Mortgage rates continued higher today, making it back to levels last seen in late January. Today’s key event was a policy announcement from the European Central Bank (ECB) and the accompanying press conference with its president Mario Draghi. While the ECB’s announcement exceeded market expectations (rate cuts and bond-buying), Draghi said that additional rate cuts were unlikely. This is what markets chose to focus on.
Stocks fell and rates moved higher as a result. Reason being: when a big central bank is providing accommodation to the global economy, it’s essentially pumping money into the financial system. Both stocks and bonds like that money (it helps stocks rise and rates fall). If one of the central bank chiefs says that some form of further accommodation is unlikely, it’s tantamount to parents pointing out the limit of their kids’ allowance. If the kids are as petulant as global financial markets, they might throw a little fit about that. Today is that simple.
In terms of nuts and bolts for mortgage rates, lenders are now well into quoting 3.75% on conventional 30yr fixed loans, with an increasing number moving up to 3.875% today. It’s too soon to tell if this little market tantrum will blow over, but that’s at moot point. It continues to be the case that a defensive strategy (read: favor locking vs floating) makes more sense until we can rule out being in the midst of a big-picture bounce toward higher rates.
Mortgage rates maintained recent sideways momentum today, holding inside a narrow range established last week. This range is particularly interesting to mortgage rate watchers because it is very much in the middle of 2 distinct zones. One of those zone is the recently-achieved lows. Technically, these were the lowest levels in more than 2 years, but the best few hours were very close to all-time lows.
The other zone is still far from being considered “high”–except inasmuch as we could say 30yr fixed rates were in the “high 3’s”–but it is a range that we’ve spent quite a bit more time in recently. More problematically, moving back into the “high 3’s” zone would make it look like rates had officially bounced at those multi-year lows and would now be heading steadily higher. The verdict can’t be rendered until we see more decisive movement higher or lower.
For now, the most prevalently-quoted conventional 30yr fixed rate remains 3.625% on top tier scenarios. Some of the less aggressive lenders are back up to 3.75%, but that was the case as of late last week as well.
The overall delinquency rate on mortgage loans has now fallen below historic average levels. The Mortgage Bankers Association (MBA) said on Thursday that 4.77 percent of all mortgage loans on one-to-four-unit residential properties were at the end of the fourth quarter of 2015. That rate is a seasonally adjusted one.
The rate, gathered through MBA’s National Delinquency Survey, represented a decrease of 22 basis points from the third quarter and 91 from the delinquency rate in the fourth quarter of 2014. It was the lowest level recorded by MBA since the third quarter of 2006. The delinquency rate includes loans that are at least one payment past due but does not include loans in the process of foreclosure.
Foreclosures were begun on properties at a rate of 0.36 percent, down 2 basis points from the previous quarter and 10 from the previous year. This start rate was the lowest since the second quarter of 2003.
Loans in the foreclosure process, sometimes referred to as the foreclosure inventory, were at a rate of 1.77 percent at the end of the fourth quarter. That was 11 basis points below the inventory at the end of the third quarter and 50 points lower than on December 31, 2014. The foreclosure inventory has not been that low since the third quarter of 2007.
Serious delinquencies, loans that are 90 or more days past due, including those in foreclosure, represented 3.44 percent of all mortgages, the lowest rate since the third quarter of 2007. The rate was a 13 basis point decrease quarter-over-quarter and 108 points year-over-year.
Marina Walsh, MBA’s Vice President of Industry Analysis, said “As the job market has improved and national home prices have rebounded, fewer borrowers were becoming seriously delinquent, while borrowers previously behind on their payments were in a better position to pursue alternative options to resolve delinquent loans.
Walsh noted that the overall delinquency rate is now back to pre-recession levels, “and at 4.8 percent, was lower than the historical average of 5.4 percent for the time period 1979 to 2015. The rate at which new foreclosures were started decreased to 0.36 percent, the lowest rate since 2003 and only one-fourth of the record high level during the worst of the foreclosure crisis in the third quarter of 2009.”
“Mortgage performance is closely connected to job market health and most states saw employment growth continue over the past year,” she said. “However, there were increases in the foreclosure starts rate in a handful of states that have economies closely tied to the oil industry. Out of 12 states that had an increase in foreclosure starts in the fourth quarter, five of those were in states with oil-dependent local economies. Oklahoma, North Dakota, Louisiana, Colorado, and Texas saw increases in new foreclosures while the national average continued to trend lower.
