Monday, December 28, 2015

Average on US 30-year mortgage slips to 3.96 pct. a week after Fed raises short-term rates

FILE - This June 4, 2015, file photo, shows a sign indicating a site has been sold in a new home development in Nashville, Tenn. One week after the Federal Reserve raised short-term interest rates from record lows, the average on a 30-year fixed-rate mortgage went the other way: It dipped to 3.96 percent from 3.97 percent last week, mortgage giant Freddie Mac said, Thursday, Dec. 24, 2015. (AP Photo/Mark Humphrey, File)

Associated Press Dec. 24, 2015, at 12:24 p.m. + More

By PAUL WISEMAN, AP Economics Writer
WASHINGTON (AP) — What Fed rate hike?
One week after the Federal Reserve raised short-term interest rates slightly from record lows, the average on a 30-year fixed mortgage went the other way: It dipped to 3.96 percent from 3.97 percent last week, mortgage giant Freddie Mac said Thursday.
The drop is a reminder that the Fed has only an indirect effect on long-term mortgage rates, which more closely track the yield on the 10-year U.S. Treasury. And that yield, in turn, tends to stay down as long as inflation remains low and investors keep buying Treasurys. The 10-year Treasury yield has declined slightly since the Fed's hike last week.
"The Fed raising short-term rates by itself doesn't have a very profound effect on mortgage rates," said Sean Becketti, Freddie Mac's chief economist.
Back in the mid-2000s, when the Fed raised rates at 17 straight meetings, mortgage rates barely budged, Becketti noted.
Still, the average 30-year mortgage rate is up slightly from 3.83 a year ago and from 3.76 percent in late October. Becketti said a few additional modest Fed rate hikes won't likely have much effect on longer-term rates until the central bank starts reducing the huge portfolio of bonds it accumulated during and after the Great Recession.
The Fed's bond purchases were intended to lower longer-term loan rates to try to stimulate borrowing and spending and energize the economy. The Fed ended its bond purchases last year as the U.S. economy strengthened. But it has yet to begin selling the bonds, which would tend to nudge up longer-term rates.
Fed Chair Janet Yellen has signaled that the Fed is in no hurry to start reducing its portfolio of bonds — one reason long-term mortgage rates could remain low for a while.
What's more, inflation remains unusually low — well below the Fed's 2 percent target level. In addition, economic weakness and financial volatility overseas are drawing many global investors to the safety and relatively higher returns of U.S. Treasurys. This is putting further downward pressure on longer-term U.S. yields and keeping long-term mortgage rates low.
John Canally, chief economic strategist at LPL Financial, says mortgage rates "should not be a major impediment to the housing market" even if they do rise a bit in 2016. He notes that 30-year fixed-rate mortgages averaged 6.5 percent during the housing boom of 2000 to 2007.
Historically low mortgage rates have helped the American housing market recover from the real estate bust of the late 2000s. Despite a recent decline, sales of existing homes are likely to rise 5 percent this year from 2014. Year to date, new-home sales have advanced 14.5 percent, driven by job growth that has pushed the unemployment rate to a seven-year low of 5 percent.
On Thursday, Freddie Mac also reported that the rate on 15-year fixed-rate mortgages, which are popular with homeowners who are refinancing their home loans, was unchanged at 3.22 percent.
To calculate average mortgage rates, Freddie Mac surveys lenders across the country at the beginning of each week. The average doesn't include extra fees, known as points, which most borrowers must pay to receive the lowest rates.
One point equals 1 percent of the loan amount. The average fee for a 30-year mortgage was unchanged from last week at 0.6 point.
The average rate on five-year adjustable-rate mortgages rose to 3.06 percent, highest since September 2014 and up from 3.03 percent last week; the fee remained at 0.4 point. The average rate on one-year ARMs increased to 2.68 percent, highest since September 2013 and up from 2.67 percent last week; the fee held at 0.2 point.
Copyright 2015 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

TAGS:: Associated Press

Sunday, December 20, 2015

Effects of Past Interest Rate Increases Offer Guide to Future Risks

Traders at the Chicago Board Options Exchange on Dec. 16, the day the Fed announced a rate increase of .25 percent. Credit Tannen Maury/European Pressphoto Agency

When expansions end and the economy tips into recession, one or the other is usually to blame.

In the past, the culprit has frequently been fire — an overheating economy and rising inflation — that prompted the central bank to push up interest rates until they ultimately choked off growth. Ice is more unusual, at least in the United States, but often more painful, as excess capacity, weak demand and falling prices foster a deflationary slump that can prove difficult to escape.

As the Federal Reserve embarks on a new chapter in monetary policy, having raised rates on Dec. 16 for the first time in nearly a decade, policy makers are acutely aware of the risks posed by either possibility.

“Raising rates the first time may have been the easy part; now comes the challenging part,” said Mike Ryan, chief investment strategist for UBS Wealth Management Americas.

Fed officials do not have to look far for real-world examples of what can go wrong.

European central bankers raised rates twice in 2011, killing off a nascent recovery and plunging the eurozone into a double-dip recession that it is still struggling to overcome.

The Chicago Mercantile Exchange in January 2004, before the Fed began a streak of 0.25 percentage point increases later criticized as too incremental.

But being too slow to tighten the reins of monetary policy can prove perilous, too.

A series of steady quarter-point rate increases by the Fed between 2004 and 2006 seemed prudent at the time, but in hindsight the central bank has been blamed for moving too slowly, failing to head off the economic catastrophe that followed the implosion of the housing bubble in 2007.

The biggest problem is that higher interest rates do not bite in predictable ways. Not only do they take time to percolate through the real economy, but there is also a difficult-to-foresee threshold at which the impact can suddenly shift from mild to severe.

“I’m sure there is a tipping point,” Mr. Ryan said. “It’s just hard to know in advance precisely where that is.”

At least for now, though, few analysts expect the Fed’s initial moves to bring the nation’s six-and-a-half-year-old expansion to an abrupt end.

