30-Year Mortgage Rate Charges Above 4 Percent

2018 has started in a similar fashion to how 2017 finished.

The average 30-year, fixed mortgage rate charged to 4.04 percent this week, up from 3.99 percent the week prior, according to Freddie Mac’s Primary Mortgage Market Survey® (PMMS®). The 15-year, fixed rate averaged 3.49 percent, up from 3.44 percent the week prior, while the five-year, Treasury-indexed hybrid adjustable rate averaged 3.46 percent, the same as the week prior.

“The U.S. weekly average for the 30-year fixed mortgage rate rose above 4 percent for the first time since last summer to 4.04 percent in this week’s survey,” says Len Kiefer, deputy chief economist at Freddie Mac. “This is the highest weekly average for the 30-year fixed rate mortgage since May of 2017. Some may be wondering if this is the last time we’ll see a three handle on the 30-year mortgage rate. Never say never, but inflation is firming, the Federal Reserve’s Beige Book indicates broad-based economic growth, and labor markets are tightening. This means upward pressure on long-term rates, like the 30-year fixed-rate mortgage, is building.”

If rates continue as indicated, the home buying season may come early as potential homebuyers look to jump on the last set of historically low rates. From our perspective; all charts point to several Fed' increases in 2018 and 5% mortgage rates on the horizon.

Why Fall Is the Best Time of Year to Buy a Home

Few people know Fall is arguably the best time of year to buy a new home. The weather becomes cooler, the leaves begin to change, football season begins, and pumpkin-flavored everything is in abundant supply. But there's another great reason to love fall that might be less obvious...it's the best time of year to purchase a home.

Prices Are Typically Lower
The concept that buyers can get a better bang for their buck in the fall has been a popular notion for some time, but two recent reports validated that line of thought with data from actual home sales. According to a report by RealtyTrac, sales prices are typically 2.6% below fair market value during October — a steeper discount than any other month of the year. Another report by NerdWallet found that sales prices drop about 2.96% from summer to fall, which is roughly an $8,300 discount for the median home. It's also worth noting that while listing prices don't decrease much, sales prices do, and that's the price that counts for potential buyers.

There's Less Competition
The majority of people buy a home in spring or summer, when inventory is traditionally high. This gives families time to make their move before the school year starts, but the tradeoff is that buyers are faced with strong competition and often pay higher than asking price during that time. People who buy in fall, however, have less competition, and sellers are more motivated. This means more negotiating power for the buyer, which often results in a better deal.

There's Still Inventory
It's true that the inventory of homes for sale is at its peak during spring and summer, but when you buy in the fall, there's still a decent supply of homes left to choose from. Buying a home in the fall gives you the best of both worlds — lower prices and less competition but still enough inventory to find the home you want.

If you're serious about buying a home, doing so this fall may save you money or help you afford more than you expect. Plus, with interest rates on the rise, the longer you wait, the less buying power you may have. Click here to learn more about the impact that rising interest rates have on affordability. NMLS#1043983

How Do You Eat An Elephant?

Bank of America’s purchase of Countrywide is due to be ratified by CW’s shareholders later this month. This deal was hailed as such a win-win by the US Bank Regulators that a well established law, the Riegel-Neal Interstate Banking and Branching Efficiency Act, instituted a 10 percent cap on market share to prevent an institution from amassing too much power. Bank of America and Countrywide's banking unit will have $773 billion of combined deposits, equal to a 10.9 percent market share. Like Bear Stearns, the Federal Reserve couldn’t allow Countrywide to be insolvent and sought out a partner to take the fat girl to the prom. You can read about their justification here: http://www.federalreserve.gov/newsevents/press/orders/orders20080605a1.pdf
Bank of America is perhaps the most respected bank in the US along with Chase. They are the Goldman Sachs of the industry. That said my concern I’m sure thoroughly discussed in BofA conference rooms; Is B of A taking on to much risk at a time when capital is tightly held in the capital markets? The issue, Countrywide’s Servicing book. CW’ made its mark on the industry from 04’ to 07’ offering Option Arms. As a Thrift, Countywide would have to of secured the performance of many of the loans not sold to the GSE’s. I happen to be the proud owner of a said CW power point presentation (now removed from their website) where they boasted how 68% of the firm’s profitability was derived from Option Arms. Those of you who know about mortgages will understand the complexity of the situation. Option Arms typically have 4 payment options (not three as National City tried to rollout). Borrowers have an “option” to may a 30 yr payment, a 15yr, an Interest Only and a “Minimum Payment”. This amount is less than the interest earned for a given month. So, the remaining amount would be added back into the principal balance. Depending on the loan, when the loan reached 110% or 115% of the original note amount, the loans would move into a full amortization. I spend months on a local DFW radio show explaining how dangerous this product was:
http://radiotime.com/program/p_51173/Legacy_Financials_Power_Hour.aspx
Funny how my career carried me to Bear Stearns and National City, one prominent and one misguided player in this space. Anyway, so now as have a witches brew: A borrower who now has a larger payment than when he/she started, an interest rate which is 75 to 150 basis points higher than the market and less time to pay off the loan, usually 25-26 years if minimum payments were made month 1. Oh, and let’s not add a negative HPA environment which we now find ourselves in.
Countrywide’s story? Countrywide has $27 billion of negative amortization, or payment-option, adjustable- rate mortgages, according to a company regulatory filing. In the first quarter, 8.7 percent of those borrowers were at least three months late on payments, up from 5.4 percent in December and 0.6 percent in the fourth quarter of 2006, the company said. Two-thirds of Countrywide's negative amortization borrowers were making less than full interest payments, and 82 percent of them obtained the mortgages without providing pay stubs or tax returns to prove the income they reported on the loan applications was correct, according to the filings. Over the next 24 months, almost all of these transactions will come due. What then? Is BofA prepared to resolve perhaps up to $12.5B in distressed fixed income securities due to borrower delinquency and foreclosure? If not, things may be really interesting at BofA in the next 18 months.
On Tap for this week, one of the more fun filled weeks regarding this nations' economic situation.

