In Washington, D.C. today, the Federal Open Market Committee (FOMC) begins a 2-day meeting, its fifth of 8 scheduled meetings this year.
Mortgage rates are expected to change upon the FOMC’s adjournment. Rate shoppers and home buyers of South Orange County would do well to be alert.
The Federal Open Market Committee is a rotating 12-person subcommittee within the Federal Reserve. It’s the group which makes U.S. monetary policy.
“Making monetary policy” has many meanings but the action for which the FOMC is most well-known is its setting of the Fed Funds Funds. The Fed Funds Rate is the prescribed interest rate at which banks borrow money from each other overnight.
Since late-2008, the Fed Funds Rate has been near zero percent.
The Fed Funds Rate and Freddie Mac’s 30-year fixed rate mortgage rate move along different paths. Sometimes, the two converge. Other times, they diverge. They’ve been separated by as much as 529 basis points in the past 12 years, and they’ve have been as near to each other as 52 basis points.
Clearly, there’s no correlation between the Fed’s Fed Funds Rate and the common 30-year mortgage. However, with its words, the Federal Reserve can influence the direction in which mortgage rates move — on occasion, by a lot.
We’ll be witness to this Wednesday.
When the FOMC adjourns, it is expected to announce no change in the Fed Funds Rate. Yet, based on the verbiage of the post-meeting statement, mortgage rates will rise or fall accordingly. If the Fed notes that the economy is sagging and that new stimulus is planned, mortgage rates are expected to drop throughout California. This is because new, Fed-led stimulus would be a boon for mortgage markets which would, in turn, drive mortgage rates down.
Conversely, if the Fed acknowledges growth in the U.S. economy and/or little need for new stimulus, mortgage rates are expected to rise.
Either way, expect rates to change — we just can’t know in what direction. The FOMC adjourns at 2:15 PM Wednesday.
Mortgage markets booked major losses last week after European leaders spoke of their determination to preserve the European Union. Mortgage rates jumped Thursday and Friday as investors sold positions of relative safety, including bonds, and moved their money into stock markets.
Mortgage rates closed the week at a 14-day high and, if not for last week’s GDP figures, conforming mortgage rates in California would likely have closed even higher.
The Commerce Department said GDP slipped to +1.5% last quarter, down from +2.0% from January-March. The slowdown suggests that the U.S. economy may not meet analyst’s 2012 projections, and gives the market hope that the Federal Reserve will add new stimulus at its scheduled, 2-day meeting this week.
The Fed meeting is just one of the story lines affecting mortgage rates this week. For rate shoppers in South Orange County and nationwide, it will be a risky week to float a rate.
For a brief run-down of the events of the week :
- Wednesday afternoon, the Federal Open Market Committee adjourns. Wall Street believes that the economy has slowed enough to justify new market stimulus. It’s unclear whether the Federal Reserve agrees. If new stimulus is added, and if the package is sufficiently large, mortgage rates should drop. Otherwise, mortgage rates should rise.
- Thursday, the European Central Bank meets, after which the ECB is expected to announce an aid package for Spain, and a general plan to hold the European Union together. If the plan is well-received by markets, mortgage rates will rise. If the plan is panned, mortgage rates will fall.
- Friday, the Bureau of Labor Statistics releases its July Non-Farm Payrolls report. Economists expect 100,000 jobs created in July. If the actual figure falls short, mortgage rates should fall.
It’s important to understand that each of these three events represents major risk to rate shoppers. Mortgage rates will be volatile this week, and that volatility is expected to continue until mid-September, at minimum.
If you’re shopping for a mortgage, therefore, the longer you wait to lock, the bigger your mortgage rate risk. Especially with rates at all-time lows; rates have been falling for so many weeks, there’s a lot of ground to cover on the way back up.
Home sales appear headed for a mid-summer breather.
One month after posting a multi-year high, the Pending Home Sales Index retreated to 99.3 in June — a strong reading in its own right.
A “pending home sale” is a home that is under contract to sell, but not yet sold. June’s value of 99.3 marks the 14th consecutive month during which the index showed year-to-year gains.
Last year in June, the index read 90.7.
For home buyers in South Orange County and nationwide, the 14-month winning streak is one worth noting — specifically because the Pending Home Sales Index is different from the other housing market data that tends to make headlines.
Unlike the FHFA’s Home Price Index, for example; or the monthly New Home Sales data which both report on how housing performed in the past, the National Association of REALTORS®’ Pending Home Sales Index looks at how housing will perform in the future.
With high correlation, the Pending Home Sales Index predicts how Existing Home Sales will perform two months hence. This is because 80% of homes under contract convert to “closed sales” within 60 days of going into contract, and many of the rest convert within Months 3 and 4.
In addition, June’s near-100 reading is significant.
The Pending Home Sales Index is normalized to 100, a value which corresponds to the average home contract activity in 2001, the index’s first year of existence. 2001 was an historically-strong year for the housing market which means that June’s market action was also strong.
