Mortgage rates moved moderately lower today as bond markets benefited from overseas risks. These risks take several forms at the moment, ranging from the risk of further economic deterioration in Europe to the geopolitical risks associated with several armed conflicts around the globe. In general, bond markets benefit (meaning rates move lower) in response to increased risk. Unfortunately for the secondary mortgage market, it’s US Treasuries that see the lion’s share of benefit from such periods of waxing risk, but mortgage rates have been able to tag along to some extent.
The most prevalently-quoted conforming 30yr fixed rate for flawless scenarios is now back to 4.125%, though 4.25% remains nearly as common. In general, MBS (the mortgage-backed-securities that govern rate changes) have been unwilling to return to late-May and late-June levels to the same extent as US Treasuries. As such, they’ve been holding in an excruciatingly narrow range just above the lows of the year.
Mortgage rates were able to recover some of the ground lost this week after the important Employment Situation Report showed slightly less job creation than expected. Had the report been stronger, rates could have easily continued the week’s strong move higher. As it stands, we’re settling down very close to Monday’s levels, which is a major victory based on the tenor of the past 3 days. The most prevalently-quoted conforming 30yr fixed rate remains at 4.25%, but 4.125% is much more viable than it was yesterday.
Today’s victory is very important in that it thwarts what could have been a much bigger move higher. While there’s never any guarantee that such a move couldn’t simply be delayed, we can still glean some reassuring clues from recent activity. Chief among these is the role of European markets in US rate movements.
Mortgage rates are most-closely tied to the movement of mortgage-backed-securities or MBS. MBS, in turn, tend to move in close concert with certain US Treasuries, especially 10yr Notes. Taking the correlation one step further, Treasuries also tend to move in the same direction as European bond markets, though the size of the movements can vary quite a bit.
Those variations in size have allowed European borrowing rates to reach all time lows this week. Naturally, rates in the US did not hit all time lows, but we continue to see a situation where rates in the US experiencing downward pressure from Europe. It’s reasonable to assume that Europe would have to turn a profound corner if rates in the US are to jump significantly higher.
Making the determination of a “turned corner” in Europe is the sort of thing that can only be confirmed gradually. For now, that process has yet to even begin. Keep in mind, this doesn’t mean that rates at home can’t go higher simply because Europe’s rates are moving lower. Rather, it can be viewed as an extra weight, preventing what might otherwise be bigger moves higher.
Rates didn’t move much to start the week, with a nearly equal number of lenders moving both higher and lower. On average, rates were just barely higher. Even then, the actual rates being quoted are the the same today versus Friday with the only differences seen in the form of closing costs. The most prevalently quoted conforming 30yr fixed rate remains at 4.25% for flawless scenarios with 4.125% available to a lesser extent.
As the week progresses, so should the movement in the world of interest rates. Mortgages and Treasury yields alike have been bumping around at the lower end of their ranges in 2014. There’s a decent chance that this week’s events will either help break those ranges, or prompt a bounce back toward higher levels. Bottom line, rates have been low and sideways, but they should look more like they’re choosing a direction by the end of the week.
The first major chance for this increased volatility is on Wednesday. There will be several pieces of key economic data as well as a Fed Announcement in the afternoon. As is always the case when we’re expecting more volatility, the risks and rewards of floating are increased. That said, rates haven’t shown much willingness to move below levels seen in late May. Until/unless they do, and with rates near long-term lows, it’s safer to plan on that range continuing.
Mortgage rates moved higher today at the fastest pace since July 3rd as bond markets began backing away from more anxious levels associated with last week’s geopolitical headlines. Such headlines (Malaysian airliner and Gaza invasion) can motivate investors to seek safe-havens such as Treasuries and MBS (the mortgage-backed securities that influence mortgage rates). Since last week, bond markets have been relatively on edge but never moved any lower than the initial move on Thursday. If there has been one day since then that “undoes” the flight-to-safety, today is the best candidate.
