge in energy prices and this month’s report is expected to show a decline in prices.
Thursday we get the weekly read on Initial Jobless Claims numbers and the Leading Indicators release. Jobless numbers are expected to show continued improvement in the jobs sector while Leading indicators are expected to show continued improvement in our economy. Additionally, the Treasury will announce the terms of next week's 2 year, 5 year, and 7 year note auctions. The total amount should be in the $110 to $115 billion range. So far this year, despite record amounts of government borrowing, demand for our nation’s debt has remained quite strong. This strong demand is one of many factors that have contributed to keeping mortgage rates near historic lows.
The week wraps up with Existing Home Sales. This data set totals the number of already constructed homes that were sold in the prior month. While last month’s report indicated a decline in home sales from the previous month, September numbers are expected to rebound to an annualized pace of 5.35 million existing homes sold. Many believe that the macroeconomy will find it difficult to recover until housing stabilizes and shows continued signs of improvement.
Besides the data calendar, markets will get a heavy dosage of Fed speakers this week. For more on the week ahead, read the MND Week Ahead post.
Lately I have been reminding readers of the expiration date of the First Time Home Buyer Tax Credit. The American Recovery and Reinvestment Act of 2009 authorizes an up to $8000 tax credit to any first time home buyer that closes a loan on or before November 30th on a primary residence. To qualify you must not have owned a home in the prior 3 years and must make less than $75,000 if filing single or $150,000 for a married couple filing jointly. The amount of the credit is reduced if your income is higher and completely goes away if your income exceeds $95,000 if single and $170,000 if married filing jointly. Currently the credit is being extended for veterans of our armed forces who have served overseas for at least 90 days during 2009. Here is a link to the IRS website for more information and the appropriate forms that must be completed to get the credit. To receive the tax credit you can either amend your 2008 returns or wait until you file your returns next year.
With the end date approaching, we are already seeing turn times at lenders for loan approval increasing. For any reason, if your loan closes after November 30th you will not get the credit. There is talk on Capitol Hill about a possible extention of the credit, but as of right now it is scheduled to expire on November 30. If you are seeking to take advantage of this stimulus program I encourage you to get your loan application submitted as soon as possible, even if you don’t have a property picked out yet. Some lenders will still underwrite and conditionally approve a loan with a “to be determined” address but you will need to finalize your selection of a home before you receive a final approval. Lenders will not allow you to lock an interest rate with a “TBD” address.
Reports from fellow mortgage professionals indicate that the par 30 year conventional mortgage rate remains in the 4.875% to 5.125% range for well-qualified consumers. To secure a par interest rate 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. You can elect to pay less in fees and secure a higher interest rate.
The biggest concern for higher mortgage rates in the week ahead is largely a function of communications from the Federal Reserve. Unless the Fed openly implies they will begin raising short term interest rates in the near future, which would be a factor of an improving labor market or increased inflationary pressures, we expect mortgage rates to remain near current levels in the week ahead.