Mortgage News Update 03/06/2014

Lots of world events happening that are effecting mortgage rates. In addition there are several items in the domestic economy that are causing lots of volatility in mortgage rates. In this post we like to share some mortgage news as reported by two of our investor friends at New York Community Bank and Flagstar Bank. They are two of the largest and best mortgage wholesalers.

Despite the social unrest and political uncertainty in the Ukraine and Venezuela, and slower domestic economic growth suggested by recent weakness in housing, mortgage lending, and employment, stocks held strong and ended the month on a solid note. However, Federal Reserve Chair, Janet Yellen, attributed some of the recent weak data to unusually cold weather and reiterated that it would take a “significant change” in the economic outlook for the Fed to adjust its tapering plans.

Last week all major indices ended in positive territory. The S&P closed at 1,859 while the Dow ended the trading week at 16,321. In major economic indicators released last week, economic slowness was evident with real GDP growth for the fourth quarter being revised down sharply to an annualized 2.4 percent from the advance estimate of 3.2 percent, as compared to the third quarter’s 4.1 percent. Also reflecting the recent economic slump, the Chicago Federal Reserve’s National Activity Index for January slumped to its lowest reading since last July at minus 0.39. In spite of the dreadful weather, there are signs of improvement in manufacturing. New factory orders for durables were down 1.0 percent for January, which was better than expected, following a drop of 5.3 percent in December.

Turning to the bond market, despite new issuances, strong demand for Treasuries pushed longer-term yields lower last week. At the end of the week, the Ten-year Treasury yield was down nearly 7 bps and ended at 2.66 percent. Towing the same line, conforming mortgages rates also loosened a bit. At the end of the week, the Conforming Fixed 30-year rate leveled out at around 4.16 percent, while the Conforming Fixed 15-year rate finished around 3.18 percent.  However, New Home Sales for the month of January surprised investors with a 9.6 percent increase in January to 468,000, the strongest annual rate since July 2008.

With political unrest escalating in the Ukraine and a slumping Russian stock market, investors will expect a negative impact on European Union stocks this week.  On the domestic economic front, the main indicators to watch out for this week will be the ISM Manufacturing Index and PMI Manufacturing Index  releases on Monday.  Labor market conditions will be measured from the ADP Employment report on Wednesday and the always important payroll report from the Department of Labor on Friday.

4 Million Homes Return to Positive Equity:

Improving home prices in 2013 gave U.S. borrowers back much-needed equity in their homes. The housing crash and subsequent plunge in prices during the end of the last decade put millions of borrowers “underwater” on their mortgages-owing more than their homes were worth. While many were self inflicted ka “equity out,” for those borrowers with equity in & paying on time, valuation stability is welcomed.

Nearly 4 million of those borrowers came back above water in 2013, according to a new survey from Zillow.

“We’ve reached an important milestone as negative equity has fallen below 20 percent nationwide, which has helped marginaly increase inventory and contribute to further stabilization of the market,” Zillow’s chief economist, Stan Humphries, said in a release.

Double-digit gains (mostly in the bubble markets) are giving homeowners more equity as well more confidence in the market. Double digit gains could result in declining affordability in bubble markets.

Keep in mind, a market “in balance” has marketing time of 6 mos, and typically features a cheaper to own vs rent dynamic that favors FTHB’s.Markets in balance with single digit annual gains are where we’ll see continued opportunities for active real estate markets.

What Happened to Rates Last Week?

rates 3-5-2014

Mortgage backed securities (MBS) gained +75 basis points (BPS) from last Friday’s close which caused 30 year fixed mortgage rates to improve. The market saw the lowest rates on Thursday and the highest rates on Monday.

Positive economic news is always negative for long-term bond prices and therefore mortgage rates. That is unless there is a massive rush into U.S. bonds due to overseas concern and that is exactly what happened last week.

If it wasn’t for a “flight to quality” into U.S. bonds primarily due to concern over the Ukraine, MBS would have sold off and mortgage rates would have increased. New Fed Chair Janet Yellen reaffirmed her earlier testimony in front of the House Financial Services committee for the Senate Banking committee which means that the Fed is on a solid path to reduce their monthly bond purchases unless the economy takes a sharp nose-dive. Durable Goods Orders were much better than expected and so were the Chicago Purchasing Manager’s Index and Consumer Sentiment. The 4th QTR GDP was revised downward but inline with market expectations. All of these events would have normally pressure MBS pricing.

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