This isn’t for any particular reason either. Sometimes when it comes to financial market movements, “it’s just time.” A few caveats here though… First of all, the movement wasn’t exceptionally large in a historical context. Sure, it’s the biggest move up in 3 weeks, but only because the past 3 weeks have been historically narrow and generally moving lower. Secondly, there were other reasons for rates to weaken today, including strong economic data overseas and at home.
There was also one very weak piece of economic data in the US today as New Home Sales were much lower than expected, but because of the prevailing trend this morning, it merely served to stem the tide of rising rates as opposed to reverse it. Ultimately, the most prevalently-quoted conforming 30yr fixed rate moved back to 4.25% today, though some lenders remain at 4.125%. Some borrowers will be quoted the same rate today as yesterday, but generally with higher closing costs.
From a strategy standpoint, today’s weakness constitutes a vote being cast for the first time this week on our recent run of lower rates. In other words, we moved abruptly lower last week and have held very steady–waiting for the next move. Today delivered that move. The fact that it was higher suggests increased risks in floating as such days run the risk of being the start of a new trend. There’s no way to know this for sure, of course. The important point is that risk/reward is no longer as muted as it had been this week. It continues to be the case that next week has infinitely more potential to cause big movements in rate.
Although economic data had some small role to play in yesterday’s strong bond market rally, the day was really all about geopolitical risk. If we’ve learned anything about geopolitical risk as a market mover, it’s to not rely on it as a long term guidance giver.
Even after the risk merely levels off, markets usually bounce back. Maybe not today, maybe not tomorrow… Maybe not even soon, but on the other hand, it could be soon! Point being: don’t take the newfound move of 10yr yields into the 2.4’s for granted.
Heck, we can’t even take the same low-rate pleasure in 2.4+ 10yr yields as we did in late may because MBS have been lagging Treasuries so much. Thankfully though, that SHOULD put us in a better position going forward–one where MBS is more willing to keep pace with any additional rallies and less compelled to keep pace with Treasury weakness if we go the other direction.
If we do happen to turn a corner today or Monday, the implications are pretty depressing from a technical standpoint. Such a bounce would not only end up contributing to a long term inflection range from 2.40 to 2.51, but it would also introduce new technical signals with longer term implications.
One of these would be a “bearish divergence” in RSI. RSI, or the “Relative Strength Index” is one of the most popular momentum indicators around. When its line is moving up or down, momentum is increasing in the direction of the movement. When the line hits either horizontal level at 30 or 70 (it’s always 0-100), the security is overbought or oversold, which basically means it’s ripe for a correction as soon as it crosses back over the horizontal line heading the other direction.
A bearish divergence occurs when momentum is telling a different story than the charted security–in this case, 10yr yields. Note in the chart below that (IF we bounce higher in yield soon) that yields will have bounced at lower lows than those seen in late June, yet the RSI line will be bouncing at higher lows. The conclusion is that underlying momentum doesn’t support the the increasingly aggressive rally.
Keep in mind, that’s just one technical study. It wouldn’t necessarily doom rates to a an epic sell-off. But it does serve as a reminder of the ephemeral nature of geopolitically-motivated rallies, and would be one more mark against the sustainability of current levels.
Whether or not things play out in this manner remains to be seen. Markets are essentially reduced to headline watching today as the event calendar is light. One thing to keep in mind is that geopolitical risk often undergoes significant change over the weekend, so it’s less safe than normal to assume Monday’s rates will be close enough to Friday’s.
That’s a double-edged sword though. A bigger flare up in risk could make for bigger improvements. Simply put: more risk, more reward when it comes to floating, but if recent history and technicals are an indication, “risk” is probably still edging out reward if the rally doesn’t continue in spades today.
