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Mortgage News

Nick Siebert  September 30, 2015

Mortgage rates fell appreciably on Tuesday, marking the second straight day of improvements, and as a result current 30-year mortgage rates are now hovering at 4-month lows. The stock market fell yesterday, and investors flocked into ultra-safe haven assets, such as U.S. government securities. Pricing on mortgage bonds, such as mortgage-backed securities (MBS) increased and as a consequence a number of lenders released improved rate sheets during mid-day. The bottom line is, that current mortgage rates are now close to such low levels, that we haven’t seen since May 2015.

On Tuesday, the yield on the benchmark 10-year treasury note fell by 5 basis points and this type of government bond finished the trading session at 2.05%. The longer-term 30-year treasury yield declined as well, coming out at 2.85% versus 2.87% that it had a day earlier.

This morning MBS is in the red, while stocks are rallying and as a result mortgage interest rates are slightly higher, as of this writing.

At its last policy meeting in September, the Federal Reserve decided to hold off on increasing short-term interest rates. The decision, to leave interest rates unchanged, has been causing some swings in the financial markets, as market participants are unsure about the direction of the U.S. central bank’s monetary policy. Lately investor sentiment is down, equities are falling and there’s low confidence in global growth. Overall, recent market trends and economic headlines have been supportive for low mortgage rates, but the upcoming Non-Farm Payrolls report, which is the most influential domestic economic report this week, could potentially break this trend.

This mid-week two pieces of economic data saw the light of day, including the ADP National Employment Report for September and the upcoming Chicago PMI. According to fresh jobs data from payroll processor ADP, U.S. private payrolls rose by 200,000 jobs in September. As far as job growth is concerned, the current figure marks a three-month high. This is a strong report, which exceeds the projected increase of 190,000 jobs. On the other hand, August’s job numbers were revised down to 186,000 from the previously reported 190,000.

Today’s other notable domestic economic report is the latest Chicago Business Barometer, also known as the Chicago PMI, which shows regional manufacturing activity in the Chicago area. According to a fresh report released by the Institute for Supply Management, business activity in the Midwest contracted this month, as a result of declines in production and new orders. This month’s Chicago PMI came in at 48.7, falling sharply from 54.4 last month, and it’s the fifth time this year that the Chicago region’s manufactury activity index signals contraction. The consensus expectation was for a reading of 53.3 for September’s Chicago PMI. In normal circumstances, you could expect that such a weak domestic economic data would have at least some kind of impact on the bond market, and indirectly on mortgage rates, however, bonds are seemingly driven by stock market movements and overseas economic headlines these days.

With regards to this week’s Fedspeaks, yesterday we reported that several U.S. central bank officials, including New York Fed President William Dudley and San Francisco Fed President John Williams, chimed in with their opinions about the central bank’s monetary policy. In an interview with Nikkei on Tuesday, Cleveland Fed President Lorett Mester said, that the U.S. central bank’s decision to hold off on increasing rates at its September policy meeting “was really a decision about risk management”. On the other hand, she reiterated her views, that she believes the economy is strong enough for an initial rate hike.

Another top Fed policymaker, Chicago Fed President Charles Evans, who is one of the dovish members of the U.S. central bank said in remarks prepared for a speech at Marquette University on Monday, that the Fed should leave interest rates near-zero until some time next year, citing risks that prematurely hiking rates could come with “substantial costs”. According to Evans, the Fed should take an “extra patient approach” when it comes to tightening its monetary policy for the first time since 2006, due to risks that inflation may not reach the Fed’s target levels and this could complicate the U.S. central bank’s monetary policy plans.

In other news, financial firm Zillow reported earlier this week, that the average interest rate on the benchmark 30-year fixed mortgage remained unchanged at 3.73% on Zillow Mortgages during the wraparound week ended on Tuesday. The company’s findings also showed, that the shorter-term, 15-year fixed mortgage averaged a rate of 2.92%, while the 5/1 adujstable-rate mortgage (ARM) came out at 2.74% during the said period.

