Conforming, Jumbo, and FHA rates ended last week at record lows again (see rates below), which makes a two-month streak of record lows. A significant rate spike is not expected in the near future, but it’s also not likely rates will stay this low. Here’s why rates could tick up next week.
HOW BOND MARKETS AFFECT MORTGAGE RATES
We will see June Retail Sales figures Wednesday, June business inflation figures Thursday, and June consumer inflation Friday. These reports are important, but will likely show continued tame inflation and tentative consumers, which won’t surprise rate markets.
So the biggest rate factor will be $69b in Treasury auctions as follows: $35b in 3yr notes Monday, $21b in 10yr notes Tuesday, $13b in 30yr bonds Wednesday. The Treasury Department auctions debt to raise money for ongoing government spending, mostly for stimulus plans implemented during the heat of the financial crisis of the past few years.
In the current unstable global investing landscape, Treasury securities are considered a safe, albeit low yielding, bet. Specifically the new issuance of 10yr and 30yr debt competes with 30yr mortgage bonds for investor dollars, and these long-dated mortgage bonds are what most rates are tied to. So if investors sell mortgage bonds to buy Treasuries, mortgage bond prices drop and rates rise.
Also, if the Treasury auctions aren’t well received, it can cause selloffs across all bond markets, including mortgages. Justifiably, the flood of Treasury debt into markets has caused oversupply concerns at different times in the past couple years, and rates rise as all bonds sell off. But while Europe has been in crisis much of this year (especially since early Q2), U.S. mortgage and Treasury securities are in favor.
This is the biggest reason rates are as low as they are.
But market favoritism can change quickly, especially given the run mortgages and Treasuries have already had.
Homebuyers and refinancers are well served to lock existing low rates as soon as they are ready to transact.
DAILY CONSUMER-FRIENDLY COMMENTARY
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CONFORMING RATES ($200,000 – $417,000) – 0 POINT
30 Year: 4.625% (4.74% APR)
FHA 30 Year: 4.75% (4.89% APR)
5/1 ARM: 3.5% (3.62% APR)
SUPER-CONFORMING RATES ($417,001 to $729,750 cap by county) – 0 POINT
30 Year: 4.875% (4.99% APR)
FHA 30 Year: 4.75% (4.88% APR)
5/1 ARM: 3.875% (3.99% APR)
JUMBO RATES ($729,751 – $2,00,000) – 1 POINT
30 Year: 5.375% (5.49% APR)
5/1 ARM: 4.25% (4.37% APR)
Scenarios assume full doc pricing on single family home purchase loans for borrower with 740 FICO score or greater, at least 20% equity (unless FHA), and 6-12 months reserves left over after close (retirement assets counted at 60% of value for reserves). Better or worse rates apply to specific client profiles. Better rates are available using tax deductible points. ARM rates adjust the first month after initial fixed period shown, and once per year thereafter until year 30. Adjusted rate calculated by adding 2.25% margin to 1yr LIBOR index at time of adjustment. At first adjustment LIBOR+margin cannot exceed start rate+5%, subsequent yearly adjustments can never be greater than 2% per year, total of all adjustments for 30yr life of loan can never exceed start rate+5%. This is not a loan commitment nor a loan guarantee, rates based on loan amount ranges shown and rates available at the time of production. Rates subject to change without notice. California Department of Real Estate license #01376428. NMLS # 313803. Equal Housing Lender.
Julian D. Hebron