“The rate hike this month and those next year may not really be felt until 2017,” said Michael Hanson, senior United States economist at Bank of America Merrill Lynch. “Evidence from past cycles suggests it could take a year, rather than the next quarter or two.”

The Fed’s task this time is even more complicated because other central banks are leaning in the opposite direction.

With growth in Europe still sputtering, the European Central Bank has belatedly turned to the tools embraced by the Fed several years ago, buying up securities and pumping money into the financial system. But even with some interest rates there in negative territory, Mario Draghi, president of the E.C.B., is under pressure to loosen monetary policy further.

In Asia, the People’s Bank of China is also in easing mode, as officials try to cushion what looks like an increasingly hard landing for the economy there, the world’s second-largest. Similarly, Japan’s central bank is keeping interest rates at rock-bottom levels to encourage growth.

The combination of lower rates abroad and rising ones at home is making the United States dollar surge against other currencies. While that might be good for American tourists heading overseas, it hurts American manufacturers seeking export markets and makes imported goods more competitive, undermining the country’s trade balance.

For now, most economists say the danger of too little inflation outweighs the risk of too much: Ice, in effect, may be more of a worry than fire.

“The risk is skewed toward moving too fast,” said Michael Gapen, chief United States economist at Barclays. “That’s especially true as the strong dollar and lower-priced imports keep inflationary pressures at bay in the United States.”

Although Mr. Gapen, like most seers on Wall Street, is generally upbeat about the economy’s prospects next year, some of his colleagues elsewhere are less sanguine. David Levy, a longtime private economist, is warning clients that the Fed may be forced to reverse course as weakness in China and emerging markets redounds to the United States.

The Fed’s rate increase on Wednesday, Mr. Levy cautioned, “may well mark a high point in economic expectations for 2016.”

In its statement Wednesday about the decision to raise rates, the Fed itself noted there had been a “shortfall” in terms of actual inflation’s not measuring up to the central bank’s 2 percent goal, which it considers helpful in supporting a more robust economy.

Scott Anderson, chief economist at Bank of the West in San Francisco, believes the reference to stubbornly low inflation is significant. “This is new language,” he said. “The doves on monetary policy are saying they will go along with the rate hike now, but want to see some acknowledgment that low inflation is still a concern.”

For his part, Mr. Anderson expects the economy to continue to grow at a moderate annual pace of about 2.4 percent in 2016. If that forecast for growth is correct, he predicts the Fed will raise rates three times next year, lifting the benchmark rate to a range of 1 to 1.25 percent by the end of 2016.

“Consumers are cautious but they still have the capacity to spend,” Mr. Anderson added. “Jobs and incomes are growing, debt levels are low and gas at about $2 a gallon should help. When people realize the sky isn’t falling because the Fed is raising rates, they will go back to their usual spending habits and save the day.”

A growth rate of about 2 percent would be in line with the steady, but disappointing, advance that has characterized the current recovery since it began in mid-2009. By contrast, the economy grew by 3.8 percent in 2004 when the last tightening cycle began, and by 4 percent in 1994 when an earlier round of rate hikes got underway.

The comparatively weak recovery, which has left most Americans struggling to maintain their standard of living, is the principal reason the Fed has promised to move more slowly during this tightening cycle than in past ones.

In the mid-2000s, the Fed raised rates by 0.25 percentage point at every meeting between June 2004 and June 2006, 17 straight increases that lifted rates by more than four full percentage points over two years.

The tightening campaign in the 1990s was even steeper, as rates moved up three points in one year. Although that wreaked havoc on the stock and bond markets in 1994, the move may have helped slow growth to a sustainable pace and set the stage for the 1990s expansion to extend for a full decade.

Many analysts say that the current expansion could display that kind of longevity.

“Expansions don’t die of old age,” Mr. Ryan of UBS said, echoing comments by the Fed chairwoman, Janet L. Yellen, at her news conference on Wednesday. “They die from exhausted demand, but consumers aren’t exhausted.”

“And the backdrop of low inflation won’t force the Fed into an aggressive stance,” he predicted. “This expansion can go on for a while.”

Sunday, December 13, 2015

The Federal Reserve Shouldn't Raise Interest Rates, It Should Reverse Quantitative Easing Instead

I’ve already mentioned this in passing today but it’s worth laying out why I think that raising interest rates would be the wrong decision this week. Instead, the Federal Reserve should be reversing quantitative easing. Do note that this would have very much the same effect so I’ve already agreed that monetary tightening should be taking place. It’s how that is done, the technique, that I am concerned about, not the specific policy aim itself.
It’s also rather too late for anyone to adopt my preferred policy because everyone is being geared up for the rate rise already and the expectation of it already built into market prices. But it is still, I think, a better policy for one single reason: granularity.

So let’s walk back to what the whole thing has been about. We wanted to have looser monetary conditions–that meant lowering interest rates. Once we’d got to near zero there wasn’t much lower we could go (it’s possible to have slightly negative rates, but not very negative rates) and thus quantitative easing. That is the Fed creating money to purchase low risk assets and thus raise their price and lower their yield. This pushes investors out into higher risk assets as they search for that elusive yield. That, in turn, lowers long-term interest rates which is what we wanted to achieve.
Note that this isn’t any different in principle from the normal open market operations the Fed uses to try and fine tune interest rates. Indeed, we could call QE simply the Mother of All Open Market Operations (not that MAOMO is all that impressive an acronym). And just as with those open market operations QE should and will work both ways. Reduce the assets held by the Fed and this will reduce the price of those assets being held and thus increase their holdings. That again will bring people in along the risk curve and so raise long-term interest rates.
As, also, raising interest rates directly will raise interest rates. So why prefer one method over the other?