A quick look at current average mortgage rates by state, shows that in California, the 30-year FRM is now hovering at 3.71%, a 1 basis point drop compared to data in the prior week. The biggest weekly drop in rates took place in Colorado and Massachusetts states, where the current average interest rate on the 30-year fixed mortgage is coming out at 3.71%. Zillow’s data also revealed that the lowest interests rate on the 30-year FRM was measured in Texas during the wraparound week, with the average rate coming out at 3.70%. On the other hand, the highest average rate for this type of long-term, conventional loan was measured in New York state (3.78%).

Posted by Chris Styner on September 30th, 2015 3:15 PM

Originally posted by Ellen Seidman and Wei Li :: February 12th, 2015

Mortgage interest rates—at 3.59 percent for a 30-year fixed rate loan and 2.92 percent for a 15 year loan—are now at their lowest level since May 2014. Potential homebuyers in the last several years have been consistently hearing that mortgage interest rates are about to go up, but the downward trend of the last year and a half is unmistakable.

The reasons are complex, and of course individual borrowers may not find precisely these rates when they shop. But we recently huddled with our HFPC colleagues to pool our thoughts about the major forces that are pushing mortgage interest rates down.

They fall into two broad categories: forces that affect the interest rate on Treasury securities (reasons 1-3) and those that affect the mortgage risk premium above the Treasury rate (reasons 4 and 5).

  1. Slow growth and turmoil abroad: Though Europe isn’t facing the kind of turmoil it saw in 2011, we are seeing several years of slow growth there and in Japan and a slowdown in China, albeit from a fast pace. And with major turmoil in the Middle East and Ukraine, the United States looks like a much safer place to put money, driving down rates on Treasury debt that in turn drive down mortgage interest rates.
  2. Upheaval in the oil market: The rapid drop in oil prices is generally good news for American consumers (if less positive for American oil producers), but it also signals a degree of uncertainty in the commodity markets. Again, the certainty of Treasuries is alluring when commodity prices fluctuate so wildly.
  3. The US economy is steadily improving: While eventually this recovery will result in higher interest rates, for now, the uncertainty premium that is normally reflected in higher interest rates for longer term debt is small, and reduced from a year ago.
  4. Low Treasury rates, low mortgage rates: Yields on 10-year Treasury securities are typically used to set mortgage rates. Ten-year Treasuries currently yield 1.88 percent, well below historical levels (See Chart: Mortgage Rates Closely Follow Treasury Yields)—although higher than rates in Europe, Japan and Canada. The spread of mortgages over Treasuries is a little under 2 percent, higher than it’s been since September 2012, although in line with historical spreads. But with Treasury rates so low, mortgage rates are also low.
  5. Reduced demand for mortgages: We and others have written about the tight credit box and other factors that have reduced the demand for mortgages. In fact, we estimate that each year about 1.2 million fewer mortgages are being originated than would have been the case if 2001 credit standards were in effect. While mortgage demand may be down for reasons other than requirements for better credit, if the mix of originated mortgages is less risky than it was in the pre-bubble years, the mortgage risk premium can be expected to be lower. Generally increasing housing values should also reduce the risk premium.

There certainly are forces pushing mortgage interest rates in the opposite direction, most notably the tapering of the Federal Reserve’s purchases of mortgage-backed securities (MBS). This reduces the demand for MBS, putting downward pressure on their price and upward pressure on MBS interest rates, which flow through to higher interest rates on the underlying mortgages. And, as we point out in our monthly Chartbook (page 20), guarantee fees on loans purchased by Fannie Mae and Freddie Mac have increased dramatically. But so far, these forces have not been sufficient to stop the downward trend in mortgage interest rates.

Of the five forces discussed, three—commodity turmoil, very low Treasury rates, and reduced demand for mortgages—are capable of fairly rapid turnarounds. So we should still expect higher interest rates, although none of our colleagues are ready to predict when. But it’s nice to know why we’ve got low rates now.

 

Posted by Chris Styner on February 12th, 2015 2:59 PM

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