Mortgage rates had some bad weeks over the past month, but last week was the worst.
The "best execution" 30 year fixed mortgage rate has risen to 4.75%. This is a seven month high according to our loan pricing model. To illustrate the speed and scope of recent mortgage rate movements I offered THIS CHART <---SOBERING
The economic events calendar is busy in the day's ahead. We get an update on domestic inflation metrics, the much anticipated release of November Retail Sales data, several reports on the health of housing, industrial production, and regional business activity indexes. Plus the political landscape is filled with big decisions, specifically the extension of both Bush-era tax cuts and unemployment benefits, both of which would support consumer spending and the broader economy in 2011. These votes need to take place before the 2nd seating of the 111th Congress comes to a close on Friday (the Senate might carry over into next week though).
Also impacting the primary mortgage market this week will be headlines from the Federal Reserve, which will hold another closed meeting tomorrow to discuss the status of the economy, monetary policy and the impact of QEII asset purchases. At 2:15 the Federal Open Market Committee (FOMC) will release their policy statement. Investors are listening closely for any hints from the Fed that would imply QEII might come to an early close. Not many economists expect this to happen but we are still listening for subtle signs.
Here at MND we anticipate the Fed's policy statement to paint a mixed picture that leans clearly toward the "slow, segmented economic recovery" camp. Businesses are investing in technology that will drive productivity in the workplace (automation/robots), consumer spending is growing albeit modestly and will continue to grow if tax cuts and unemployment benefits are extended by Congress, but the overall economic outlook is still constrained by excessive weakness in the housing and labor markets as well as a huge budget deficit (probably won't hear the Fed mention that though). We would expect this event to be favorable to mortgage rates, but the short- term outlook for consumer borrowing costs just isn't that simple at this time of the year....
I say "this time of year" because it is year-end on Wall Street and investors are generally distracted by holiday events and administrative tasks aimed at cleaning up balance sheets for annual reporting. The resulting effect is less participation in the bond market and increased volatility. If you've been reading the blog lately, that volatility has been obvious. Visit the link above to see that volatility illustrated on a chart.
Mortgage lenders have year-end activities too and they impact loan pricing. In general lenders are more reluctant during the holiday season to get aggressive with mortgage rates (relative to MBS prices). This slows loan production and gives the operations staff and management a chance to prepare for a new year. Unfortunately that implies we probably won't see any significant improvements in the "best execution" par 30 year fixed mortgage rate at least until next year....regardless of any significant improvements we might see in the benchmark bond market.
Plain and Simple: For 30 year fixed mortgages, there is a clear line of demarcation between 4.625% and 4.75%. If you are looking to close in the next 2 weeks...4.75% is your likely target. Very-well qualified borrowers should shoot for no points. If you are quoted anything below 4.75% with acceptable buydown costs (see chart link above), you should take it.
Important Mortgage Rate Disclaimer: Loan originators will only be able to offer these rates on agency conforming loan amounts to borrowers who are have a middle FICO score over 740 and enough equity in their home to qualify for a refinance or a large enough savings to cover their down payment and closing costs. If the terms of your loan trigger any risk-based loan level pricing adjustments (LLPAs), your rate quote will be higher. If you do not fall into the "perfect borrower" category, make sure you ask your loan originator for an explanation of the characteristics that make your loan more expensive. "No point" loan doesn't mean "no cost" loan. The best 30 year fixed conventional/FHA/VA mortgage rates still include closing costs such as: third party fees + title charges + transfer and recordation + escrows (things like upfront MIP (if required), property taxes, homeowners insurance, accrued interest)".