Interest rates were below 4% on a 30-year fixed only a month ago..whats going on now? Rates have moved up .75% in a months time due to the quantitative easing 2, improved economic indicators, and government actions that will increase our deficits.
Home buyers and folks who have hit the pause button in December will wake up on New Years day (or just after) to rates that are significantly higher than they expected. Though these rates are still very attractive in comparison to historic averages this rise in rates will either force buyers to lower their price point, put more down, or be ready to assume a higher payment for the same house.
I have folks tell me they are going to wait a little longer for values to come down further. Here is a real lesson. current list price of 400k. Buyer with 20% down on a 30 year fixed mortgage at 4% would have a principal and interest payment of 1527.73/month ($320k loan amount.)
If the same buyer waited and buys next spring when rates are at 5% (hopefully not higher) to keep their payment at the same 1527.73/month the loan amount would be $284600 which would either require an additional $35,400 more down, or buy a house listed at 355,750 (assuming the same 20% down.)
Most buyers don't have an extra $35k laying around so they would likely opt for the lower price. $355,750 would represent an 11% reduction in value. What does all this mean. It means if prices fall 11% and rates go up to 5% you just waited to get the same monthly payment. As rates go up further you can see that the payment increase will require a much larger drop in values. I am pretty sure rates will continue to rise, but I am not sure values will drop more than 10% in 2011.
Buyers should be anxiously looking to lock in a house and a rate early in 2011 to avoid the tough decisions that will come later in the year when rates track higher. I think rates have seen their lows and if you were waiting for a better rate you may have just missed out on that opportunity as I don't see many scenarios that put interest rates back where they were.
Wednesday, December 15, 2010
Friday, December 3, 2010
Job Report a surprise 39K
Today's job report of only 39,000 jobs created in November is way off the estimated 140,000 jobs that the market expected. This bad news is typically good for mortgage rates and we would expect rates to improve on the news. Though rates are better than they were yesterday they are not making a move lower like I would expect.
The only explanation I can come up with is that interest rates are poised to go higher no matter what news is presented. It does look like the US economy is improving little by little based on most of the economic data. This jobs report has been the only miss as of late. So I take today's big miss with little impact on rates as a sign the markets are shrugging off the figure and that would mean rates may move higher from here.
There are a lot of moving parts when it comes to interest rates, but this job report typically sets the tone for the next few weeks. I would recommend borrowers in contract to buy or refinance that haven't locked their rate be in contact with their loan originator and be ready to lock. There is a chance rates could improve slightly from here, but there is a lot of technical support to break through and I don't think that will happen...so I am recommending to my clients that they be ready to lock at the first sign of a reversal today or early next week.
Have a great weekend. Please let me know if you have any subjects you would like me to discuss in future blogs. Cheers!
The only explanation I can come up with is that interest rates are poised to go higher no matter what news is presented. It does look like the US economy is improving little by little based on most of the economic data. This jobs report has been the only miss as of late. So I take today's big miss with little impact on rates as a sign the markets are shrugging off the figure and that would mean rates may move higher from here.
There are a lot of moving parts when it comes to interest rates, but this job report typically sets the tone for the next few weeks. I would recommend borrowers in contract to buy or refinance that haven't locked their rate be in contact with their loan originator and be ready to lock. There is a chance rates could improve slightly from here, but there is a lot of technical support to break through and I don't think that will happen...so I am recommending to my clients that they be ready to lock at the first sign of a reversal today or early next week.
Have a great weekend. Please let me know if you have any subjects you would like me to discuss in future blogs. Cheers!
Tuesday, November 30, 2010
rates higher and prices lower
Today the Case Shiller Index reported home prices fell more than twice as fast as expected in September than they did in August. I know many of my clients gasp when I tell them what their home appraised for, but it would appear prices may be going lower still.
On top of home values going down interest rates have gone up about .25% over the past few weeks and seem to be poised to go higher still. For many home buyers the rise in interest rates will negate the savings from a lower sale price, but that seems to be lost in the media's reporting.
Rates fell below the 200-day moving average (MA) back on November 15th and once below this key mark its going to be tough to see rates go lower again. The FNMA 3.5% bond shows that bond traders have tried to rally back above this 200-day MA three times over the past two weeks and turned lower each time. (bond prices going higher means rates go lower and vise versa).
