You all know that one of the biggest factors
holding the upper-end of the market back is the frozen jumbo mortgage market.
Well, I have good news, the market is turning and we’re positioning ourselves
to be major player in this market. Yesterday we launched two new loan products,
the Jumbo 30yr fixed and the Jumbo 5yr ARM. The 30yr today is at a rate of
4.875% and the 5yr ARM is at 3.625%. These are huge improvements over the
competition. These loans are Sterling portfolio products, which means we make
the rules and can make exceptions to the guidelines for strong borrowers. More
changes and additions will be coming so stay tuned.
Today, in its first meeting in 6 weeks, the Federal Open Market Committee voted 9-to-1 to leave the Fed Funds Rate unchanged.
The Fed Fund Rate remains at a historical low, within a prescribed target range of 0.000-0.250 percent.
In its press release, the FOMC said that, since June, the pace of economic recovery “has slowed”. Household spending is increasing but remains restrained because of high levels of unemployment, falling home values, and restrictive credit.
Today’s statement shows less economic optimism as compared to the prior year’s worth of FOMC statements dating back to June 2009. The Fed is looking for growth to be “more modest in the near-term” than its previous expectations.
Weaknesses aside, the Fed highlighted strengths in the economy, too:
Growth is ongoing on a national level
Inflation levels remain exceedingly low
Business spending is rising
As expected, the Fed re-affirmed its plan to hold the Fed Funds Rate near zero percent “for an extended period”.
There were no surprises in the Fed’s statement so, as a result, the mortgage market’s reaction to the release has been neutral. Mortgage rates in Washington are unchanged this afternoon.
The Federal Open Market Committee holds a one-day meeting today, its fifth scheduled meeting of the year, and sixth overall since January.
The FOMC is the government’s monetary policy-setting arm and the group’s primary tool for that purpose is an interest rate called the Fed Funds Rate.
The Fed Funds Rate is the prescribed rate at which banks borrow money from each other and, since December 16, 2008, the Federal Reserve has voted to keep the benchmark rate within a target range of 0.000-0.250 percent.
It’s the lowest Fed Funds Rate in history.
Because the Fed Funds Rate is near zero, it’s accommodative of economic growth, spurring businesses and consumers to borrow money on the cheap. This, in turn, fosters economic growth within a U.S. economy that is somewhat tentative and facing headwinds.
The Fed has said over and again that it will hold the Fed Funds Rate “exceptionally low” for as long as conditions warrant. It’s expect that the Fed will reiterate that message in today’s post-meeting press release.
However, just because the Fed Funds Rate won’t be changing today, that doesn’t mean that mortgage rates won’t. Mortgage rates are not set by the Federal Reserve; open markets make mortgage rates.
Mortgage rates in Washington tend to be volatile when the Fed is meeting. This is because the Fed’s press release highlights strengths and weaknesses in the economy and, depending on how Wall Street views those remarks, bond markets can undulate and mortgage rates are based on the price of mortgage-backed bonds.
When Ben Bernanke & Co. speak, Wall Street listens.
The Fed’s press release today will be dissected and analyzed. Talk of higher-than-expected inflation, or better-than-expected growth should have a negative effect on rates. Talk of an economic slowdown may help rates to fall.
Either way, we can’t be certain what the Fed will say or do this afternoon so if you’re floating a rate right now and wondering whether the time is right to lock, the safe choice is to lock before 2:15 PM ET today.
Mortgage markets improved again last week on softer-than-expected economic data, punctuated by Friday morning’s weak jobs report. Conforming mortgage rates in Washington dropped on the news, making new, all-time lows.
Mortgage rates have been on an extended rally dating back to mid-April.
This week, there’s a lot of data and news due for release, the most influential to markets of which is the Federal Open Market Committee’s scheduled policy meeting.
8 times annually, the FOMC meets to discuss the nation’s monetary policy with respect to the current and projected U.S. economic conditions. Sometimes the FOMC takes action on the economy. Other times, it does not.
Either way, Fed meetings are market movers and it’s a gamble to float a mortgage rate ahead of an FOMC get-together.
There’s other’s stories to watch this week, too. Each has the ability to change mortgage rates.
Tuesday : FOMC meeting; Consumer Confidence data
Thursday : Jobless Claims
Friday : Retail Sales; Consumer Price Index
It’s a busy week on Wall Street, to be sure, and rate shoppers would do well to pay attention. Not only can the FOMC meeting change mortgage rates for every product in every market, but it can also change the outlook for mortgage rates going forward.