Mortgage rates rose modestly today, ending last week’s streak of 5 days without an increase. The movement wasn’t enough to unseat 4.125% as the most prevalently-quoted conforming 30yr fixed rate for top tier scenarios. That means today’s changes came in the form of increased closing costs for the same rates as Friday. Expressed in terms of rates, the hike is equivalent to 0.03%.
As we discussed on Friday, the sorts of winning streaks seen last week become progressively less likely to continue after the 5-day mark, even if the pull-back is only temporary. Whether or not today’s pull-back proves to be temporary will likely have something to do with tomorrow’s significant events. Earlier in the morning, the Retail Sales report could cause some movement in the bond markets that most directly affect mortgage rates.
The main event will be Fed Chair Yellen’s first day of congressional testimony. If markets are still feeling negative about rates after that, it would go a long way toward establishing a short term trend toward higher rates. Above all else, it bears repeating that the recent range has been exceptionally narrow, with over 2 months spent at either 4.125% or 4.25%. Until that’s no longer the case, risk and reward for locking or floating is low enough that a case can be made for either.
Your Mortgage application get’s denied, I see it every day. When it happens to you, you can give up the dream of home ownership, or take an approach and cure the cause of the denial.
When a lender turns down a loan application, they are required to explain why and issue a denial letter. This letter also gives you the information you need to strengthen your overall ability to obtain a mortgage.
Employment stability is a big part of the picture when you are asking someone to trust you with a 30 year mortgage. If you’ve been at your current job for less than two years but have been in the same industry for a longer period, be sure to note that in your application.
Before you apply for a loan, get copies of your credit report from each of the three reporting bureaus, (since they contain different information). Check it for inaccuracies and outdated information. It can take 30 days or more to correct errors, so start early or call a reputable credit SOLUTION company.
If extraordinary circumstances like a job lay-off or medical emergency have created temporary bill-paying problems in the past, explain this to the loan officer.
It’s crucial to provide documentation that the lender asks for as soon as possible. If you’re too busy to get the paperwork together and answer whatever questions the lender has, it CAN ALSO be a good idea to wait until you can do what it takes to MOVE the application through.
Lenders have three days from the day you file your application to give you a Good Faith Estimate of the fees that will be due at closing. If you fill out an application and then don’t give the lender the necessary information right away, he or she may have no choice but to close the application process.
First, you should know how the basic process works. When you apply for a mortgage, here’s what to expect:
You will receive an approval or rejection within 30 days of submitting a completed application.
If your application is denied, your lender must tell you, in writing, specifically why you were not approved (or give you have 60 days to ask the reasons for the rejection). It’s not enough for lenders to say “you didn’t meet our standards.” They must provide details such as “not enough time on the job,” or “your income is too low.” Once you know where your financial weaknesses are, you can focus on fixing the problems.
Your mortgage may have been approved, but on less favorable terms than you originally applied for. In that case, lenders must tell you why you didn’t qualify for better terms (if you ask), but only if you turn down the counter offer, according to the Federal Trade Commission.
If your mortgage was rejected because of something in your credit report, the lender is required to tell you how to contact the credit bureau that issued the report. If you ask within 60 days, the bureau will provide you with a free copy of your report. Plus, under the Fair Credit Reporting Act, all consumers are entitled to receive one free report each year.
If there is inaccurate information in your credit report, the credit bureau must investigate if you file a dispute. The company that provided the inaccurate information must also reinvestigate your claim and report the findings. If, after the investigation the inaccurate information remains and you still dispute it, include a summary of your position in your credit file.
A poor appraisal may be the reason for your mortgage denial. Ask the lender for a copy and check it for inaccuracies such as age, location, and dimensions of the home. Also verify that there was no illegal component to the appraiser’s decision, such as the racial makeup of the neighborhood. The appraiser works directly or indirectly for your lender, so if there are factual errors, or illegal information in the appraisal, point these things out to your lender and ask him or her to contact the appraiser.
