Rates on conforming loans up to $417k and super-conforming loans up to $729k continue to trade up and down as much as .5% per week, and this week we’re better by 0.25%. Unlike loans up to $729k, jumbos aren’t currently securitized, so while jumbo lenders look to mortgage bond markets for pricing cues, jumbo rates are priced more according to lender competition than mortgage bond trading levels.
Mortgage bonds showed a net gain (leading to the .25% rate improvement) this week because of tame consumer inflation data, weaker than expected retail sales, and better than expected Treasury auctions that helped the bond complex improve overall. As Treasury issues more bonds to raise money for stimulus, oversupply continues to be a threat to lower rates, but the Fed’s mortgage bond buying program should help hold rates low as we round out the summer.
TWO SIDES OF NIMBLE FED POLICY
Last year the Fed realized rate cuts weren’t bringing mortgage rates down so they committed to buying $1.25t of mortgage bonds throughout 2009. When bond prices rise on buying rallies, rates drop. They’re $751b (or 60%) into this budget, and these purchases account for 28% of the entire mortgage bond market. This is why rates are at record lows this year. The Fed said late-July they’d start selling bonds to push rates up when economic data show improvement. It’s likely the Fed won’t engage in such rate hike activities for the rest of 2009, at least. But they’re likely to hike as quickly as they cut when the economy turns.
ECONOMIC CAUTION VS. OPTIMISM
So what do you do in this environment? Inflation and rates are low, and these factors will eventually lead to economic stabilization, then rising rates and home prices. Home finance transactions involve both housing and rate markets, and if there is a period when the bottoms of these two markets most closely meet, it will likely be 2009. Way back in May 1932 as markets were trying to find their bottom following the 1929 crash, investment luminary Dean Witter said “Some people say they want to wait for a clearer view of the future. But when the future is clear, the present bargains will have vanished. In fact, does anyone think that today’s prices will prevail once full confidence has been restored?” This (as well as the Fed strategy above) is worth consideration while analyzing home prices and rates.
CONFORMING RATES ($200,000 – $417,000) – 1 POINT
30 Year: 5.125% (5.275% APR)
FHA 30 Year: 5.0% (5.16% APR)
5/1 ARM: 3.875% (4.015% APR)
SUPER-CONFORMING RATES ($417,001 to $729,750 cap by county) – 1 POINT
30 Year: 5.5% (5.65% APR)
FHA 30 Year: 5.25% (5.40% APR)
5/1 ARM: 4.5% (4.65% APR)
JUMBO RATES ($625,500 – $3,500,000) – 1 POINT
30 Year: 6.125 % (6.275% APR)
10/1 ARM: 6.25% (6.39% APR)
5/1 ARM: 5.25 % (5.43% APR)
Scenarios assume full doc pricing on purchase or rate/term refi (but not cash-out refi) loans for borrower with 720 FICO score or greater, at least 20% equity (unless FHA), and 6-12 months reserves left over after close (retirement assets counted at 70% 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. Equal Housing Lender.