Rates are at an all-time low and low rates can’t last forever. We’re in the middle of a Refi Boom today and, soon, the boom will be over.
If you haven’t spoken to a loan officer about refinancing your home, or locking a mortgage rate, your best time to make the call is prior to the FOMC’s Tuesday afternoon adjournment at 2:15 PM ET. Mortgage rates will get jumpy leading up to the meeting, and will most certainly be volatile afterward.
The Seattle Times reports this morning that sales volume is down but prices are up for the second month.
That’s the abridged version of how the real-estate market fared in King County in July.
With expired federal tax credits no longer an incentive, home sales dropped. Buyers closed on 1,474 houses in the county last month, according to statistics released Thursday by the Northwest Multiple Listing Service.
It was the smallest total since February, and a 15 percent drop from July 2009. The decline broke a 13-month string of year-over-year increases.
But the median price of the houses that sold last month was $399,950, highest since December 2008. The median price was up more than 4 percent from last July, and was just the second monthly year-over-year increase since January 2008.
Real-estate professionals attributed the increase to a shift in the makeup of properties that sold. With fewer first-time buyers in the market because of the expiration of the tax credits, higher priced properties made up a larger share of sales in July, they said.
In Seattle, for instance, 40 percent of the houses that closed in July sold for $500,000 or more, compared with just 26 percent in the same month last year, Windermere Real Estate spokeswoman Sonja Riveland said in an e-mail. (read the whole article)
Of the three, it’s the measured drop in Personal Spending for which rate shoppers and home buyers in Seattle should watch. Drops in spending slow down the economy which, in turn, tends to pull mortgage rates lower.
Long-term, deflation could be a drag on rates, too. For now, though, it’s just a conversation among academics and economists.
This week, mortgage rates could move up or down — a lot hinges on the results on July’s Non-Farm Payrolls report.
More commonly called “the jobs report”, Non-Farm Payrolls hits the wires Friday at 8:30 AM ET. Markets are expecting a 75,000 net loss of jobs last month. If the actual number is higher, mortgage rates should rise. If the actual number is lower, mortgage rates should fall.
With the jobs numbers not due until Friday morning, expect choppy trading through Thursday’s market close. There’s a handful of economic data set for release including Personal Consumption Expenditures (Tuesday), Pending Home Sales (Tuesday) and Jobless Claims (Thursday). Each has the potential to move mortgage rates.
The Refi Boom is ongoing but when it ends, it will end in a hurry. If you’ve been thinking about a refinance, contact your loan officer about your options sooner rather than later.
Standard & Poors released its Case-Shiller Index Tuesday. On a seasonally-adjusted basis, between April and May 2010, home prices rose in 19 of Case-Shiller’s 20 tracked markets. It’s the second straight month of strong Case-Shiller findings.
Also, May’s numbers are a mirror-image of February’s. In February, 19 of 20 markets lost value.
In its press release, the Case-Shiller staff resisted calling May’s data proof of a housing recovery, noting that home values remain flat as compared to October of last year. However, there are some noteworthy numbers in the Case-Shiller report.
13 of the 20 tracked cities are showing home price improvement year-over-year
Foreclosure posterchild San Diego has now shown 13 straight months of improvement
San Diego, San Francisco and Minneapolis are showing double-digit annual growth
Seattle rose 1.16%
These are all good signs for the housing market, but the Case-Shiller Index is not without its flaws. Most notably, the data is limited to just 20 cities nationwide — and they’re not even the 20 largest ones.
Cities like Houston, Philadelphia, and San Jose are excluded from Case-Shiller, while cities like Tampa (#54) are not.
Another Case-Shiller flaw is that it reports on a 2-month delay.
Therefore, today is several days from the start of August but we’re now reflecting on data from May. Given the speed at which the Seattle real estate market can change, May’s data is almost ancient. Today’s values may be higher or lower than what Case-Shiller reports.
For home buyers, reports like the Case-Shiller Index may not be useful in making a “Buy or Not Buy” decision, but can aid in watching longer-term trends in housing. For real-time data, talk to a real estate agent with access to local figures instead.
June’s data is a major improvement over May, but it’s possible that the true “new home market” may be softer than the statistics suggest. This is for several reasons.