I have been surprised rates have managed to stay as low as they are as long as they have. If you are looking to purchase a home or have been waiting to refinance because you expected rates to go lower...you may want to reevaluate your plan and get moving sooner than later to capture these low rates.
On top of home values going down interest rates have gone up about .25% over the past few weeks and seem to be poised to go higher still. For many home buyers the rise in interest rates will negate the savings from a lower sale price, but that seems to be lost in the media's reporting.
Rates fell below the 200-day moving average (MA) back on November 15th and once below this key mark its going to be tough to see rates go lower again. The FNMA 3.5% bond shows that bond traders have tried to rally back above this 200-day MA three times over the past two weeks and turned lower each time. (bond prices going higher means rates go lower and vise versa).
I have been surprised rates have managed to stay as low as they are as long as they have. If you are looking to purchase a home or have been waiting to refinance because you expected rates to go lower...you may want to reevaluate your plan and get moving sooner than later to capture these low rates.
Friday, November 19, 2010
Rates continue to move higher
It was a rough week for mortgage rates. Rates are up about .25% for all loan products due to a jittery bond market. Ever Since the Fed announced Quantatative Easing 2 (QE2) last week mortgage bonds have gone lower; pushing up the yeilds (thus rates).
Many had heard or hoped that this round of QE2 would push rates even lower and held off on a refinance opportunity for those lower rates...turns out that was not a good decision. Most of the time my adivice to clients is that if they like the rate they are being offered they should lock it in and not worry about if things get better or worse after that moment.
Many think they can hold out for what they think will be a better rate...sometimes that gamble pays off...and sometimes it doesnt. Keep in perspective that getting a .125% better rate on a 300k loan is only $21.70 savings in their payment. $21.70 savings over 360 months (30 year loan) adds up to $7811.71. Do you really want to gamble with rates going up to save $7800 over a 30 year period?
I have been surprised with the long run of low rates. I dont expect rates to shoot through the roof quickly, but I do think that rates will go up from here and if you have an interest rate over 5.25% or are in an adjustable rate mortgage you really should jump on this opportunity to refinance to a low rate now...and not be the person trying to save $21.70/month who missed out on the opportunity altogether because rates never did go back down.
Many had heard or hoped that this round of QE2 would push rates even lower and held off on a refinance opportunity for those lower rates...turns out that was not a good decision. Most of the time my adivice to clients is that if they like the rate they are being offered they should lock it in and not worry about if things get better or worse after that moment.
Many think they can hold out for what they think will be a better rate...sometimes that gamble pays off...and sometimes it doesnt. Keep in perspective that getting a .125% better rate on a 300k loan is only $21.70 savings in their payment. $21.70 savings over 360 months (30 year loan) adds up to $7811.71. Do you really want to gamble with rates going up to save $7800 over a 30 year period?
I have been surprised with the long run of low rates. I dont expect rates to shoot through the roof quickly, but I do think that rates will go up from here and if you have an interest rate over 5.25% or are in an adjustable rate mortgage you really should jump on this opportunity to refinance to a low rate now...and not be the person trying to save $21.70/month who missed out on the opportunity altogether because rates never did go back down.
Wednesday, November 10, 2010
QE2-rates go up
The phone is ringing with clients asking how low rates have gone due to the Fed's Quantitative Easing 2 (QE2). hmmm...I guess the expectation is that with the Fed buying up Treasuries everyone thought that would push prices up...and thus the yields down (rates down.) That makes sense to me, but that isn't whats happened....why you ask?
The Fed is trying to accomplish a few primary goals.
1-to push the US dollar lower. When the dollar goes down it makes our exports seem cheaper in foreign markets thus increasing our exports. If we need to export more there will be a need for more workers to fill that demand thus improving the employment troubles.
2-because of #1 above the increase in exports will also improve the stock market...as those exports become sales the bottom line of US companies will improve and thus help the stock market move higher. An improvement in the stock market typically leads consumers to feel more 'confident' and consumers spend more of their money thus further improving the economy.
These both seem to be great goals if you are living in the US, but the trouble with these actions are that they are both designed to cause the economy to heat up and lead to improved GDP. Higher growth is good for your investments and if you want a job, but the growth is inflationary and inflation is not a good thing...above 2-3%. The Fed wants some inflation, but the trouble is that it could be hard for the Fed to control the rate of inflation in the coming years...things may heat up too much and inflation will definitely lead to higher rates. How high is the question.
