Current Interest Rates – Week of 9/24/12

Mortgage backed securities continue to paint the record books with the help of QE3 and the Fed’s attempt to further stimulate the economy.  Find out why Robert Shiller from the Case/Shiller Home Price Index says that he feels that mortgage interest rates will not fall much further from their current levels.  Is this the best rates are going to get?

What happened with interest rates last week?

Home loan interest rates managed to find their way back to all time lows last week as the Bond markets started their rally based on weak economic data out of Asia and Europe and the continued Bond buying from the Fed and the QE3 stimulus.  The Fed is currently purchasing $40 billion of mortgage backed securities each month and could not have hoped for better results in the first full week of the stimulus.  Mortgage backed securities have risen by over 125 basis points, leading to our lowest interest rates ever.  Aside from the weak economic data out of Asia and Europe, Initial Jobless Claims came in higher than expected at a number of 382,000.

From a technical standpoint, we’re painting a new picture going forward.  Mortgage backed securities have broken through all previous resistance levels established back on July 24th, 2012, our previous all time highs.  As a result of breaking through resistance, these levels now will act as a floor of support, highlighting a new “worst case” pricing for home loans closing in the near term.

What’s coming up this week on the economic calendar and what’s the impact on interest rates?

The economic calendar is packed with releases this week.  Starting on Tuesday with the Case-Shiller Home Price Index and Consumer Confidence, New Home Sales on Wednesday and Initial Jobless Claims on Thursday, the markets should continue their current trend leading into the big news on Friday.  The Friday reports will start off with the Core Personal Consumption Expenditures, the Fed’s favorite gauge of inflation, which measures price changes in consumer goods and services after excluding food and energy components.  Since inflation has a direct impact on interest rates, the report will be monitored to see if the year-over-year inflation figure has increased from its previous level of 1.6%.  Also schedule for release on Friday is the Chicago PMI.  Also known as the “Business Barometer”, the Chicago PMI is a manufacturing report indicating what may be to come in the ISM survey that will be released the following business day.

Here’s our strategy for the days and weeks ahead…

The stage is set for home loan rates to drop to the lowest levels we may see in our lifetime.  Mortgage backed securities have broken through nearly all resistance levels, weak economic news continues to flow out of Europe and Asia, QE3 is in full swing.  What more could we ask for?

Robert Schiller of the Case-Schiller Home Index expects that mortgage rates will not fall much further from their current levels.  Here are a few reasons why:

• High Loan Volume = Higher Rates – The home purchase markets are continuing to gain traction as home prices stabilize and interest rates set historic lows.  Throw in the numerous refinance programs available to current home owners and you’ll find lenders across the board are as busy as they have been in years.  When loan volume increases and lenders start to reach capacity, they reach a breaking point.  Beware of the bigger Banks like Wells Fargo, Chase, Bank of America, Citi, etc.  Turn times are likely to get extended to a point that the applications are not able to close for 60-90+ days.  As a result, their interest rates may be adjusted higher to slow down incoming applications.  Smaller Banks and lending institutions (ie. Brazos National Bank) can avoid some of these issues with streamlined underwriting and closing processes.
• “G-Fee” – The “g-fee” or Guarantee fee has been implemented twice in the past 12 months and is a charge on all Fannie Mae and Freddie Mac home loans.  The fee equates to roughly 75 basis points in price adjustment and is designed to raise revenues for Fannie/Freddie in an attempt to privatize the government sponsored entities.  The previous “g-fee” was announced less than 3 weeks ago, and is now being followed by a third round of “g-fees”, targeting New York, Florida, Connecticut, New Jersey and Illinois.  Follow the link to read FHFAs notice.

As the Guarantee fees mandated by FHFA continue to accrue and big Banks run at max capacity, the QE3 stimulus can only do so much to drive down home loan rates.  A disconnect will start to form between the price of mortgage backed securities and the actual home loan interest rates that are offered to consumers.

Home loan rates have never been this low and may not stay this low for long.  We are advising our clients to lock in their interest rate in the near term to take advantage of today’s low rates.  In the longer term, we may see rates go lower, but there are too many other factors that can’t be solved by money printing (QE3), that are likely to send rates higher.

We maintain an ongoing dialogue with our clients about the market and interest rates throughout their financing experience so we can take advantage of the lowest rates when they present themselves. We all want the lowest rate, and the best way to ensure that you get the lowest rate, is to build a relationship with your mortgage planner, so they can best advise you on when to lock in your rate. Call us today for a complimentary mortgage review or Apply Online.