First, we’re comparing June’s sales data to the worst month in New Home Sales history.
In May, sales of new homes totaled just 267,000 units nationwide. That’s one-quarter fewer sales than in the previous worst month in New Home Sales history. May’s sales levels were awful by any measure but June’s improvement to 330,000 units remains second-worst sales levels ever posted.
Second, although much improved, June’s new home supply of 7.6 months is elevated versus the historical norm near 6.0 months. The last year has averaged 7.7 months.
For buyers of new homes in Seattle , this combination of low sales volume and higher-than-normal inventory may be a positive. It’s the main reason why homebuilder confidence is reeling and the downturn has opened some doors for big discounts and deals. Free upgrades and closing cost credits can make a well-priced home even more attractive.
Plus, with mortgage rates at all-time lows and expected to rise, home affordability is may never be better.
“UNCERTAINTY AND MYSTERY ARE THE ENERGIES OF LIFE.”And while the Bond market may agree with R.I. Fitzhenry’s words about uncertainty, most investors in the Stock market don’t… just ask Fed Chairman Ben Bernanke. Last week, Mr. Bernanke testified before the Senate and House Banking Committees, making several cautious comments on the state of the labor market and inflation, as well as stating that the Fed would be ready to take action should economic conditions worsen. But the comment that spooked Stocks and helped Bonds was when Mr. Bernanke said the economic outlook is “unusually uncertain.” Stocks hate uncertainty but Bonds usually perform well as a safe haven, so Bonds and home loan rates improved upon the utterance of these words.
Mr. Bernanke also stated that one way to normalize the size and composition of the Federal Reserve’s securities portfolio would be to sell some holdings of agency debt and Mortgage Backed Securities. And an article in the New York Times concurred, stating that the Fed’s MBS holdings are already problematic and put the Fed in a tough position where it may find itself having a conflict of interest - and here’s why.
While inflation is subdued for now, it’s only a matter of time before the Fed will need to hikes rates in order to keep inflation controlled. But any hike in rates would cause the Fed to lose significant value on their Mortgage Backed Security holdings. So the tough question is… how will the Fed act, in light of this conflict?
Remember, the Fed purchased $1.25 Trillion worth of Mortgage Bonds, as well as several hundred Billion in Treasuries. Those purchases helped drive rates down towards historic low levels - and yet the housing market is still not entirely healthy. So this also begs the question, what would cause a different result? One perspective is that the Fed - like many in Washington - missed the point. The problem is not that rates need to be lower. Many individuals already want to purchase or refinance at today’s low rates, but are unable to do so because of tighter underwriting guidelines, as well as low valuations. A perfect example is the “no income verification” loan - which has been cast in a negative spotlight as a “liar loan” and virtually eliminated. But there has been a good track record for those loans in the past when underwritten properly. If the government were to direct some resources towards reestablishing some of these more reasonable lending tools, the results might be better.
Instead - the sweeping Financial Reform Bill was signed into law last week, and the implications of this 2,300-page legislation are sure to be broad. Former Fed Chairman Alan Greenspan himself said that every page appeared to be loaded with unintended consequences… so as this legislation is analyzed and dissected, you can be assured I’ll be keeping a close eye on the impacts it may have and will keep you informed.
———————– Fed Chair Bernanke Calls the Outlook “Unusually Uncertain”
But the Federal Reserve and Financial Reform are only part of the picture. Mortgage Bonds and home loan rates are also impacted by global financial news.
In fact, just last week the Bank of Canada raised rates by .25%, up to .75%… and this could have a major implication on our Bonds. Part of the reason home loan rates have dropped so much has been the currency trade, where the Euro has weakened against the Dollar. Europeans have been taking advantage of the currency trade, and parking money in the US - much of which is in our Bonds. But now, with Canada’s improving economy and slightly higher rate environment, their yields might not only be more attractive for Europeans, but their currency may provide a more lucrative option as well. And the sell-off in our Bonds early last week could have been somewhat due to traders anticipating this move by the Bank of Canada.
