Blog

Volatile Movement in the Holiday Season

Mortgage rates were already near 2015 highs going into the Christmas holiday. On the 23rd, activity in mortgage-backed-securities only made this problem worse. Though the movement in MBS was a relatively small one, and one that would usually translate to a very slight change in mortgage rates, rates moved up to their highest level in the past five months.

This unusual fluctuation can be attributed to the volatile nature of the holiday season. Lenders are considerably more conservative about adjusting their rate sheets when market activity dies down during the holidays. The previous day was a far weaker one for MBS activity, but many mortgage lenders were not adjusting their rate quotes as much as they may otherwise have. Therefore, the 23rd started off on a much weaker foot than rate sheets indicated.

If you are trying to decide whether to float or lock, it would seem that the odds are in your favor. Should MBS prices linger where they are, mortgage rates could experience a significant improvement as we head into 2016.

Rates Remain Inactive Ahead of Fed Announcement

Going into the final week of April, the mortgage market has not deviated much from the recent trend of inactivity.

This lack of significant movement in either direction can be largely attributed to the idleness in the financial markets that most strongly affect interest rates. However, this is bound to change soon. This upcoming Wednesday, we are scheduled to receive both the first quarter GDP and a highly anticipated Fed Announcement. Reports of a stronger economy could very well lead to higher rates, while a poor Fed outlook could drop rates lower.

Until these announcements occur, the mortgage market is going to be slow to move in any direction. After Wednesday, though, we can likely expect some more volatile activity.

What to Expect in the End of 2015

We’re going into the final week of 2015, which means that there are only four more days to close loans this year. With fears about what to expect in the coming year, including fines, unsaleable loans, and UDAAP violations, many people are having to make tough decisions as to whether to lock in now or wait until after the start of 2016. So, what’s the best choice?

Fortunately, both Christmas and New Year’s Day fall on a Friday this year. This makes it easier to predict market activity. At the moment, the momentum continues to be fairly flat. For the next few days, we’re looking forward to the 5 year Treasury Auction, the 7 year Treasury Auction, the Case Shiller Home Prices, and Consumer Confidence reports. Any of these could have a powerful effect on mortgage rate activity, up until the markets close early on Thursday and remain closed throughout the New Year celebration. However, we’re not expecting much activity from this cycle of auctions. All things considered, the current flat trend may very well continue into 2016.

Mortgage Rates Return to 2015 Highs

Risk is flooding back into the markets, most notably in the form of the changes in the European bond markets. After a year and a half of record lows, it would seem that things have finally turned around. Though it is still too early to know whether or not this is to be a major, long-term reversal, investors are playing it safe by dumping their bonds.

Since the European markets are connected fairly closely with US markets, this selling trend is having an effect on American mortgage rates. This is providing for a high-risk environment, and the average borrower would do well to lock in to current rates before they can jump any higher.

Economy Outlook Weakens, Housing Indicators Improve

We’re past the halfway point in 2015, and the news is not good. According to Fannie Mae’s economic team, the outlook for the economy is less robust than had been anticipated earlier in the year. This is as a result of the second quarter economic growth reports, which came in lower than expected. Even factoring in the revised, improved growth reports of the first quarter of the year, the full-year outlook for 2015 remains at an improvement of 2.1%.

Currently, we are looking to the housing market to be a bigger contributor to growth for the rest of the year. Though activity was mixed throughout June, the first half of 2015 showed improvement over the same period in 2014. Existing home sales in June were at their strongest pace since February of 2007, and marketing time is shorter than it has been in the past four years. Throughout 2015 so far, we have seen a year-to-date improvement over 2014 of 7.7% in existing home sales, 20.3% in new home sales, 9.1% in single-family housing starts, and 14.4% in multifamily housing starts.

Underwater Homes Fall Below 10%

The housing crisis saw many homeowners go underwater with their mortgages, where their outstanding mortgage balance exceeds the actual value of the home. As the market continues to improve, though, it would appear that these days are far behind us. Just last quarter, more than three-quarters of a million US homes regained equity, bringing the percentage of homes with negative equity down to single digits.

Currently, there are approximately 4.4 million properties still underwater, representing about 8.7% of the country’s homes. The national aggregate value of this negative equity was down to $309.5 billion, representing a decrease of 11.6% from the $350 billion a year ago. The total borrower equity rose by $691 billion.

All the same, there is still a fair number of homes that are under-equitied. These homes, which have less than 20% equity, generally have a more difficult time securing a refinancing into a more favorable mortgage rate. They can also easily fall underwater when home prices dip. At present, there are about 9 million under-equitied homes, representing about 17.8% of total homes.

Mortgage Rates Await Thursday’s Fed Announcement

Going into the third week of September, mortgage rates appear to be doing nothing but waiting for Thursday’s FOMC Announcement. Indeed, the entire bond market is holding its breath to see what the Fed decides upon.

Should the Fed announce a rate hike, it would not necessarily be a negative force for mortgage rates. It is largely the uncertainty leading up to this decision that is having the most effect on our current rates. Indeed, the absence of volatility in the market for a while now can likely be attributed to this uncertainty, as investors are on hold in anticipation of a decision.

Once the announcement is made, regardless of what it turns out to be, we can likely expect some dramatic activity. One way or another, rates could either rally or sell off. Many people trying to decide whether to lock or float would probably be wise to secure the reasonably low rates that are currently available, while only those who are sure they can afford to be wrong should take the chance of floating. Further, as we cannot necessarily expect that this lack of volatility will persist right up to Thursday, sooner is better than later.

Existing Home Sales Dip in August

Looking back at August, we can see that sales of existing homes dipped 4.8% from July’s 5.58 million units to a seasonally adjusted annual rate of about 5.31 million units, despite low prices and reasonable mortgage rates. This decline is cutting off three consecutive months of increases.

However, the news is not all bad. Though August was down from July, it represents a year-over-year increase of 6.2%. This is the eleventh consecutive month wherein we have seen year-over-year improvement of existing home sales.

Meanwhile, prices continue to go up. The median price for existing homes was $228,700 in August, which comes to an increase of 4.7% over the $218,400 we saw in August of 2014. This is the 42nd consecutive year-over-year gain in existing home prices.

Though inventory continues to be a big problem, August showed an increase of 1.3% to 2.29 million homes. This comes out to a 5.2 month supply, compared to the 4.9 month supply in July. However, this inventory is 1.7% lower than what was experienced in August of 2014.

Mortgage Rates Down as Bonds Thrive

Mortgage rates are poised to end September on a strong note. Entering the final week, rates moved close to recent lows experienced in the previous week. We can likely expect many borrowers to see these same rates through Friday, enjoying noticeable gains in the form of low closing costs and high lender credit. All in all, it’s one of the best days we have seen since early May.

This strong activity can be attributed to broad economic weakness. Fears among investors are driving stocks downward, which is generally good news for the mortgage market. The Federal Reserve’s decision to keep interest rates near zero has not provided investors with the certainty they need to pour money into riskier assets, so money has been moving out of stocks and into bonds, causing prices to go up and rates to go down.

Anybody planning to close on a loan within the coming thirty days may be well advised to lock in to current rates. Contact us to talk to a Lynnwood mortgage broker right away.