What’s Ahead For Mortgage Rates This Week : February 6, 2012

February 6th, 2012 by Michael Metz

Jobs growth pushes mortgage rates higherMort­gage mar­kets wors­ened last week as domes­tic job growth sur­prised Wall Street and the Euro­zone moved yet one more step closer to reach­ing a last­ing Greece sov­er­eign debt solution.

Con­form­ing mort­gage rates rose on the news, although you wouldn’t know it from look­ing at Fred­die Mac’s weekly mort­gage rate survey.

Accord­ing to Fred­die Mac, the aver­age 30-year fixed rate mort­gage rate fell to 3.87% last week with 0.8 dis­count points due at clos­ing, plus clos­ing costs. 1 dis­count point is a fee equal to one per­cent of your loan size.

3.87% for a 30-year fixed rate mort­gage is the offi­cial, all-time low for the weekly Fred­die Mac sur­vey, con­ducted since the 1970s. How­ever, because Fred­die Mac gath­ers its results on Mon­day and Tues­day only, by the time the sur­vey results were released Thurs­day morn­ing, mort­gage rates were already ris­ing off their lows.

Then, Fri­day morn­ing, after January’s Non-Farm Pay­rolls data was released, mort­gage rates surged.

The Jan­u­ary jobs report exceeded expec­ta­tions in nearly every fash­ion possible :

  • Econ­o­mists expected to see 135,000 jobs cre­ated in Jan­u­ary. The actual num­ber was 243,000.
  • Econ­o­mists expected to see the Unem­ploy­ment Rate at 8.5% in Jan­u­ary. The actual num­ber was 8.3%.
  • Revi­sions added an addi­tional 180,000 net new jobs to the orig­i­nal 2011 tally.

As com­pared to one year ago, there are 2.1 mil­lion more peo­ple employed in the U.S. work­force. Fig­ures like this hint at a stronger national econ­omy, and that tends to drive mort­gage rates up.

This week, with lit­tle eco­nomic data due for release, mort­gage rates are expected to move on momen­tum. Right now, that momen­tum is caus­ing rates to rise.

If you’re shop­ping for a mort­gage rate and want to know if the time is right to lock, con­sider that it’s impos­si­ble to time a mar­ket bot­tom, but sim­ple to spot a “good deal”.

Mort­gage rates remain near his­tor­i­cal lows — it’s a good time to lock one in. Call your lender today. 

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Banks Start To Loosen Up In Underwriting

February 3rd, 2012 by Michael Metz

FOMC senior loan officer survey 2011 Q4

After a half-decade of tight­en­ing mort­gage guide­lines, banks are start­ing to “loosen up”.

The Fed­eral Reserve con­ducts a quar­terly sur­vey of its mem­ber banks and, last quar­ter, not a sin­gle respond­ing bank reported hav­ing tight­ened its mort­gage guide­lines for prime borrowers.

A “prime bor­rower” is defined as one with a well-documented credit his­tory, high credit scores, and a low debt-to-income ratio.

53 banks responded to the Fed’s sur­vey and none said that mort­gage guide­lines “tight­ened con­sid­er­ably” or “tight­ened some­what” between Sep­tem­ber and Decem­ber 2011; 50 said that guide­lines remained “basi­caly unchanged”; 3 said that guide­lines “eased somewhat”.

Mort­gage appli­cants some­times remark that the mort­gage approval process can be chal­leng­ing. Last quarter’s Fed sur­vey hints that looser stan­dards are coming. 

Not since before the reces­sion have banks low­ered mort­gage approval stan­dards like this and it bodes well for this year’s  hous­ing mar­ket. Real estate agents report that 1 in 3 home sale con­tracts fail with “declined mort­gage appli­ca­tions” as a lead­ing cause.

Looser mort­gage lend­ing stan­dards should mean more home loan approvals for buy­ers, and fewer con­tract can­cel­la­tions. This can spur the hous­ing mar­ket forward.

Make note, though. “Looser stan­dards” should not be con­fused with “irre­spon­si­ble stan­dards”. It remains more dif­fi­cult to meet bank stan­dards as com­pared to 5 years. Today’s under­writ­ers are more con­ser­v­a­tive with respect to house­hold income, over­all assets and credit scores. 

Even as com­pared to one year ago:

  • Min­i­mum credit score require­ments are higher
  • Downpayment/equity require­ments are larger
  • Max­i­mum allow­able debt-to-income ratios are lower

For buy­ers and refi­nanc­ing house­holds gain­ing approval, though, the reward is the low­est mort­gage rates in a life­time. Mort­gage rates con­tinue to fall, help­ing home afford­abil­ity reach new highs.

If you’re in the mar­ket to buy a new home or refi­nance one, your tim­ing is excellent.

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Home Affordability Threatened By Friday’s Jobs Report

February 2nd, 2012 by Michael Metz

3-month rolling average NFP

This week, once more, we find mort­gage rates are on a down­ward tra­jec­tory. Con­form­ing mort­gage rates have returned to near all-time lows. After Fri­day morning’s Non-Farm Pay­rolls report, how­ever, those low rates may come to an end.

It’s a risky time for home buy­ers and would-be refi­nancers to be with­out a locked rate.

Each month, on the first Fri­day, the Bureau of Labor Sta­tis­tics releases its Non-Farm Pay­rolls report for the month prior. More com­monly called the “jobs report”, Non-Farm Pay­rolls pro­vides a sector-by-sector employ­ment break­down, and the nation’s Unem­ploy­ment Rate.

In Decem­ber 2011, the gov­ern­ment reported 200,000 net new jobs cre­ated, and an Unem­ploy­ment Rate of 8.5%.

For Jan­u­ary 2012, econ­o­mists project 135,000 net new jobs with no change in the Unem­ploy­ment Rate and, depend­ing on how accu­rate those pre­dic­tions are proved, FHA and con­form­ing mort­gage rates are sub­ject to change. The monthly jobs reports tends to have an out-sized influ­ence on the direc­tion of daily mort­gage rates.

The con­nec­tion between jobs and mort­gage rates is fairly direct.

Job growth is a key cog in the eco­nomic growth engine and mort­gage rates change daily based on short– and long-term eco­nomic expec­ta­tion. As more peo­ple join the work­force, eco­nomic expec­ta­tions change; the econ­omy tends to expand, breed­ing opti­mism among invest­ment. When this occurs, it often spurs invest­ment in the stock mar­ket, which tends to leads mort­gage rates up.

In short, in a recov­er­ing econ­omy, when job growth is strong, all things equal, mort­gage rates rise. Home afford­abil­ity suffers.

So, for today’s rate shop­pers, Friday’s job report rep­re­sents a risk. The econ­omy has added jobs over 15 straight months, a streak that’s added 2.1 mil­lion peo­ple to the work­force. Although the jobs mar­ket remains weak and well off its peaks from last decade, a 15-month streak is worth watching. More jobs means more more income earned nation­wide, more money spent by house­holds, and more taxes col­lected by governments.

This items build a foun­da­tion for eco­nomic growth and Wall Street is watching.

If tomorrow’s Non-Farm Pay­rolls shows more jobs cre­ated than the esti­mated 135,000, mort­gage rates are expected to rise. If the jobs fig­ures falls short, mort­gage rates should fall.

The Non-Farm Pay­rolls report is released at 8:30 AM ET.

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