Granularity: How fine-grained can you make the policy be? An interest rate rise is an all or nothing thing. Either you raise rates by 0.25% (and no one thinks it’s going to be in any units smaller than that) or you don’t. But we already know how the Fed intends to reverse QE in the long term.
Those bonds it currently holds mature over time. Indeed, some of them are maturing right now, as they have been in dribs and drabs for some years. Currently, as bonds mature the Fed goes out into the market and purchases more in order to maintain their stock. All they have to do to reverse QE is stop buying more as bonds mature. That means the borrowers, in order to roll over their debt, have to issue new bonds to the market. The Fed’s holdings reduce, the market’s increase and that’s a reversal of QE. And it also raises long-term interest rates in exactly the manner that the original purchases lowered them. Which brings us to that granularity.

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The Fed can do this in any volume it chooses. It could simply not replace $100 million’s worth each month. Or a billion’s, or $50 billion. It’s entirely at liberty to do as much or as little tightening as it wants. It thus has much more control over what happens to the markets than that all or nothing raise rates or don’t. And yes, by the way, they do indeed know how much replacement or not replacement of those maturing bonds would raise rates. Precisely because this is just a larger version of those open market operations they’ve been doing for near a century now.
It’s much too late for the Fed to change their minds and do this of course, but I do still feel that it would be a better way of managing things.

Sunday, December 6, 2015

Mortgage rates fall for the third week in a row

freddie

Mortgage rates wandered down for the third week in a row, according to the latest data released Thursday by Freddie Mac.

The 30-year fixed-rate average slipped to 3.93 percent with an average 0.6 point. (Points are fees paid to a lender equal to 1 percent of the loan amount.) It was 3.95 percent a week ago and 3.89 percent a year ago. After gaining 22 basis points — a basis point is 0.01 percentage point — in two weeks in early November, the 30-year fixed-rate average has steadily declined the past three weeks but has given back only five basis points.

The 15-year fixed-rate average ticked down to 3.16 percent with an average 0.5 point. It was 3.18 percent a week ago and 3.1 percent a year ago.

[New rules for lenders seem to be raising costs for mortgage consumers]

Hybrid adjustable rate mortgages were mixed. The five-year ARM average dropped to 2.99 percent this week with an average 0.5 point. It was 3.01 percent a week ago and 2.94 percent a year ago. The five-year ARM average has stayed below the 3 percent mark for 22 of the past 24 weeks.

The one-year ARM average rose to 2.61 percent with an average 0.3 point. It was 2.59 percent a week ago.

“Treasury yields ticked down 3 basis points after weak manufacturing data,” Sean Becketti, Freddie Mac chief economist, said in a statement.

“After the survey [of mortgage lenders by Freddie Mac] closed, [Federal Reserve Chair Janet] Yellen implied that the economy is ready for a rate hike in December. However, all eyes remain on this Friday’s jobs report, the last significant release prior to the [Federal Open Market Committee’s] meeting.”

[New disclosure rules for mortgages prove to be a headache, but not for all]

Meanwhile, mortgage applications were flat, according to the latest data from the Mortgage Bankers Association.

The market composite index — a measure of total loan application volume – slipped 0.2 percent from the previous week. The refinance index dropped 6 percent, while the purchase index rose 8 percent.

The refinance share of mortgage activity accounted for 56.6 percent of all applications.

Sunday, November 29, 2015

November jobs report likely to give Fed go-ahead to raise interest rates

Forecast calls for 200,000-plus increase, continued wage gains

An improved labor market is giving skilled employees more leverage to seek higher pay.

WASHINGTON (MarketWatch) — The Federal Reserve appears hell bent on raising interest rates for the first time in a decade and only a lousy U.S. jobs report could put a freeze on its plans.
Don’t bet on it, though. With job openings near a record peak and hiring at an 11-month high, employment gains in November will likely be good enough to allow the Fed to act before year end.
Economists polled by MarketWatch project a 205,000 increase in newly hired workers, following a gain of 271,000 in October. That month’s tally, the biggest of 2015, eased worries after hiring briefly slowed at the end of the summer.

The unemployment rate, meanwhile, is forecast to hold steady at 5%. Don’t be surprised if it dips below that psychological barrier to 4.9%, but don’t pay it much heed, either.
“Whether it’s 5% or 4.9% doesn’t tell us anything more,” said Richard Moody, chief economist at Regions Financial. “ It just tells us we are paring down slack in the labor market.”
The government will issue the much-anticipated November employment report on Friday morning.
What could cause the central bank to waffle on rates again? Only a shockingly poor report, say fewer than 100,000 new jobs. Even then Fed VIPs would probably have to see warning signs in other surveys of the U.S. economy.
Evidence of a softening economy is hard to find.
Sure, energy producers and manufacturers are struggling in the face of cheap oil and a strong dollar. Yet the huge U.S. service sector — retailers, restaurants, banks, hospitals and the like — is spitting out plenty of new jobs. The construction industry continues to expand at a moderate pace. And even governments are spending a bit more after years of ultra-tight budgets.
The steady improvement in the U.S. economy and the well-being of consumers is showing up in paychecks. Average hourly earnings rose sharply in October to push the increase over the past 12 months to a six-year high of 2.5%. Overall incomes climbed 0.4% last month, the latest in a string of solid gains.
The rise in wages matches reports of scattered labor shortages and increasing pressure on companies to boost pay.
That’s not to say wage growth will accelerate quickly to the annual 3% to 3.5% levels typical at the height of a recovery. Companies have found a variety of ways to tame labor costs, for one thing, and they are slower to hire than they are to post job openings, a sign they will only add to payrolls if they find a great fit.
Still, the Fed is likely to view consistent wage growth, even in the 2.5% range, as a call to arms. Steady income gains are the fuel for strong consumer spending, the engine of the U.S. economy.
Another cue for the Fed will come this week from a report on the U.S. service sector compiled by the Institute for Supply Management. The ISM’s non-manufacturing index has been hovering near a 10-year high since midsummer and economists predict a similarly strong reading in November.
The strength shown by service-oriented companies has more than offset weakness among American manufacturers, a divide that shows little sign of closing.
”You are going to see continue to see those industries pulling in separate directions,” said Gregory Daco, head of U.S. macroeconomics at Oxford Economics.
No matter. Manufacturing is important to the U.S., but not nearly as influential as it was a few decades ago. The economy has enough momentum to keep the Fed on course to raise rates for the first time since 2006, even if the nation’s growth is still fairly slow by historical standards.
“The plow-horse economy continues to move forward, just not by leaps and bounds,” said chief economist Brian Wesbury of First Trust.