For today’s home buyers, the Pending Home Sales Index implies that the current market is somewhat “soft” as compared to May, a scenario which lends itself to buyer-friendly negotiations. Plus, with mortgage rates at all-time lows, home affordability has never been higher.
It’s an opportune time to buy a home. By next month, the market may look different.
“Click on slide show to see charts detailing the drop in O.C. foreclosures.
The number of Orange County homes lost to foreclosure plunged this spring to levels not seen since before banks launched a record-setting rise in property seizures, data from two housing research firms show.
Both firms, DataQuick Information Services and ForeclosureRadar, reported that the number of foreclosure auctions held on courthouse and city hall steps had fallen to below 350 a month – the lowest monthly total in five years.
That’s less than a quarter of the monthly tally when foreclosures hit all-time highs of more than 1,400 a month in the summer of 2008.
Analysts noted that while a healing housing market deserves some of the credit, they warned that banks and government have put the brakes on a still high supply of homes with unpaid mortgages.
“The question is whether these lower … numbers mean that there’s less distress to process, or if we’re just seeing distress get processed at a slower pace,” said John Walsh, DataQuick president.
Specifically, the data show:
- Orange County had 338 homes either sold at foreclosure auctions in June or taken back by the lenders for lack of a bid, according to ForeclosureRadar. That’s the lowest monthly tally since the firm recorded 313 foreclosures in June 2007.
- DataQuick’s tally showed O.C. having 343 foreclosures in June. That’s the second lowest since June 2007, the lowest being the 332 foreclosure sales recorded in May.
- The data from both firms show that foreclosures in O.C. have fallen at least 76 percent since hitting a record of just over 1,440 foreclosures in the summer of 2008.
- The June foreclosure tally is about half the monthly average for the past five years. According to ForeclosureRadar, O.C. averaged 701 foreclosures a month since June 2007, while DataQuick shows the county average at 671.
- Both firms showed that Orange County homeowners lost around 42,000 homes – or more — to foreclosure since the crisis began.
- The tally of notices of default – a formal filing that starts the foreclosure process – likewise has fallen, both firms show. According to DataQuick, lenders filed 1,249 notice of default in June and that defaults had gotten as low as 1,019 last December. By comparison, the county averaged nearly 1,800 notices of default a month for the past five years.
The trend is happening statewide. DataQuick reported Monday that California foreclosures had fallen in the spring to the lowest number for any quarter since the spring of 2007.
“Obviously the economy has been on the mend – however slowly,” said Walsh, the DataQuick president.
Also contributing to the drop: Banks have sped up the process of either modifying loans or allowing owners to sell their homes for less than is owed on the mortgage (or a “short sale”) ( End of excerpt.)
( From the Orange County Register, an article by Jeff Collins, July 24th, 2012 )
The number of newly-built homes sold slipped 8 percent in June from the month prior, says the U.S. Census Bureau in its latest New Home Sales report. The June data shows 350,000 homes sold nationwide on a seasonally-adjusted, annualized basis.
The home sale tally fell short of Wall Street expectations but the Census Bureau revised higher its previously-released results for March, April and May by a collective 33,000 units. This left the June New Home Sales report as the weakest of the last five months, yet still stronger than the 21 months preceding February.
In other words, despite retreating from May, the June New Home Sales data was still quite strong. As compared to June of last year, sales of newly-built homes are higher by 15% and the national inventory of new homes for sale is down to 144,000 units.
This marks a 13 percent inventory reduction in just twelve months.
At the current sales pace nationwide, the complete stock of new homes would “sell out” in 4.9 months, a noteworthy data point because analysts believe that a 6.0-month supply of homes marks a market in balance. Home supplies of below 6.0 months suggest a “seller’s market” where sellers have pricing power and excess leverage in negotiations.
Since October 2011, the average new home sale price is higher by 6% nationwide, a trend that should continue in South Orange County through the end of 2012 and into 2013 — especially with mortgage rates at new all-time lows and home affordability at all-time highs. As more buyers enter the market amid limited supply, prices are expected to rise.
If you’re a home buyer in search of new construction, therefore, the best new home “deals” you may find may be the ones you find today.
Another week, another new low for mortgage rates.
According to Freddie Mac’s weekly Primary Mortgage Market Survey, the 30-year fixed rate mortgage rate fell 3 basis points to 3.53% last week nationwide. The 3.53% mortgage rate is available to mortgage applicants who are willing to pay 0.7 discount points, on average, plus a full set of closing costs.
One year ago, the 30-year fixed rate mortgage rate was 4.52%. Today, it’s nearly one percent lower. For every $100,000 borrowed at today’s rates as compared to July 2011, a mortgage applicant will save $57 per $100,000 borrowed, or $684 per year.
Over 30 years of a loan, those savings add up.
30-year fixed rate mortgage rates have now dropped through 5 consecutive weeks, and in 11 of the last 12 weeks, a streak dating back to late-April. Depending where you live, however, you may not get access to 3.53% mortgage rates. As Freddie Mac’s survey reveals, mortgage rates vary by region.
