What's Ahead For Mortgage Rates - November 4,2013
Last week’s economic news came from a variety of sources. Most significant was the Fed’s Federal Open Market Committee statement after its meeting ended Wednesday. The statement indicated that the Fed saw moderate economic growth. FOMC did not taper its purchase of MBS and Treasury securities.
The FOMC statement announced the committee’s intention to closely monitor economic and financial developments ”in the coming months,” which suggested that the FOMC is taking a wait-and-see position on reducing its $85 billion monthly asset purchases.
Mortgage Rates, Jobless Claims Fall
The Fed’s asset purchase program, also known as quantitative easing, was implanted in 2012 with a goal of stabilizing mortgage rates and other long-term interest rates.
The National Association of REALTORS® reported that pending home sales fell by 5.60 percent in September. Uncertainty over the FOMC’s decision concerning tapering its asset purchases during its September meeting and concerns over a then potential government shutdown.
These were noted as primary reasons for the drop in pending home sales, which are measured by signed real estate contracts. Pending Home Sales are used for estimating future closings and mortgage loan activity.
Tuesday’s economic reports included the Case-Shiller Home Price Indices for August. Home prices increased by 12.80 percent year-over-year in August as compared to 12.30 percent year-over-year for August 2012. August’s reading shows a dampened pace of rising home prices.
The Conference Board, a research organization, reported that consumer confidence fell from a reading of 80.2 in September to 71.2 in October. A reading of 75.00 was expected, but consumer confidence crashed as the government shutdown and its consequences diminished consumer and investor confidence.
According to ADP, a payroll administration firm, private-sector payrolls came in well shy of the expected 150,000 new jobs with a reading of 130,000 jobs. October’s reading was also lower than September’s reading of 145,000 new jobs.
Weekly jobless claims brought good news; new jobless claims came in at 340,000 and fell by 10,000 new claims from the previous week’s 350,000 new jobless claims. Expectations had been for 335,000 new jobless claims.
Freddie Mac reported that average mortgage rates fell. The rate for a 30-year fixed rate mortgage dropped by three basis points to 4.10 percent, with discount points down from 0.80 percent to 0.70 percent.
The average rate for a 15-year mortgage fell by four basis points to 3.20 percent, with an uptick in discount points from 0.60 percent to 0.70 percent. The rate for a 5/1 adjustable rate mortgage dropped by four basis points to 2.96 percent with discount points unchanged at 0.40 percent.
What‘s Coming Up
There is no housing or mortgage economic news scheduled this week other than Freddie Mac’s PMMS due on Thursday.
Reporting for this week includes Leading Economic Indicators, Weekly Jobless Claims, Non-farm Payrolls and the National Unemployment Rate will be posted. The University of Michigan’s Consumer Sentiment Index will be released Friday.
This week’s economic reports are expected provide a general gauge of the economy and information about how consumers are responding to recent economic events and news.
Mortgage rates typically are tied more to the yields on the 10-year Treasury note more than any other indicator. With the government in flux as the shutdown happened and ended, mortgage rates are also changing.
Overall, mortgage rates have decreased because of a lack of confidence in the government’s ability to get its finances under control.
Although rates spiked in September when the Fed hinted that they would not be purchasing as many bonds, they quickly released an announcement that they would actually be maintaining their current purchasing habits.
The Time Is Ripe For Homeowners
Since then, mortgage interest rates have been dropping back down to their previous levels. With 30-year and 15-year fixed mortgage rates continuing at very low levels, the time is ripe for homeowners to purchase or refinance.
In the day following the reopening of the government, mortgage rates continued at their low levels, which surprised some economists. The stock market went down and yields on the 10-year Treasury note also decreased, which both suggest a lack of confidence in the government.
Despite their ability to come to an agreement, investors and economists note that it is just a temporary fix, and there will likely be anothershowdown looming. Rates may remain low for a little while, but as the government begins releasing more economic data, mortgage interest rates could increase if the data shows growth in the economy.
Buyers Expect An Increase Of Applications
The government shutdown did have an effect on the volume of applications for government mortgages, like FHA and VA loans. Both reached a six-year low, largely because there were no staff on hand to answer questions over the phone and the offices were running on skeleton crews.
As the offices are back up and running again, buyers are expected to increase their volume of applications because those who had been delaying their applications now need to get the ball rolling on their home purchases.
Amidst all of the uncertainty, one thing is quite clear. It’s unlikely that interest rates will drop significantly lower than they are now, so buyers looking to get a mortgage and homeowners looking to refinance may be best off locking a rate soon rather than waiting.