Rates managed to improve a little today after going higher yesterday due to an ADP payroll report that exceeded all expectations. Though the ADP report has been all over the place and hasn't consistently been a good indication of the actual payroll figures that are released the first Friday of the month. The Non-Farm Payroll report due out tomorrow can be a big market mover.
Technically (technical indicators on the FNMA bond) the bond is set for a bump higher which would mean rates may improve going forward, but technicals take a back seat to this report as a good job number will be bad for mortgage rates and will certainly trump technicals.
So what will happen tomorrow? The number everyone is expecting is 150k new jobs or more. If the number of new jobs created is much larger than this rates will certainly go higher...and quickly. If the number is much below 150k I would expect rates to either improve or hold where they are now. I don't expect rates to improve dramatically even with a miss to the downside...unless its a huge miss.
So what to do? If you are looking to refinance you should have been locking in your rate by now, but if you are trying to figure out if you are going to be able to benefit from a refinance in the next few months I guess you hope for a low employment figure and then lock in the rate pretty quick because rates are on the rise and I don't think that general trend will reverse over the coming months.
Me...I want low rates, but I also want to see the economy improve and jobs added so there are more people out there who can afford to purchase a new home or feel more secure in their current job and make a move to a more expensive home...this is what is needed to really get the housing sector back on solid ground.
Either way I will be here to help with any questions or a new loan if that is in your goals for 2011.
Watch the the number tomorrow morning and you can also follow me on Twitter..where I am a little more timely with info. http://twitter.com/westseattlemtg
Happy new year...it will be a fun one!
Thursday, January 6, 2011
Wednesday, December 15, 2010
Bonds trading much lower
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.
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.
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
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