Release Date & Time
Economic Indicator
Consensus Estimate
My Analysis

Mon. June 23,
Empty day.


Tue. June 24, 9:00 a.m. ET
FOMC meeting
This is the first day of a two-day Fed meeting.

Tue. June 24, 10:00 a.m. ET
June Consumer Confidence
57.0 vs. last 57.2
This report will not likely have a notable impact on the direction of mortgage interest rates today

Tue. June 24, 1:00 p.m. ET
Treasury Dept. auctions
$30 bil. of 2-year notes
Uncle Sam will almost surely have to bump up the yield on this offering to attract the desired capital. Investors will be very hesitant to take risks as they await the outcome of the Fed’s monetary policy deliberations currently underway.

Wed. June 25, 8:30 a.m. ET
May Durable Goods Orders
+0.1% vs. last -0.6%
The modest improvement in this index will almost surely go unnoticed as investors pace the floor awaiting the conclusion of today’s Federal Open Market Committee meeting.

Wed. June 25, 10:00 a.m. ET
May New Home Sales
Down 3.00%
New Home Sales are expected to reach a new cycle low in May. Such an outcome is already priced into the mortgage market -- which makes today’s report rather anticlimactic. Look for little, if any change in the trend trajectory of mortgage interest rates as a result of this report.

Wed. June 25, 2:15 p.m. ET
Federal Open Market Committee rate decision and post-meeting statement
Fed fund rate unchanged
Market participants see little chance the Fed will make any change to short-term interest rates. Investors expect the Fed’s post-meeting statement to attempt to strike a balance between policymakers’ increased concern over the chance that inflation pressures will escalate -- and worries that the economy is tracing along the edge of a possible extended recession. If the Fed achieves its objective of talking tough on inflation without leaving the impression an August rate hike is “baked-in-the-cake” -- mortgage interest rates will likely hover near current levels. On the other hand, if investors see the text of the post-meeting statement as containing thinly veiled hints that one or more rate hikes are likely before year-end -- it is almost a sure bet mortgage interest rates will move higher before the end of the week.

Thurs. June 26, 8:30 a.m. ET
Final Estimate Q1 GDP
+1.0% vs. last +0.9%
This old stale bit of economic news will likely do nothing more than take up space on the calendar today.

Thurs. June 26, 8:30 a.m. ET
Initial jobless claims for the week ended 6/21
Down 1,000
This report will likely have little impact on the direction of mortgage interest rates.

Thurs. June 26, 10:00 a.m. ET
May Existing Home Sales
+0.8% vs. last -1.0%
The National Association of Realtors is expected to report that existing home sales are beginning to stabilize. It is far too early to say the worse of the housing crisis has passed – but any sign of improvement is welcome. Look for this data to have little meaningful impact on the direction of mortgage rates today.

Thurs. June 26, 1:00 p.m. ET
Treasury Dept. auctions
$20 bil. of 5-year notes
A non-threatening monetary policy statement from the Fed on Wednesday will go a long way to ramping up demand for these securities. On the other hand, if the Fed leaves investors convinced a rate hike or series or rate hikes are likely before the end of the year the yield on these notes will move higher – dragging mortgage rates higher as well.