Monday, November 23, 2015

30-year mortgage rate dips slightly

The Associated Press 10:56 a.m. EST November 20, 2015

WASHINGTON - Average long-term U.S. mortgage rates edged slightly lower this week after two straight weeks of sharp increases. Expectations persist that the Federal Reserve may soon raise its key short-term interest rate.
Mortgage giant Freddie Mac said Thursday the average rate on a 30-year fixed-rate mortgage slipped to 3.97 percent from 3.98 percent a week earlier. The key 30-year rate was close to its level of a year ago, 3.99 percent.
The rate on 15-year fixed-rate mortgages declined to 3.18 percent from 3.20 percent.
While it kept the key rate at a record low near zero, the Fed recently signaled the possibility that a rate hike could come at its next meeting in December. Fed officials believed last month that the economic conditions needed to trigger the first interest rate hike in nearly a decade could “well be met” by that time, minutes of their October discussions released Wednesday showed.
The yield on the 10-year Treasury bond, which mortgage rates have been tracking, dropped to 2.27 percent Wednesday from 2.34 percent a week earlier. The decline followed recent weeks of soaring yields on U.S. government bonds, which move in the opposite direction of the bonds’ prices. The yield was at 2.24 percent Thursday morning.
To calculate average mortgage rates, Freddie Mac surveys lenders across the country at the beginning of each week. The average doesn’t include extra fees, known as points, which most borrowers must pay to get the lowest rates. One point equals 1 percent of the loan amount.
The average fee for a 30-year mortgage was unchanged from last week at 0.6 point. The fee for a 15-year loan declined to 0.5 point from 0.6 point.
The average rate on five-year adjustable-rate mortgages dipped to 2.98 percent from 3.03 percent; the fee rose to 0.5 point from 0.4 point. The average rate on one-year ARMs edged down to 2.64 percent from 2.65 percent; the fee increased to 0.3 point from 0.2 point.

Sunday, November 15, 2015

U.S. housing gains look fat on global scale

Nov. 15, 2015

Updated 12:00 p.m.

The swift rebound of U.S. home prices looks a bit rich when you place the gain on the world stage.
More than a few folks are squeamish about our housing recovery’s durability, with nerves on high alert after the wild gyrations in real estate before, during and after the Great Recession.
To get some context, I filled my trusty spreadsheet with a collection of global home-price indexes from U.K.-based real estate tracker Global Property Guide that were adjusted for local inflation. I learned that the U.S. home price upswing looks fairly strong – and that is both good and a tad worrisome.
U.S. housing was up 17 percent after inflation, the eighth best in my global ranking of 33 nations. Two-thirds of this group – nations with data published for the past four years ending in 2015’s first half – registered price gains over that period, and the median inflation-adjusted increase was 9.2 percent.
As we often observe when discussing Orange County housing trends, real estate can be a very local business. That’s also true when you look across the world, where you can see global economic patterns influencing home- price movements.
Take the rising commodity prices that fueled many top global housing markets. That upswing has now ended, and soft commodity markets have become a cause of concern for entire national economies, no less their housing markets.
Look at the world’s top housing market over the past four years – the United Arab Emirates, which was up 56 percent. Oil wealth drives that economy, and oil’s recent misfortunes have hurt: UAE home prices dropped 12 percent in past 12 months.
Or ponder the economy of Brazil, which has gyrated up and down with suddenly weakened commodity prices. Its 24 percent, four-year home-price gain – sixth best – still includes a 3.5 percent drop in the past 12 months.
China’s powerful economy swings national economies, and housing, too.
The neighboring city-state of Hong Kong ranked second in global home-price gains, up 38 percent in four years. It has benefited from China’s boom, so far.
Taiwan has somewhat similar economic attributes to Hong Kong. Its home prices rose 28 percent since 2011 but fell 2 percent in the past 12 months.
China’s home-price gains, by the way, look pretty middle-of-the pack – up 9 percent in four years – as its economy struggles with an era of fast, but not spectacular, growth.
Not every regional economic engine drives nearby housing markets, however.
Estonia, ranked third, is perhaps the most pro-business economy in the Russian sphere. Its housing prices have enjoyed a boost – up 37 percent since 2011 – by somehow avoiding Russia’s economic woes, ranging from mismanagement to energy-price fluctuations.
Russian home prices are down 24 percent in four years. Only two nations fared worse by my count – the long-running economic disasters of Greece (home prices off 31 percent since 2011) and Cyprus (off 25 percent).
So what does this mixed bag of global results say about U.S. housing?
You could argue that U.S. housing’s outperformance is largely due to the relative strength of the national economy. Domestically, there’s plenty of disappointment in the slow and modest U.S. recovery. Still, our business expansion is one of the globe’s best bursts of growth in recent years.
It’s worth noting that the recent four-year, 17 percent rebound for U.S. home prices was preceded by a 9 percent drop in the 12 months through June 2011, as the recession ended.
And the future of U.S. housing is not risk-free.
Overall economic strength is critical. And does the slow-but-steady growth we’ve gotten used to provide enough muscle to keep the market aloft?
The confidence of American house hunters will be tested in coming months by expected hikes in mortgage rates. Also, how will the high level of economic-anxiety chatter during the 2016 presidential campaign affect homebuyers and sellers alike?
Will rising skittishness mix well with pricey American housing? Two global home-value measures by the International Monetary Fund show U.S. homes priced well above average in relation to national income and compared with typical rents.
Don’t forget that the entire globe can be wrong about housing, too. Four years ago, 19 of the 33 national markets I reviewed had falling home prices – and four of those losses were double-digit dips (Ireland, Greece, Portugal and the Netherlands).
So far in 2015, the American love affair with housing has plenty of company around the globe. How long the infatuation will last is the grand question.