Think back to the late 70's when we had massive Deflation...the Fed acted to heat things up then and if you are old enough you know what happened...rates in the early 80's were in the TEENS. Lets hope this round of Fed action will help improve the economy and that the Fed recognizes improvements early and can slow the ship before its cruising toward high inflation...and high rates.
Investors are mindful of the threat of inflation and may not be buying into the Feds plan to push bonds higher and rates lower...if investors dont buy the bonds along with the Fed the idea of lower rates may be a dream of the Feds and may not materialze for homeowners. The moral of the story is that rates are low...and may not go lower. Homeowners looking to refinance should be acting now and not wait for lower rates...4% should be low enough to encourage any thoughtful homeower.
The Fed is trying to accomplish a few primary goals.
1-to push the US dollar lower. When the dollar goes down it makes our exports seem cheaper in foreign markets thus increasing our exports. If we need to export more there will be a need for more workers to fill that demand thus improving the employment troubles.
2-because of #1 above the increase in exports will also improve the stock market...as those exports become sales the bottom line of US companies will improve and thus help the stock market move higher. An improvement in the stock market typically leads consumers to feel more 'confident' and consumers spend more of their money thus further improving the economy.
These both seem to be great goals if you are living in the US, but the trouble with these actions are that they are both designed to cause the economy to heat up and lead to improved GDP. Higher growth is good for your investments and if you want a job, but the growth is inflationary and inflation is not a good thing...above 2-3%. The Fed wants some inflation, but the trouble is that it could be hard for the Fed to control the rate of inflation in the coming years...things may heat up too much and inflation will definitely lead to higher rates. How high is the question.
Think back to the late 70's when we had massive Deflation...the Fed acted to heat things up then and if you are old enough you know what happened...rates in the early 80's were in the TEENS. Lets hope this round of Fed action will help improve the economy and that the Fed recognizes improvements early and can slow the ship before its cruising toward high inflation...and high rates.
Investors are mindful of the threat of inflation and may not be buying into the Feds plan to push bonds higher and rates lower...if investors dont buy the bonds along with the Fed the idea of lower rates may be a dream of the Feds and may not materialze for homeowners. The moral of the story is that rates are low...and may not go lower. Homeowners looking to refinance should be acting now and not wait for lower rates...4% should be low enough to encourage any thoughtful homeower.
Tuesday, November 9, 2010
Monday, May 10, 2010
Friday, May 7, 2010
Wild Ride!
the past 24 hours has been a wild one. Enjoy watching your stock portfolio fall 1000 points in a day? I dont! The upside to this crazy action is that mortgage bonds have performed well. With investors concerned about the situation in Greece and other European countries many investors are looking for safer places to put their investments. Mortgage bonds and treasury bonds seem to be where they are going. I think the big swing is over and rates will likely tick up a little next week as the fear subsides and investors see buying opportunities from the market correction.
Up.....Down....Up....Down. I would guess we will see a lot more of this until there is a clear idea on which way the economy goes. We had a good job report today...new hires were about 100k more than estimates, but then the unemployment rate went up to 9.9% which was higher than last month. These reports seem to be in conflict with each other and I am sure investors are still not clear if the worst is behind us or not.
Hold on and enjoy the ride...if you can!
Up.....Down....Up....Down. I would guess we will see a lot more of this until there is a clear idea on which way the economy goes. We had a good job report today...new hires were about 100k more than estimates, but then the unemployment rate went up to 9.9% which was higher than last month. These reports seem to be in conflict with each other and I am sure investors are still not clear if the worst is behind us or not.
Hold on and enjoy the ride...if you can!
Tuesday, February 23, 2010
Consumer Confidence Lower than Expectations
Consumer Confidence came in today well below expectations. This shows the continued disconnect with the average consumer who is feeling pretty down about job prospects and the overall economy vesus the press who wants to announce things are doing better.
Though there are signs the worst may be behind us that doesnt make the 5 million workers who are now unemployed feel much better about their own circumstances. If consumers don't feel good about their own economic future they may be less willing to part with the money they do have for discretionary spending. Ultimately if consumers aren't consuming businesses will suffer and that will keep employers from hiring new employees as well as limit the tax revenue the government recieves.