“Foreclosure inventory rates continued to decline in both judicial and non-judicial states. New Jersey and New York, which lead the nation in foreclosure inventory rates, had the largest year-over-year declines in their respective histories.
Mortgage rates were mostly unchanged today, though a few lenders were microscopically higher in cost. That’s an uncommon result for the day of the big jobs report release, but in today’s case it may be somewhat understandable.
More often than not, the most important part of the Employment Situation data–at least as far as markets are concerned–is the top line job creation (aka “nonfarm payrolls” or simply, NFP). The median forecast for today’s NFP was 190k and actual job creation fell well short of that at 151k. Normally, that’s all bond/mortgage markets would need to know before moving toward lower rates, but there were caveats.
The unemployment rate moved slightly lower than expected and wage growth improved much more than expected. The latter has been increasingly important when it comes to deciding how to react to the jobs report each month. When combined, the caveats were enough to offset the slower pace of job creation. Bond markets were weaker in the morning, resulting in most lenders beginning the day with slightly higher rates. Bonds improved in the afternoon as stocks and oil prices fell, allowing some lenders to release rate sheet improvements, thus bringing the average back near unchanged levels.
The most prevalently-quoted conventional 30yr fixed rate remains 3.75% for top tier scenarios with a handful of the more aggressive lenders at 3.625%. The average lender is right in line with their lowest rates in more than 8 months.
Mortgage rates had a far more tumultuous day despite ultimately hanging on to the lowest levels in more than 8 months. Whether you wanted to be happy, sad, excited, or scared, there was something for everyone today. The bond markets that underlie mortgage rate movement began the day in weaker shape (implying higher rates). We’ll never know if they would have been content to stay there because an important economic report sent bond yields and stock prices screaming lower at 10am. Lenders who hadn’t yet put out their first rate sheets of the day were able to open up at new 8-month lows. Of the lenders who already had rate sheets out, most ended up publishing mid-day improvements within an hour or two.
Despite a gentle drift back in the wrong direction, it looked like rates were set to hold their ground at the new, lower levels. Things changed in the afternoon as equities markets quickly recovered all of their losses for the day. This is/was important because stock market weakness has been a feather in the cap of bond market strength and the mortgage rate rally. Bonds couldn’t help but weaken amid the stock surge. Most of the lenders who had previously recalled rate sheets for a positive reprice now did so for negative reprices. The net effect is very little movement from yesterday’s latest levels, but perhaps another modicum of motivation to capitalize on these rates while they remain as low as they are.
So to recap, that’s “higher, lower, higher” on the day to end in line with yesterday’s levels or slightly better. 3.75% is the most prevalently-quoted conventional 30yr fixed rate with 3.625% being a runner up on top tier scenarios.
No matter how much it is predicted, home price gains are still failing to decelerate. All three of the S&P/Case-Shiller indices were slightly higher on an annual basis in November than they were in October and the Federal Housing Finance Agency’s (FHFA’s) Home Price Index (HPI) recorded a greater year-over-year increase in November 2015 than it did in November 2014.
The S&P/Case Shiller U.S. National Home Price Index, covering all nine U.S. census divisions rose 5.3 percent in November compared to 5.1 percent in October. The Case-Shiller 10-City Composite posted a 5.3 percent increase compared to a 12 month gain of 5.0 percent in October while the 20-City Composite was up 5.8 percent versus 5.5 percent the previous month.
FHFA reported home prices rose 5.9 percent on a seasonally adjusted annual basis. The annual increase a year earlier was 5.4 percent.
Case-Shiller reported the highest annual increases were again in Portland, San Francisco, and Denver; prices in all three rose by double digits. Portland was up 11.1 percent, San Francisco 11.0, and Denver 10.9 percent. Fourteen cities reported higher annual price gains in November than in October while Phoenix extended its streak of 12-month increases to a full year. Even beleaguered Detroit improved, posting a 6.3 percent annual gain compared to 5.1 percent in October.
The three Case Shiller indices also rose significantly month-over-month on a seasonally adjusted basis, each rising 0.9 percent compared to October. On a non-seasonally adjusted basis the National Index was up 0.1 percent as was the 20-City composite while the 10-City was unchanged. Fourteen of the 20 cities tracked by the indices had monthly increases before seasonal adjustment; all improved on an adjusted basis.