Tuesday, November 10, 2015

Mortgage Rate Panic: Time to Lock in a Low-Interest Loan?

By Brian O'Connell

| 11/10/15 - 08:35 AM EST

A highly positive October jobs report, with 271,000 new jobs created, shows the U.S. economy picking up speed, and that can mean good or bad news for the residential real estate market, depending on whether you're a seller or a buyer.

Realtor.com estimates the strong employment report will boost U.S. home sales activity and will also hike U.S. mortgage rates above 4%.

"We should see continuing strong demand for housing in the months ahead if today's strong jobs report reflects a true return back to a strong growth trend we've seen over the last few years," says Jonathan Smoke, chief economist at Realtor.com. "The healthy strong employment results for the past two years created an uptick in household formation, which has driven increased demand for home purchases and rentals."

"The jobs report will influence the long-term bond market, so mortgage rates will increase in response," he adds. "The average 30-year conforming mortgage rate was 3.99% yesterday, having increased nine basis points in one week due to the consensus view of a strong, but not this strong, employment report. The 30-year conforming rate will likely top 4% as a result of this news."

If the Federal Reserve was waiting for proof of an economic rebound, some experts say the latest jobs number fits the bill.

Robert R. Johnson, CEO of The American College of Financial Services, says the Fed has been looking for strong evidence that the economy is recovering prior to increasing the fed funds target rate, and the jobs number should "push up" the date when the Federal Reserve raises interest rates, likely in December.

"This development is not good news for people looking to take out mortgage debt in the near future," Johnson says. "Once the Fed starts raising rates, interest rates throughout the economy, including mortgage rates, auto loan rates and other loan rates will trend upward. I believe that anyone thinking about refinancing a mortgage or buying a home and taking out an initial mortgage should not wait, as rates will rise."

Like Smoke, Johnson also believes the jobs number will boost home sales. "Many potential homebuyers may see an opportunity to buy a home and take advantage of current low mortgage rates," he adds.

There is some history on the link between a stronger jobs climate and higher mortgage rates. "In 2004, when the Fed increased interest rates for the first time in four years, it caused the booming real estate market to get more manic," says John Wake, the so-called geek-in-chief at Real Estate Decoded and a realtor with HomeSmart in Scottsdale, Ariz. "Many people expected the increase to be the first of many so they became even were more desperate to buy a house right away."

Wake says they were right, as the Federal Funds Rate increased from 1% in the summer of 2004 to 5% in the summer of 2006. "Sure, in the long run higher rates hurt the demand for homes, but in the short and medium run they can stoke demand," he says. "It all depends on what people think an interest rate increase today means for interest rates tomorrow."

Right now, some real estate insiders say higher mortgage rates are on the way, with the booming October jobs number insuring that day comes sooner than people might think.

You can contact Robert Darvish of Platinum Lending Solutions, for any mortgage and refinance needs

Thursday, November 5, 2015

Mortgage rates surge in anticipation of Federal Reserve rate hike

Mortgage rates surged this week, according to the latest data released Thursday by Freddie Mac.
Home loan rates began moving higher after the Federal Reserve signaled last week that a December interest rate hike was a possibility. What the Fed does with interest rates doesn’t have a direct relationship to mortgage rates since they are more closely tied to long-term U.S. Treasury yields. Bonds are more likely to move ahead of a Fed action than in response to it.
Still, a lot can happen before the Dec. 16 Fed meeting that could affect home loan rates. Friday’s monthly jobs report could not only strengthen or lessen the chances of a Fed rate hike, it also could have an impact on mortgage rates.

[Fed less worried about risks from China’s slowdown]
The 30-year fixed-rate average jumped to 3.87 percent with an average 0.6 point. (Points are fees paid to a lender equal to 1 percent of the loan amount.) The 11-basis point rise — a basis point is 0.01 percentage point – was the biggest one-week spike since June. The 30-year fixed rate was 3.76 percent a week ago and 4.02 percent a year ago.
The 15-year fixed-rate average climbed to 3.09 percent with an average 0.6 point, rising above the 3 percent mark for the first time in three weeks. It was 2.98 percent a week ago and 3.21 percent a year ago.
[New rules for lenders seem to be raising costs for mortgage consumers]
Hybrid adjustable rate mortgages also rose. The five-year ARM average grew to 2.96 percent with an average 0.4 point. It was 2.89 percent a year ago and 2.97 percent a year ago.
The one-year ARM average increased to 2.62 percent with an average 0.2 point. It was 2.54 percent a week ago.
“Treasury yields climbed nearly 20 basis points over the past week, capturing the market movement following last week’s [Federal Open Market Committee] meeting,” Sean Becketti, Freddie Mac chief economist, said in a statement.
“Recent commentary suggests interest rates may rise in the near future. Janet Yellen referred to a December rate hike as a ‘live possibility’ if incoming information supports it. The October jobs report to be released this Friday will be one crucial factor influencing the FOMC’s decision.”
[What the new mortgage closing process means for consumers]
Meanwhile, mortgage applications were flat this week, according to the latest data from the Mortgage Bankers Association.
The market composite index — a measure of total loan application volume – slipped 0.8 percent from the previous week. The refinance index dropped 1 percent, while the purchase index decreased 1 percent.
The refinance share of mortgage activity accounted for 59.7 percent of all applications.

Tuesday, October 27, 2015

Why pricier mortgages shouldn't spook housing

Oct. 25, 2015

Updated 8:00 a.m.