Low tax receipts will make our deficit problems continue for a longer period of time. Deficits also need to be covered (paid for) by the issuance of Treasury Bonds and the more debt we accumulate the more real inflation becomes for us in the future.
On a positive note...today interest rates are better because of the low Consumer Confidence number and the implication that low Consumer Confidence will keep inflation low. Other news that has been a help to mortgage bonds is the turmoil in Greece. With the struggles in Greece hitting front page news it is clear now that there are other countries that are weighed down with a lot of debt that are having trouble covering their bills through this recesion.
It is worth looking around the world and noticing the policies of Greece, Spain and others who have expanded the services their government offers that they can no longer afford. Accross the ocean in Japan we see very similar issues. The US is not immune to this issue. With the HUGE budget deficits the past two years we need to be taking a hard look at the road ahead and changes may be necessary...even though change would be painful for many in our society.
We should all take these stories and apply to them to our own lives. If you are going to buy a home always make sure you are purchasing a home that you can afford and make sure you have funds available for that 'rainy day' as things aren't always going to be rosey. I would love to help you work through your budget to find the right price point for your family if you are looking to purchase a new home while the buyer credits are still offered through April 30th.
Though there are signs the worst may be behind us that doesnt make the 5 million workers who are now unemployed feel much better about their own circumstances. If consumers don't feel good about their own economic future they may be less willing to part with the money they do have for discretionary spending. Ultimately if consumers aren't consuming businesses will suffer and that will keep employers from hiring new employees as well as limit the tax revenue the government recieves.
Low tax receipts will make our deficit problems continue for a longer period of time. Deficits also need to be covered (paid for) by the issuance of Treasury Bonds and the more debt we accumulate the more real inflation becomes for us in the future.
On a positive note...today interest rates are better because of the low Consumer Confidence number and the implication that low Consumer Confidence will keep inflation low. Other news that has been a help to mortgage bonds is the turmoil in Greece. With the struggles in Greece hitting front page news it is clear now that there are other countries that are weighed down with a lot of debt that are having trouble covering their bills through this recesion.
It is worth looking around the world and noticing the policies of Greece, Spain and others who have expanded the services their government offers that they can no longer afford. Accross the ocean in Japan we see very similar issues. The US is not immune to this issue. With the HUGE budget deficits the past two years we need to be taking a hard look at the road ahead and changes may be necessary...even though change would be painful for many in our society.
We should all take these stories and apply to them to our own lives. If you are going to buy a home always make sure you are purchasing a home that you can afford and make sure you have funds available for that 'rainy day' as things aren't always going to be rosey. I would love to help you work through your budget to find the right price point for your family if you are looking to purchase a new home while the buyer credits are still offered through April 30th.
Thursday, February 18, 2010
Producer Price Index Hotter Than Expected
The PPI numbers were released today with signs that inflation is a little more 'real' than we have been seeing for the past few years. When producers (manufacturers) have higher costs for their raw materials or the energy it costs to manufacture their products they will often try to pass those higher costs on to the consumer in higher prices for their products. We will find out tomorrow if the Consumer Price Index (CPI) comes out showing the higher PPI costs being passed on to the consumer. Given the current economy many manufacturers are having trouble passing their higher costs on to the consumer who has been a little tight fisted with their money.
However, today the very important support of the 200-day moving average for the FNMA 30-year bond was violated and thus rates have moved up a fair amount over the past three days and could move a bit higher before finding a new floor of support. Given the Federal Reserves exit from the MBP program in March and talk that they may begin to sell some of the mortgage bonds they have already purchased we may have seen the end of rates below 5% sooner than later.
I have been encouraging all my clients who are considering a refinance to get their rate locked as soon as possible and if the are shopping for a new house to find one quickly and lock down a rate. Based on the research I have done I do expect rates to be over 6% by summer...which could put a damper on new home sales this summer. Hopefully I am wrong and rates will remain low through the end of the year, but its not something I would bank on.
However, today the very important support of the 200-day moving average for the FNMA 30-year bond was violated and thus rates have moved up a fair amount over the past three days and could move a bit higher before finding a new floor of support. Given the Federal Reserves exit from the MBP program in March and talk that they may begin to sell some of the mortgage bonds they have already purchased we may have seen the end of rates below 5% sooner than later.