Fri. June 27, 8:30 a.m. ET
May Personal Income
Spending
Core PCE Index
+0.4% vs. last +0.2%
+0.6% vs. last +0.2%
0.2% vs. last +0.1%
It is going to be all about the core (excluding food and energy) personal consumption expenditure index today. A reading of 0.2% or less will be supportive of steady to perhaps fractionally lower rates while a number greater than 0.2% will almost certainly produce notably higher rates.

The answer to the question headlining this post is simple. One bite at a time. In dealing with our professional, personal and financial challenges in this market, the only way to address them is to tackle the problem one at a time.

Lastly, I added a survey. Will comment on the results September 1st.

The Fixed Income Week from Hell

Who needs a stiff drink? Good chances are anyone who focus in the RMBS, CMBS markets do. Becuase of global issues, sagging employment (who knew?) and a massive swoon in the stock market, the bond and fixed income rates took a huge beating last week.

As the week begins, the directional trend of mortgage interest rates will likely be most influenced by continued weakness in the stock market, saber rattling between the governments of Israel and Iran and its related impact on oil prices, and the presence of Uncle Sam in the credit market. The most influential economic report of the week will probably be Friday’s May Consumer Price Index figures. Consumers, Fed policymakers and fixed-income investors are becoming increasingly nervous about the likelihood that inflation pressures will continue to mount, even as economic activity levels remain weak.

Despite unemployment numbers, sky-high oil and food prices have pushed the inflation to 3.9% -- well above the Fed’s stated “comfort zone.” More bad news regarding inflation pressure at the consumer level will make it exceptionally difficult for mortgage interest rates to move to notably lower levels. Here's this week's

Release Date & Time
Economic Indicator
Consensus Estimate
Analysis

Mon. June 9, 10:00 a.m. ET
April Pending Home Sales
-0.5% vs. last -1.0%
The trend line still points to weakness in the housing sector. The fact that the rate of declined tapered-off a bit last month will likely leave most market participants unimpressed. This data will likely produce little if any significant change in the mortgage market today.

Tue. June 10,
Most mortgage-backed securities “roll” to July delivery
This is a standard monthly administrative function of the mortgage market. The roughly 25 basis-point downward adjustment in the price of mortgage-backed securities this event creates is already reflected on most investors’ rate sheets.
Wed. June 11, 2:00 p.m. ET
Fed “Beige Book” released
This compilation of economic surveys from each of the twelve Federal Reserve Bank districts will likely draw a bit more attention than usual. It is likely that the data will show an economy skating along the edge of recessionary conditions. If so, look for mortgage interest rates to remain steady to fractionally lower on the day.

Thurs. June 12, 8:30 a.m. ET
May Retail Sales
Ex. Auto
+0.5% vs. last -0.2%
+0.7% vs. last +0.5%
Look for these apparently stronger retail sales figures to be heavily discounted by mortgage investors. Higher prices for gasoline added a large part of the gain in the headline number and government stimulus checks undoubtedly contributed to the run-up in the ex. auto component. If the consensus estimate is within shouting distance of the actual numbers -- this data will not likely influence the trend trajectory of mortgage interest rates much one way or the other.

Thurs. June 13, 8:30 a.m. ET
Initial weekly jobless claims for the week ended 6/7
Up 13,000
Signs of more weakness in the labor sector will tend to be supportive of steady to fractionally lower mortgage interest rates.

Thurs. June 13, 10:00 a.m. ET
April Business Inventories
+0.3% vs. last +0.1%
It is unlikely mortgage investors will give this old bit of second-tier macro-economic data anything more than a passing glance and a yawn.

Thurs. June 13, 1:00 p.m. ET
Treasury auctions
10-year note
Traders try to push bond and note prices down in front of new incoming supply. If they are successful their actions will tend to drag your investors’ rate sheet prices lower as well.

Fri. June 14, 8:30 a.m. ET
May Consumer Price Index
Core Rate
+0.5 vs. last +0.2%
+0.2% vs. last +0.1%
This is one of the Fed’s favorite measures of inflation at the consumer level. Mortgage investors will be keenly focused on these numbers – particularly core consumer prices (a value that excludes the more volatile food and energy components). A core reading of 0.3% or more will almost certainly send rates spiraling higher before the end of the day. It will likely take a core reading of 0.1% or less to encourage mortgage investors to push rates even a fraction lower. Don’t hold your breath hoping for a mortgage market friendly number.