Another story of uncertainty is developing in China. China’s reserves, which are held mostly in US Treasuries as well as Mortgage Backed Securities, stand at $2.5 Trillion. But last quarter marked the first time in a long time that these holdings did not increase. Does this mean that China is slowing their US debt purchases? I will be keeping close tabs on this because a slowdown in US debt purchases from China could adversely impact the Bond market, as their purchases have also contributed to the low rate environment in the US. THESE BIG-PICTURE DEVELOPMENTS IMPACT THE MARKETS AND, IN TURN, YOUR FINANCIAL SITUATION. BUT EVERYDAY PURCHASES CAN ALSO DRAIN YOUR HOUSEHOLD BUDGET. CHECK OUT THE MORTGAGE MARKET GUIDE VIEW BELOW TO LEARN HOW YOU CAN STOP OVERPAYING… STARTING RIGHT NOW.
Forecast for the Week
A number of reports which have the potential to move the markets are coming this week, and we’ll start off with a dose of housing news right away Monday morning with the New Home Salesreport. This report comes after last week’s worse-than-expected report on Housing Starts, so the markets will be paying close attention to this report.
The manufacturing sector of the economy will also be in the spotlight this week. On Wednesday, Durable Goods Orderswill be released. Then Friday brings the Chicago PMI, which surveys more than 200 Chicago purchasing managers about the manufacturing industry and is a good indicator of overall economic activity.
On Thursday, we’ll see another weekly read on Initial Jobless Claims. Last week, Initial Jobless Claims rose by 37,000 to 464,000, which was above the 445,000 that was expected. Overall, unemployment is still disappointingly high.
The news heats up on Friday when we get a look at the Gross Domestic Product (GDP)and GDP Chain Deflatorfor the second quarter. The Chain Deflator is a key inflation measure included in the GDP Report. And since inflation is the archenemy of Bonds and home loan rates, this report could be a market mover.
Finally, there are two reports on tap this week regarding how consumers feel about the economy with the Consumer Confidencereport on Tuesday and the Consumer Sentiment Indexon Friday. In addition, the Treasury Department will auction $38 Billion in 2-Year Notes on Tuesday, $37 Billion in 5-Year Notes on Wednesday, and $29 Billion in 7-Year Notes on Thursday. Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result.As stated above, uncertainty in the US and abroad has been impacting the markets, which has helped Mortgage Bond prices climb steadily higher since April, as you can see in the chart below. And this means that home loan rates have moved steadily lower. This presents an unbelievable opportunity for people looking to purchase or refinance a home. It only takes a few minutes to see how you or someone you know can benefit from today’s low rates. Even if you’re not sure you can refinance, it doesn’t hurt to conduct a quick review. Please call me today before this opportunity passes by.
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———————– Chart: Fannie Mae 4.0% Mortgage Bond (Friday, July 23, 2010)
Consistent with most post-home buyer tax credit housing news, the National Association of Realtors® says Existing Home Sales eased lower last month.
An “existing home” is a home that cannot be considered new construction.
The 5 percent drop in sales from May to June was expected, but a closer look at the month’s data reveals some interesting trends.
First, repeat buyers accounted for 44 percent of home resales in June, up from 40 percent in May. That’s a healthy increase for just 4 weeks’ time and the tax credit is a likely catalyst. First-timer buyers bought starter homes owned by former first-timers, who were then free to “move up” to larger, more expensive property.
Housing markets can be trickle-up and, not coincidentally, the jumbo/luxury housing market is now in the midst of rebound.
Second, June’s “distressed sales” accounted for 32 percent of all home resales, up from 31 percent in May.
A figure like this hints at the large role foreclosures continue to play in a Seattle home buyer’s home search strategy. And why not? The National Association of Realtors® suggests that distressed homes are sold at a 15 percent discount.
Lastly, take note that home inventories are rising. June’s 8.9 months of supply is the highest in 10 months. Excess supply leads home prices lower, all things equal.
Overall, the Existing Home Sales data from June is a mixed bag. There’s support for the middle- and upper-price tiers, but a growing overhang of supply. The market looks favorable for buyers given low mortgage rates and strong negotiation leverage.
Today, in its first meeting in 6 weeks, the Federal Open Market Committee voted 9-to-1 to leave the Fed Funds Rate unchanged. 
The Federal Open Market Committee holds a one-day meeting today, its 
Mortgage markets improved again last week on softer-than-expected economic data, punctuated by 
to statistics released Thursday by the Northwest Multiple Listing Service.
Mortgage markets improved last week, pushing mortgage rates lower for the 6th time in seven weeks.
Consistent with most post-home buyer tax credit housing news, the National Association of Realtors® says 
