Yesterday some Wells Fargo guys urged the Fed to raise rates:
Today Wells reported they made $49 billion in home loans in 1Q15, which is 36% higher than last year:
They may be goosing the Fed to raise rates so the WFB profit margin increases a tad, but they seem to be doing fine. But the mortgage-rate environment sure looks competitive, with jumbo rates staying UNDER the conforming rates:
Once the Fed gets around to raising their rate, the ensuing hysteria through the bond market may increase mortgage rates by 1/4% to 1/2%. But the competition between WFB, Chase, and BofA that has caused the jumbo rates to be this ultra-low should bring rates back within a couple of months.
The Fed move is still at least three months away – and probably longer.
Don’t worry, be happy!
A big difference between today and the bubble years is the type of financing being used. Back when the Tan Man was pushing exploding ARMs, more than 70% of the buyers took him up on it – today, more than 80% are choosing a fixed rate mortgage:
Plus, those who get stuck not being able to pay when their ARM increases can always loan mod out of it!
Maybe prices are softer than we thought? By John Burns:
In the last 15 years, home prices have grown 29% faster than incomes, primarily due to falling mortgage rates. Since the monthly payment determines what most buyers can afford to pay for a house, we thought we would show you the powerful stimulus that lower interest rates have on home price appreciation.
A typical family earning $60,000 per year can afford a mortgage payment of $1,800 per month, which qualified them for a $245,000 mortgage in the year 2000 when mortgage rates were 8%—– and qualifies them for $377,000 when rates are 4.0%. In other words, each 1.0% drop in interest rates in the last 15 years has allowed home sellers to raise price 12%+/-.
Since last March, rates have fallen 0.7%, a 9% stimulus to home prices. For all but the most affluent home buyers, payment trumps price, and sellers now have the ability to raise prices again.
Price drives profit, which is why the industry always talks about price. However, payment drives price. In addition to talking about price, please always calculate the payment. It will help you stay in touch with the consumer.
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A sigh of relief as we back down from the dreaded 4%. From yesterday’s MND:
Mortgage rates had their best day of the month today following Fed Chair Yellen’s testimony before the Senate Banking Committee. That’s part of a 2-day semi-annual update that the Fed gives to congress. In this modern electronic age, it’s a wholly unnecessary relic from a bygone era when everything that every member of the Fed has said on the record wasn’t instantly available on the web. And so it has devolved into a painful display of American bureaucracy where congress-people can vent their frustrations or display their ignorance for a quick sound-byte. All that having been said, markets still treat this as the Fed Chair’s twice-a-year chance to set the record straight in a Q&A format, less constrained by the formalities of official FOMC communications.
This time around, market participants were anxious about the possibility that Yellen would say something to confirm an accelerated rate hike time frame. Last week’s Fed Minutes suggested patience in that regard, but the meeting where those minutes were recorded took place before the most recent jobs report. The risk was that the super strong employment data would somehow accelerate the Fed’s timeline, resulting in a rate hike within the next few meetings. After hearing from Yellen today, trading levels went back to suggesting a September rate hike.
Rates have risen 0.25% in less than three weeks, and 4% is upon us (and the Fed hasn’t done anything yet). From MND:
Mortgage rates got hit hard today, rising at the fastest day-over-day pace since November 8th 2013. As of today, this also makes February the worst month for rates since May 2013, and the most abrupt month-over-month reversal since January 2009. That all could change by the end of the month, of course, but then again, it could also get even worse.
Either way, the strategy is and has been the same recently: we’re in the midst of a strong negative trend that must be taken seriously unless/until it’s convincingly defeated. Naturally, that assessment favors locking over floating, and naturally, it implies a ton of potential frustration for those who lock right before the bounce.
As for today’s damage, it’s meant an even eighth of a point in interest for most lenders. In other words, if you had been quoted 3.75% on Friday, today’s quote would likely be 3.875%. Either way, costs are significantly higher.
Mortgage rates are skittish and move like gas prices – slow on the way down, and fast on the way up. From this afternoon’s MND:
Mortgage rates remain under significant pressure, having now moved higher almost every day in February. So far, this is the worst month for rates since Nov 2013. While that sounds pretty bad, in this case, the weakness has more to do with a reaction to previous strength. The trend toward lower rates in 2014 had been very slow and steady. January saw an acceleration of that trend and now February is simply bringing us back in line. Even the strongest long-term trends undergo these sorts of corrections.
On such occasions, the question will always be: is this just a correction in a longer term trend or are rates done heading lower? Based on where we are today, it would be far too soon to say that the long-term trend toward lower rates is defeated. Fortunately, the strategy is the same either way.