History shows that if mortgage rates rise, it does not necessarily mean house prices will drop. Higher rates typically coincide with strong economies, which means jobs - and thus greater buying power for home buyers. This photo shows a home for sale in Dana Point earlier this year. CINDY YAMANAKA, , CINDY YAMANAKA, STAFF PHOTOGRAPHER

As home selling once again takes its seasonal pause, an eerie pall haunts the real estate community: The specter of higher mortgage rates.
I’m not sure it’s worth the worry.
I tossed into my trusty spreadsheet a 25-year history of mortgage rate movements from the St. Louis Fed, local job growth from the Employment Development Department, and Orange County home price and sales volume data from CoreLogic.
What I found in the interaction between economic forces and homebuying habits is that pricier mortgages often coincide with eras of higher home prices. Since 1990, when mortgage rates have increased over a one-year period, Orange County’s median selling prices have risen by an average 8.7 percent in the same timeframe. And the following year, home prices advanced, on average, by 3.9 percent.
Certainly, that’s not the conventional wisdom. But even in the worst case scenarios – the 25 months with the largest one-year rate hikes – housing fared well: Prices averaged 11.1 percent gains that year and 2.3 percent in the 12 months that followed.
Yes, rising rates scare off some shoppers and chill home buying activity – but not in a big way.
Since 1990, when rates are up in a one-year period, Orange County home sales volume falls 2.2 percent on average in those 12 months, then declines 5 percent the following year. Sluggish, but by no means a crash.
And in the worst-case rate hikes, sales slowed modestly on average: down 5.4 percent during the year in question and another 3.9 percent over the next 12 months. Not a reason for panic.
So how can the nightmarish scenario for real estate pros – rising interest rates – actually be relatively benign, and perhaps even good news, statistically speaking?
Remember the three key words of real estate: Jobs! Jobs! Jobs! Interest rates commonly rise when the economy is hot – like today’s business climate, in which jobs are growing at a 3 percent annual pace.
Since 1990, mortgage rates have increased in one-year periods when local jobs are growing at a 2.1 percent average annual rate – twice the historical norm. Rising rates do increase house payments, however, so a house hunter needs plenty of confidence in the job market to make a leap into home buying mode.
Look what job growth means for housing. Since 1990, in any year when Orange County bosses are in hiring mode – that is, they generate year-over-year job growth – home prices have averaged 8.3 percent gains and similar size increases the following year. Sales activity is basically flat in the same two years – pretty remarkable stability amid a significant jump in pricing.
Then look at boom times. In the 25 months with the largest year-over-year job gains since 1990, Orange County’s average price gain is roughly equal to what was seen in all of those hiring years. But that faster-paced job growth means an average jump of 15.2 percent in homebuying activity the first year and 6.8 percent in the 12 months that follow.
Yes, these results are a bit counter-intuitive. And to be fair, history isn’t a perfect guide to the future. For example, home prices rose only 70 percent of the time in a year when mortgage rates moved higher – so industry fears of potential trouble aren’t totally unjustified.
Still, what should really be spooking the local housing market late in 2015? Any risk of a significant slowdown in Orange County’s biggest-since-the-’90s hiring spree.

Sunday, October 18, 2015

Average rate on 30-year mortgage rises to 3.82%

WASHINGTON — Average long-term U.S. mortgage rates rose slightly this week yet remained below 4% for a 12th straight week.
Mortgage financing giant Freddie Mac said Thursday the average rate on a 30-year fixed-rate mortgage increased to 3.82% from 3.76% a week earlier. The rate on 15-year fixed-rate mortgages rose to 3.03% from 2.99%.
Despite the increase, rates remained well below last year's levels, providing an inducement for potential homebuyers.
A year ago, the average 30-year mortgage rate was 3.97%, while the rate for 15-year loans was 3.18%.
In recent days, two influential members of the Federal Reserve's policymaking body spoke in favor of postponing an increase in its key short-term interest rate. The Fed has been expected to raise the benchmark rate later this year for the first time in nearly 10 years.
To calculate average mortgage rates, Freddie Mac surveys lenders across the country at the beginning of each week. The average doesn't include extra fees, known as points, which most borrowers must pay to get the lowest rates. One point equals 1% of the loan amount.
The average fee for a 30-year mortgage held steady from last week at 0.6 point. The fee for a 15-year loan also remained at 0.6 point.
The average rate on five-year adjustable-rate mortgages was unchanged at 2.88%; the fee remained at 0.4 point. The average rate on one-year ARMs declined to 2.54% from 2.55%; the fee was steady at 0.2 point.

Sunday, October 4, 2015

7 ways you can cash in on historically low mortgage rates

ways you can cash in on historically low mortgage rates

Oct. 4, 2015

Updated 9:24 a.m.

By JONATHAN LANSNER / STAFF COLUMNIST

How rising interest rates cut borrowing power

This example assumes a borrower has annual household income of $80,000 and puts one-third of it into a house payment.
• At 3.5 percent you can borrow $494,383
• At 4 percent you can borrow $465,004
• At 4.5 percent you can borrow $438,142
• At 5 percent you can borrow $413,545
• At 5.5 percent you can borrow $390,990
• At 6 percent you can borrow $370,277
Source: The Register