Depending on the reason for the mortgage denial, it may just be a matter of time, or you may need to take action. If you’ve made a habit of job hopping, settle down and stick with one employer long enough to develop a stable history. If your credit history is shaky, stop opening new accounts and make a concerted effort to pay down the ones you have. Keep balances on all accounts low, since part of your credit score depends on how much of your available credit you are using. Pay bills on time. If you have old credit accounts with zero balances, don’t close them or you could negatively impact your credit score. Keep them open and cut up the credit cards.
Barring unforeseen circumstances such as a medical emergency or a job lay off, anyone can become creditworthy with time and diligence.
Mortgage rates moved lower again, with the best options available in the morning hours. After that, bond markets including MBS (the mortgage-backed-securities that most directly affect mortgage rates) moved back into weaker territory on the day, prompting some lenders to raise rates in the afternoon. The most prevalently quoted conforming 30yr fixed rate for best-case scenarios (best-execution) remains at 4.125%, with most borrowers seeing today’s improvement in the form of lower closing costs. Expressed in terms of ‘effective rate,’ the drop in closing costs amounts to 0.02%.
Even after the afternoon reprices, today’s rates are still the best this month and very close to being the best this year. Only 2-3 days were better at the end of May. Any time rates are at a periodic low like this, it’s never a bad decision to lock in the improvements. While we could see modest gains from here, the risk is rapidly increasing that the recent trend of improvement will take a breather, or even reverse next week. If you’re not able to lock today, or not interested, just be aware that the prospects for volatility will be increasing after Monday night.
Home price are again approaching the high point they reached in 2006, before the bottom fell out of the housing market. Black Knight in its Home Price Index Report for April says that U.S. home prices are now only 12 percent off of that peak.
Black Knights Home Price Index (HPI) was up 0.9 percent in April to $236,000 from $234,000. This is 6.4 percent higher than the HPI in April 2013 of $222,000. Prices peaked nationally in June 2006 at $269,000.
Nineteen of the 20 largest states posted month-over-month increases with Arizona which was unchanged for the month, being the lone exception. The largest gains were in Georgia and Massachusetts each of which posted 1.6 percent appreciation. Maryland was up 1.4 percent and Delaware and Michigan each increased by 1.3 percent. After Arizona the smallest price increases were in Iowa (0.4 percent) followed by five states that each posted increases of 0.5 percent, Vermont, Nevada, Nebraska, New York, and Hawaii.
Texas and Colorado set new price peaks as they have done each month since mid-2013. Dallas, Denver, Houston, San Antonio, Austin and San Antonia also each set another new post-crash high and were joined in April by Nashville. That city set a new HPI of $200,000, up 1.4 percent from March.
Black Knight’s report summarizes sales concluded each month using a repeat sales analysis of home prices on their transactions dates. The HPI represents the price of non-distressed sales by taking into account price discounts for bank-owned real estate (REO) and short sales.
Mortgage rates moved modestly lower again today. While that leaves them a bit higher than the best rates of this year, it enables an important year-over-year milestone. On June 20th 2013, bond markets were convulsing and rates were in the midst of what we called “The worst 2-day move in 4 years.” That move brought the average closing-cost adjusted rate up to 4.29%. Today’s average is 4.18%. So for the first time in over a year, and as Calculated Risk suggested would happen soon, mortgage rates are officially lower year-over-year.
While this is primarily a factor of the timing of 2013’s rapid increases, it’s nonetheless a welcome development on some level. Given all the turmoil that was yet to come on June 20th last year, it’s reassuring that markets were able to take a logical step back from the brink of insanity (where ‘insanity’ = rates so high that no one is interested in real estate outside cash buyers).
Today’s rates didn’t have to move in order to hit the 1-yr milestone, and indeed they moved very little. Some lenders were actually in worse shape today, but closing costs were just slightly lower on average (0.02% in terms of effective interest rate). The most prevalently quoted conforming 30yr fixed rate for best-case scenarios (best-execution) remains 4.25%, but 4.125% is becoming viable once again.