At times like these, the lock/float outlook is more defensive. For those of you who are intensely interested in catching the falling knife (i.e. deciding not to lock despite recent moves higher in rates), there’s still some room for that provided the risks are understood and that a ‘stop-loss’ level is understood. One of those risks is that things could still get worse before they get better (i.e. there’s more room for rates to move higher without violating the longer-term trend).
3.75% is still the most prevalent conforming 30yr fixed quote for top tier scenarios, but 3.875% is now not far behind. A week and a half ago, it was 3.5% and 3.625%.
Jan 30 2015, 3:51PM
Mortgage rates moved lower today at their fastest pace since January 14th. Rates sheets moved well past recent lows and back to levels not seen since May 10th 2013. That was the day that the Wall Street Journal’s Hilsenrath suggested the Fed was mapping an exit from stimulus, which sent markets into the tailspin that was effectively the prologue to the taper tantrum.
It’s amazing, or at least interesting to consider that asset purchases have now been fully phased and that a rate hike is a much more immediate threat, yet rates are back to where they were before markets really began adjusting for all that “stuff.” That’s the power of global economic turmoil and a troubling lack of inflation for core economies.
The specific result today is the greatly-increased prevalence of 3.5% as a conforming 30yr fixed quote for top tier scenarios. 3.625% is ubiquitously available, but again, keep in mind that these rates refer to top tier scenarios with 25% equity or more, and high credit scores among other things.
For the knife-catchers out there, today is the best day in more than 20 months.
No one could fault you for locking. Combine that with the fact that the end of the month tends to be a slightly better time for bond markets (which affect mortgage rates), and you can make a perfectly fine case for catching that knife–especially if you have a shorter term time horizon.
Need more frenzy food?
This guy thinks we’ll see the yield for 10-year-treasuries at 1.50% (and maybe lower). Mortgage rates have run traditionally about 1.75% above the 10-Y yield:
In August, Komal Sri-Kumar predicted that yields on the U.S. 10-year Treasury note would fall below 2 percent within six months. The 10-year yield sits just above 1.8 percent, and he projects that U.S. bond yields will tank even more.
If the Federal Reserve decides not to raise interest rates in the near future, the U.S. 30-year Treasury yield will slide toward 2 percent while the 10-year will continue lower to about 1.5 percent, Sri-Kumar, president of Sri-Kumar Global Strategies, said Wednesday.
If the Fed decides to raise rates, Sri-Kumar believes the amount by which rates are hiked will determine reaction in both U.S. bond and equity markets. The federal funds rate jumping by a quarter of a point would not have a “significant” effect on U.S. Treasurys, he said.
He also contended that the Fed is more likely to resume quantitative easing by the end of 2015 than raising interest rates by June.
Not only did jumbo 30-year fixed rates hit the lowest I have ever seen yesterday, but more creative terms are coming out too.
These terms were sent to me yesterday by a local lender:
Just priced a 30 year fixed 1.2 million loan and it’s 3.625 with no points.
We have a 95% purchase money with loan amount up to $850,000. The 5/1 is 2.75%, 7/1 is 3.00% and the 10/1 is 3.25%.
AND we have a 30 year fixed jumbo up to 1.5 million at 90% with no mortgage insurance. The rate is 5.125 with no points.
The fantastic rates and terms available should help buyers get off the fence, and buy a little more house than they could have 6-12 months ago.
This will help the low-down folks too:
Why stop at 3.25%? Let’s just lower mortgage rates to 2.5%!
An examination of break-even inflation rates suggests sharply lower oil prices are a key driver of the 90 basis points rally in 10-year Treasurys and the 60 basis points drop in mortgage rates in 2014, according to analysts at BofA Merrill Lynch.
Most real estate economists are forecasting mortgage rates will rise in 2015, but the recent steep drop in oil prices could change all that.
“The possibility of further declines in oil prices increases the chances that mortgage rates drop to the 3.25%-3.5% range that we believe is necessary to get housing back to affordable levels for many,” says Chris Flannigan, ABS and MBS strategist at BAML. “We have maintained the view that 4% mortgage rates are too high to allow for sustainable recovery in housing. In our view, a drop to the 3.25%-3.5% mortgage rate range would eliminate the current benign technical conditions prevailing in the agency MBS market, increasing supply from both refinancing and purchase mortgage channels. Such a rate drop would also create significant upside risk to our forecast of roughly $1 trillion of mortgage production in 2015.”
Flannigan says that if sustained low rates were realized, which could be possible if sustained low oil prices are realized, the market could see realized mortgage production, which was pegged at a 2.3% 10yr, exceed the forecast by 30%-50%.