Everybody is trying to guess what rising interest rates will mean for the housing market, but not enough people are focusing on what they can do about it before it happens.
Yes, we’ve been warned before that a rate hike is coming, and it still has not happened. But this time it feels like a reasonable certainty that we’ve seen the lowest mortgage rates in this cycle – and it was record cheap money.
No matter the timing of any serious rate increases in the future, today’s mortgage rates are what anybody before this century would have called an absolute steal. Fixed 30-year mortgages run in the 4 percent ballpark today. That’s up about a half-point from 2012’s absolute lows, but it’s still a bargain vs. the average rate of 5.5 percent since 2000 and the 10 percent average seen in the last 30 years of the 20th century.
And the opportunity is not simply in low rates.
I’m not sure many people know that lenders are far more generous today with both loan terms and approval standards than they were immediately following the Great Recession that wrecked their mortgage portfolios.
There are good reasons behind bankers’ renewed optimism: Home values have firmed, as have the paychecks that allow homeowners to pay back their loans.
Certainly, many households are satisfied with their housing and mortgage situations. But let me suggest some ideas to consider as 2015 winds down, because I have a hunch that years from now many folks will look back to today and say, “Gosh, I wish I could have borrowed more at those great rates.”
SIMPLE REFI
Have you checked rates lately? Do you even remember what rate you’ve got?
Forget all the hassles of borrowing a few years back, right after the recession ended. Lenders today have almost made the experience pleasant. I said almost!
And there are deals. Despite all the talk about rising interest rates, mortgage rates have quietly slipped back to around 4 percent as questions emerge about the economy’s durability and the Federal Reserve delays hiking rates.
Perhaps home values are up significantly in your neighborhood. Maybe there’s been a major improvement in your employment picture, paycheck or credit score. Be aware that the mortgage rate you could get these days might surprise you.
And if you think you’re living in a home where you will be for a long time, is this the time to pay extra points or loan fees to get an even cheaper rate with a refi and save even more money?
GO FIXED
Adjustable-rate mortgages became the scourge of the real estate business after the housing debacle, because too many aggressive borrowers, with the help of too many aggressive lenders, used these deals to buy or keep housing they couldn’t afford.
The resulting pushback from bankers and borrowers alike reduced the popularity of adjustable loans. Variable-rate deals funded 1 in 9 of all Orange County home purchases in the past seven years, after being used by half of all homebuyers in the previous seven years, according to CoreLogic statistics.
I suggest that homeowners with adjustable rate mortgages consider switching to a fixed rate.
Yes, the most popular adjustable rate mortgages do offer extended periods of locked-in starter rates, from five to 10 years. That’s plenty of delay before any future payment shock.
But why risk it ? It’s a good bet that today’s low interest rates on fixed rate loans are not much higher than what many borrowers are paying on their adjustable loans now.
So wouldn’t you feel foolish some years down the road if you hadn’t locked in today’s rates if your adjustable repriced higher? That’s one reason I refinanced this year.
EXTEND LOAN LENGTH
Many homeowners used the cheap money environment to pick up mortgages of shorter duration than the traditional 30 years to get even lower interest rates.
There’s only one problem with these shorter-maturity deals: Monthly payments are high, and much of the money is used to pay down principal, so tax deductions for mortgage expenses are reduced.
It’s not a small amount. The monthly payment on a 3 percent, $400,000 15-year mortgage is $2,762. That same-size loan, at today’s 4 percent rate for 30 years, costs $1,910 a month. That’s an immediate $852 advantage to going long.
Yes, a longer-term mortgage does have higher long-run interest cost. However, think how that improved household cash flow can be used in various ways to pay down other debts, invest in other goals – education or retirement – or keep a financial cushion for emergency purposes. (Yes, there will be another downturn.)
P.S.: If you’ll simply blow the fresh savings on luxury or frivolous goods, skip this idea.
BUY
First-time shopper? Moving up? Downsizing?
If you believe today’s mortgage rates are the last shot at a once-in-a-generation deal, it may be time to think about making that purchase.
Guessing which direction home prices will go is never a feasible way to time a home purchase. For every person who swears they saw the previous housing bust coming, how many saw the bottom and buying opportunity of 2012, too?
I know some homebuying holdouts are convinced that home prices are too high and will only go lower. I won’t debate the outlook, I’ll just ask: How long do you think it would take for serious discounts to appear?
Cheap interest rates could be history by the time any significant price drop materializes. That could mean a higher monthly payment, despite getting a deal on the selling price.
Ponder this: If mortgage rates jump a full percentage point in the next year, home prices will have to fall by at least 10 percent to offset the impact on monthly house payments.
CASH OUT
I know a lot of homeowners and financial consultants think taking equity out of the home is generally a bad idea.
Let me argue otherwise.
Assuming that you’re the type of financially savvy homeowner who won’t spend every last penny in your bank account, here is a sad truth about personal finances: No banker will lend when you really need money (say, if you’re out of work).
Today, assuming you’re gainfully employed with a solid credit history, lender generosity includes doing cash-out deals again.
I’ll assume you’d use the proceeds of a cash-out loan for a noble cause: paying off other debts, investing in other long-term needs or creating a hefty rainy day fund.
And for those approaching retirement with plenty of home equity, please just ask yourself where emergency funds will come from when the paychecks stop. Sadly, it’s easier to access home equity when employed, than not – unless you sell your home.
LINES OF CREDIT
If you just want the mental comfort of using your home as a financial backstop in a tough situation, getting a home equity line of credit today is an option.
Many lenders are offering these loans at little or no cost, with only a modest annual maintenance fee. You won’t incur any sizable extra house payments unless you access the line.
One downside is that these loans have a shorter lifespan than traditional mortgages – often just 10 years to use it and another 10 to pay it back.
And if you obtained a credit line a few years ago, it may be worth looking into getting a new one. Terms have improved. Or you can simply extend the life of your existing credit line.
INVEST
Let’s say you’re really bullish on real estate: Today’s cheap money can make a property investment pencil out profitably.
With a few significant caveats:
One, bankers still are cautious about loans for nonowner-occupied housing. So be prepared to bring a significant down payment to the deal and solid household financials – and be ready to answer plenty of questions.
Two, cheap money helped push up home values. That makes many investment deals not as profitable as hoped. Be realistic about any investment potential.
Three, be prepared for bidding battles. Numerous investors are making all-cash bids for investment-type properties.
Nobody said this would be easy.

Monday, September 7, 2015

You Deserve a Raise Today. Interest Rates Don’t.

By THE EDITORIAL BOARDSEPT. 7, 2015

For most Americans, paychecks determine living standards. Unfortunately, wages in America have long stagnated or declined for most working people, including college graduates.

