April 1st Mortgage News – We’re Not Kidding

Home Prices Make Further Gains:

Two new economic reports show continued growth in appreciation.  The Case-Shiller composite index of 20 metropolitan areas showed that prices increased 0.8% on a month-over-month basis, despite the harsh weather in January and grew 13.2% on a year-over-year basis.

In a separate report released by The National Association of Realtors,  February Existing Home Sales showed that the median home price was $189,000 which is a 9.1% increase from February 2013 despite higher mortgage rates than last year’s record low mortgage rates.

These price gains have translated into an additional $4 trillion of housing wealth recovery over the past three years,” according to the NAR Chief Economist Lawrence Yun.

Home prices and inventory levels of desirable properties will be a major factor in this Spring’s housing market, which is expected to be stronger as REO inventory clears the market.

What Happened to Rates Last Week?

Mortgage backed securities (MBS) gained +13 basis points (BPS) from last Friday’s close which caused 30 year fixed mortgage rates to move sideways after increasing the prior week.  So far this month, our benchmark FNMA 4.0 Mortgage Backed Security has lost -92 BPS which has caused mortgage rates to increase for the month. The -92BP’s for March is consistent with the 6mo FMBS Price Line below (the purple line) trending downward.

rates 3-31-2014

Mortgage backed securities (and other long-term bonds) are trading between our domestic growth (improving, & negative for rates,) and Global factors, which are generally positive for mortgage rates.

Domestic: 4th QTR GDP data was revised upward from 2.4% to 2.6%. Durable Goods Orders were double the market expectations (2.2% vs est 1.1%), Initial Weekly Jobless Claims fell (311K vs est 325K,) and Consumer Confidence improved. All of the above is positive for our economy & negative for mortgage rates.

Global: China’s banking system and economy is proving to be weaker than advertised. Mounting military troops that Russia has placed along the Ukrainian border also played a part in driving up demand for U.S. based bonds. We saw strong support for 2, 5 and 7 year Treasury auctions.  This provided a nice level of support for mortgage bonds in what would have otherwise been another down week price wise (higher yields.) As a result, Mortgage Backed Securities (MBS) moved sideways for the week.


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