David M. Blitzer, Managing Director and Chairman of the S&P Dow Jones Index Committee said, “Home prices extended their gains, supported by continued low mortgage rates, tight supplies and an improving labor market. Sales of existing homes were up 6.5 percent in 2015 vs. 2014, and the number of homes on the market averaged about a 4.8 months’ supply during the year; both numbers suggest a seller’s market. The consumer portion of the economy is doing well; like housing, automobile sales were quite strong last year. Other parts of the economy are not faring as well. Businesses in the oil and energy sectors are suffering from the 75% drop in oil prices in the last 18 months. Moreover, the strong U.S. dollar is slowing exports. Housing is not large enough to offset all of these weak spots.
U.S. home resales rebounded strongly in December from a 19-month low and prices surged, indicating the housing market recovery remained intact despite signs of a sharp deceleration in economic growth in recent months. The National Association of Realtors said existing home sales jumped a record 14.7 percent to an annual rate of 5.46 million units, after being temporarily held back by the introduction of new mortgage disclosure rules, which had caused delays in the closing of contracts in November.
Sales were also boosted by unseasonably warm weather and buyers rushing into the market in anticipation of higher mortgage rates. The Federal Reserve raised its benchmark overnight interest rate in December, the first rate hike in nearly a decade.
The mortgage disclosure rules are intended to help homebuyers understand their loan options and shop around for loans suited to their financial circumstances. Realtors said the rules had significantly increased contract closing time frames.
November’s sales pace was unrevised at 4.76 million units. Economists had forecast home resales rebounding 8.9 percent to a 5.20-million rate in December. Sales rose 6.5 percent to 5.26 million units in 2015, the strongest since 2006.
Last month’s snap-back should offer some assurance that domestic demand remains fairly healthy, even as growth appears to have braked sharply at the end of 2015 because of a downturn in manufacturing and mining activity.
Applications for mortgages rose significantly during the week ended January 15 as fixed rate mortgage interest rates fell to the lowest levels since mid-autumn. The Mortgage Bankers Association (MBA) reported that its Market Composite Index, a measure of loan application volume rose 9.0 percent during the week on an adjusted basis and 12 percent unadjusted.
Compared to the week ended January 8 the Refinance Index was up 19 percent and the share of all mortgage applications that were intended for refinancing jumped from 55.8 percent to 59.1 percent. Purchase mortgage applications increased 2 percent on their adjusted index and 4 percent unadjusted. The unadjusted index was 17 percent higher than during the same week in 2015.
Mortgage rates moved moderately, but somewhat precipitously lower today. How can the improvement be both moderate and precipitous? A fair question. It was moderate in the sense that the overall change from yesterday’s latest rates wasn’t that big. It was precipitous not only in the sense that it was somewhat unexpected, but also because there was a fairly abrupt change in market conditions between the morning and afternoon. In fact, many lenders began the day with HIGHER rates than yesterday. Almost all lenders would go on to release positively-revised rate sheets–in some cases, two times.
The abrupt move in financial markets is attributable to several factors, with the most digestible being the drop in oil prices below $30/barrel. Indeed, any time you can draw a connection between the day’s top financial market headline and mortgage rate movement, there’s little sense in exploring the more esoteric phenomena that are playing a supporting role.
The most aggressive lenders are quoting conventional 30yr fixed rates at 3.875% while the majority is still at 4.0%.
Mortgage rates inched slightly lower today, adding to an already impressive string of improvements in the new year. Rates typically take most of their cues from economic data, but that hasn’t been the case this week–at least not in the traditional sense. Instead of US economic data being the center of attention, it’s instead been the volatility in global stock markets–especially China’s. Successive days of heavy losses have pulled down stock prices worldwide, and sent investors fleeing for safer havens.
One of the quintessential safe-haven investments is the bond market. This includes things like US Treasuries as well as the mortgage-backed securities that dictate mortgage rates. In a nutshell, this is why rates have been able to perform as well as they have heading into the beginning of the year.
There is a curve-ball though. Simply put, if it weren’t for the heavy losses in stocks and the generally high level of global market anxiety, there’s plenty of reason to suspect rates wouldn’t be nearly as interested in moving lower. In fact, they’re increasingly looking opposed to the idea in that their descent is slowing despite stock prices falling more rapidly. The risk is that a bounce in stocks–even if only temporary–could serve as the cue for rates to make the bounce higher that it seems like they’re waiting to make.
Tomorrow morning’s Employment Situation is the most important piece of economic data on any given month. It will provide the ultimate test to see if rates are truly willing to ignore the economic data and continue following stock prices.