I have been encouraging all my clients who are considering a refinance to get their rate locked as soon as possible and if the are shopping for a new house to find one quickly and lock down a rate. Based on the research I have done I do expect rates to be over 6% by summer...which could put a damper on new home sales this summer. Hopefully I am wrong and rates will remain low through the end of the year, but its not something I would bank on.
Thursday, February 4, 2010
Job Report Friday 2/5 - how to plan
http://www.lender411.com/id/Rob+McAllister/Job report tomorrow. Please go to my lender411 page to view my full blog, but I am recommending you lock your rates today. Job report will certainly move the market. Rates are great. Don't gamble on what will happen tomorrow...most likely rates will go up from where they are regardless of what the number is tomorrow.
Friday, January 29, 2010
Fed does not extend mortgage purchase program
Well...The Fed met on the 27th and did announce it did not have plans to expand, or extend, their mortgage bond purchase program. This means the Fed will not be a mortgage bond buyer after March 31st. You may think...big deal! Well, you would be right...it will be a BIG DEAL. The Fed has acted as a major buyer of mortgage bonds for the past 13 months. Buyer is another word for DEMAND in economic terms. If you have taken an Economics 101 class you will remember when demand goes down and supply stays the same prices will down. Price, as it relates to bonds, works inversly with interest rates. So when the bond price falls the rate goes up. So when the Fed (Demand) stops buying prices should fall and thus rates go up. This will happen over the month of March in anticipation of this move, but you can certianly expect rates on April 1st to be much higher than the 4.75%-5% rates we have come use to seeing....and that is not an April Fools joke.
Have a great weekend. Please call if you have found a house and want to talk about loan options or if you havent refinanced and you may want to do something before the rates go up.
Have a great weekend. Please call if you have found a house and want to talk about loan options or if you havent refinanced and you may want to do something before the rates go up.
Tuesday, January 19, 2010
Bulls and Bears fighting for control
Happy Friday to you. Mortgage bonds are enjoying a nice ride this week. Rates have improved over the week and today with ecomonic news that has been bond friendly. Currently mortgage bonds have pushed above the 25-day moving average and are doing battle at the 200-day moving average. If the Bulls can push bonds up through the day and close above this important level we may see better rates for the weeks ahead. I am not confident the Bulls will be able to close out the day strong enough to close above the 200-day moving average. If you are currently in contract to buy a house or have made application and not yet locked I would recommend you contact your broker toward the 3pm hour to see how the battle ends. If the market closes below the 200-day moving average I would recommend locking in your rate. If it does close above the 200-day moving average it may be worth waiting to see if the trend can hold next week when the market opens up again on Tuesday.
The Fed is also meeting on January 27th. In this months meeting I am sure the Fed Presidents will discuss the extention of the current Mortgage Bond Purchase Program. Many of the Fed Presidents have voiced their support to extend this program to keep rates low for a longer period than the current March 31st end date. IF the Fed can get enough presidents to vote in favor of this and get the money to make the program viable going forward we could see rates stay low further into 2010 which would be good news for home buyers and the housing sector.
The banks are all closed Monday in observance of MLK day. I hope you will take some time on Monday to read some literature from MLK and listen to his message on how we should each treat our fellow man. In that message I would also encourage you to take a moment and pray for those in Haiti dealing with the disaster that occurred there. In addition to your prayers there is a real need for funds to help people in that country. Please donate funds to www.worldconcer.org or a similar charity that is doing good work there in the wake of this tragedy.
Have a great weekend. Rob
The Fed is also meeting on January 27th. In this months meeting I am sure the Fed Presidents will discuss the extention of the current Mortgage Bond Purchase Program. Many of the Fed Presidents have voiced their support to extend this program to keep rates low for a longer period than the current March 31st end date. IF the Fed can get enough presidents to vote in favor of this and get the money to make the program viable going forward we could see rates stay low further into 2010 which would be good news for home buyers and the housing sector.
The banks are all closed Monday in observance of MLK day. I hope you will take some time on Monday to read some literature from MLK and listen to his message on how we should each treat our fellow man. In that message I would also encourage you to take a moment and pray for those in Haiti dealing with the disaster that occurred there. In addition to your prayers there is a real need for funds to help people in that country. Please donate funds to www.worldconcer.org or a similar charity that is doing good work there in the wake of this tragedy.
Have a great weekend. Rob
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