Last week, mortgage rates by region were listed as follows :
- Northeast Region : 3.56% with 0.7 discount points
- West Region : 3.49% with 0.7 discount points
- Southeast Region : 3.58% with 0.7 discount points
- North Central Region : 3.52% with 0.7 discount points
- Southwest Region : 3.56% with 0.7 discount points
Homeowners and home buyers in California, Oregon and Washington, therefore, received the lowest rates in the country, on average. Owners and buyers in Florida and Georgia, by contrast, received the highest rates.
This week, though, mortgage rates are lower everywhere.
With Spain at risk for a sovereign default and China warning of slow growth, mortgage rates began the week by falling yet again. If you’re eligible to refinance, therefore, the timing may be right to lock a mortgage rate. Similarly, if you’re an active home buyer in South Orange County , today’s low rates will bolster your maximum purchasing power.
Talk to your loan officer about capitalizing on the lowest rates of all-time. Rates throughout California may not rise beginning next week, but when they do rise, they’ll likely rise quickly.
Mortgage markets improved last week on expectations for new Federal Reserve stimulus, plus ongoing concerns about the European Union’s future.
Mortgage-backed bonds climbed to new all-time highs, which helped conforming mortgage rates drop to new all-time lows.
The average 30-year fixed-rate mortgage rate is now 3.53% nationwide, according to government mortgage-backer Freddie Mac’s weekly mortgage rate survey. The 3.53% rate is available to mortgage applicants willing to pay 0.7 discount points plus a full set of closing costs where 1 discount point is equal to 1 percent of your loan size.
The 15-year fixed-rate mortgage rate dropped last week, too, falling to 2.83% nationwide, on average.
Even as mortgage rates in South Orange County drop, however, rate shoppers should be wary of a potential rate reversal. This is because July’s rapid drop in mortgage rates, mostly, has been fueled by market speculation.
First, with employment data lagging, inflation pressures low, and slower-than-expected economic growth, Wall Street now believes that the Federal Reserve will launch its third round of quantitative easing next week, a move that would likely include large-scale mortgage bond purchases.
New, Fed-led demand for mortgage bonds would lead mortgage rates lower for homeowners and rate shoppers throughout California.
And, second, investors are preparing for a potential sovereign debt default in Spain, the Eurozone’s fourth largest economy. The Greek economy, by contrast, which faces similar struggles, is 5 times smaller than Spain’s. A Spain default, too, would likely lead U.S. mortgage rates lower.
That said, if neither event comes to pass — if the Fed passes no new stimulus and Spain receives an ample-sized bailout — mortgage rates would be expected to rise as Wall Street re-adjusts its expectations for the future.
The change would happen quickly, too.
This week, markets will continue to take their cues from the Fed and the Eurozone, but with an eye toward U.S. housing data. The housing market is linked to economic growth so strong results may lead mortgage rates higher.
The June New Home Sales report is released Wednesday; the June Pending Home Sales Index is released Thursday.
“Mortgage originations at the big-four banks increased 37% in the second quarter from last year because of the expanded Home Affordable Refinance Program.
Wells Fargo, JP Morgan Chase, Bank of America and Citigroup wrote $205.8 billion in new mortgages in the three months ending June 30, according their combined financial filings. Originations also increased 7% from the first quarter.
Wells continued to dominate. The San Francisco bank wrote $131.9 billion in new loans during the quarter, more than double originations from the same period last year. Wells said 16% of those new loans came through the Home Affordable Refinancing Program.
The Federal Housing Finance Agency expanded HARP last year to eliminate upfront costs, negative equity caps and some repurchase risk on the original loan – pushing more business to the largest banks.
Wells said 69% of its record $208 billion in mortgage applications were from borrowers looking to refinance under HARP.
Legislation lingers in a grid-locked Congress to expand competition in the program by eliminating repurchase risk on the new loan as well. But analysts predict the HARP boom could begin to fade into autumn, well before any new legislation is expected to pass.
Chase wrote $43.9 billion in new mortgages during the quarter, up 29% from last year and 14.3% from the previous quarter. Originations at its retail branches set a bank record at $26.1 billion.
Bank of America continues to feel the drop off from exiting its correspondent lending channel last year. Originations fell 55% from one year ago to roughly $18 billion, the only yearly decline of the big-four lenders.
The bank ceased selling some mortgages to Fannie Mae as well, though executives said in an investor conference call that it regained some lost retail market share.
Citi originations totaled $12.9 billion, up 17% from last year but still down 10% from the previous quarter.” ( End of article.)
If you – or someone you know – are struggling with your mortgage, and the rate is higher than 5 or 6%, and your property is “underwater” ( Worth less than the loan.) now is the time to look into one of these refinances. Even if you think you might not qualify, you really should look into it. It doesn’t necessarily have to be the same lender you presently make your payments to.
Here is a previous blog post with more details on the HARP 2 program: http://southoc.info/2012/07/increased-interest-in-the-expanded-harp-program.html
If you need help, I have lenders I can recommend who might be able to help you. Just give me a call, or shoot me an email.