The disappointing employment report for August — in which wage growth showed no sign of accelerating — only drove home that reality.

Worse, flat or falling pay is self-reinforcing because it dampens demand and, by extension, economic growth. In the current recovery, median wages have fallen by 3 percent, after adjusting for inflation, while annual economic growth has peaked at around 2.5 percent. At that pace, growth isn’t able to fully repair the damage from the recession that preceded the recovery. The result is a continuation of the pre-recession dynamic where income flows to the top of the economic ladder, while languishing for everyone else.

Policy makers should be focused on strategies to raise wages, but the opposite appears to be happening. Just as Congress enfeebled the economy by switching too soon from stimulus spending to budget cuts, Federal Reserve officials have all but vowed to begin raising interest rates this year. That move reflects a belief that the economy is returning to “normal,” but it would be premature, because today’s norm is an economy that is incapable of generating and sustaining broad prosperity.

In a healthy economy with upward mobility and a thriving middle class, hourly compensation (wages plus benefits) rises in line with labor productivity. But for the vast majority of workers, pay increases have lagged behind productivity in recent decades. Since the early 1970s, median pay has risen by only 8.7 percent, after adjusting for inflation, while productivity has grown by 72 percent. Since 2000, the gap has become even bigger, with pay up only 1.8 percent, despite productivity growth of 22 percent.

Why has worker pay withered? The answer, in large part, is that rising productivity has increasingly boosted corporate profits, executive compensation and shareholder returns rather than worker pay. Chief executives, for example, now make about 300 times more than typical workers, compared with 30 times more in 1980, according to the Economic Policy Institute. Other research shows far greater discrepancies at some companies.

For younger people, pay has actually declined. The average hourly wage for recent college graduates in early 2015 was $17.94, compared with $18.41 in 2000. That “loss” in starting pay, about $1,000, can carry over to diminished earnings for years to come. Young high school graduates have it even worse. Their average hourly pay was $10.40 in early 2015 versus $11.01 in 2000.

The Fed is a crucial player in reversing those trends, since one of its mandates is to foster full employment. Wage stagnation is a clear sign that the economy is not at full employment, which means it needs loose monetary policy, not tightening. An interest rate hike, by sending the wrong signal of economic health, could make it harder for labor groups and policy makers to assert the urgency of their efforts to raise pay.

In the past year, low-wage workers have successfully fought for minimum wage increases in states and cities. Congressional Democrats have championed legislation to raise the federal minimum wage and to fight wage theft and abusive worker scheduling. The Labor Department is moving ahead with a much needed new rule to update the nation’s overtime-pay laws.

In the midst of those efforts, it would be a setback for the Fed to act as if the economy is already near full employment. It’s not. The proof is in the paycheck.

Tuesday, September 1, 2015

Current Mortgage Rates for Monday, August 31, 2015

August 31, 2015

Mortgage rates hit recent lows early last week, only to rise again later in the week as mortgage-backed securities sold off. The primary drivers of the market action of late have been the stock rout in China (and the fears of slowing growth that accompany that sell-off). This has made the market wildly unpredictable, and has caused bond yields to be all over the place. Last week’s Primary Mortgage Market Survey from Freddie Mac showed that rates fell to 3.84%, but that was mostly reflective of conditions early in the week. Rates are effectively a little higher than that now. This morning MBS are rallying a little bit, and rates are under a small amount of downward pressure.

Today (and yesterday’s) economic data:

This week is fairly data-intensive, but today’s data is not especially influential:

Chicago PMI came in a little below expectations, with a print of 54.4 versus expectations of 54.9. New orders slowed, and order backlogs were in contraction for the seventh consecutive month. The labor component of the report was in contractionary territory for the fourth consecutive month. This report in and of itself wasn’t awful, but there are some bad harbingers here.
The Dallas Fed Manufacturing Survey… oof. The consensus prediction for August was -2.5. The print was -15.8. This is coming off a July print of -4.6. This report is obviously heavily influenced by the steep decline in oil prices, so I don’t know if this should be written off as aberrational, or what. It’s a bad report, but I don’t know that it will impact the markets all that much.

Manufacturing continues to struggle. This is nothing new, and has been the case all year. The strong dollar and falling commodity prices (particularly oil) continue to weigh on the sector. So it goes.

Looking Back:

Well, last week was a crazy week. Bond were driven by equities, which were in turn driven by events in China. Stocks started off the week *way* down, and bond rallied as a a result. Yields on 10-year Treasuries fell to as low as 1.92% on Monday at the depths of the stock sell-off. Mortgage backed securities, which trade at a spread to Treasuries, rallied accordingly, and for a brief period rates were at 3-4 month lows. Equities rebounded as the week wore on, and bond yields rose as high as 2.20% on Thursday, and then fell back to the 2.15% range on Friday, which is currently where they are sitting. It was a crazy week, and the situation in China is far from settled. It seems very likely that we’re going to continue to see pretty wild swings in the near term.

Looking Ahead:

Well, there’s plenty of domestic data this week, much of which is predicted to be similar to last month’s data. Among the highlights, we get the August ISM Manufacturing report tomorrow, International Trade on Thursday, and the August jobs report on Friday. The consensus for the employment report is that the economy will have added 223k jobs, which is more or less where the report has been for months now. As I noted above, the market has mainly been moved by overseas influences, which makes it exceedingly difficult to say with any certainty where things will be at the end of the week. That said, it’s worth burning a few words about the Fed, which is oddly unperturbed by the low rate of inflation.

What’s up with the Fed?

Last week the core PCE Deflator for July was published, and it showed growth of 1.2%, year-over-year. This is one of the key metrics by which the Fed gauges inflation. The Fed’s target for inflation is 2%, and we haven’t been close to that goal anytime recently. The strong dollar and the fall in commodity prices should prove disinflationary for the U.S. and one would think that we should see even less inflation moving forward. The Fed, which has consistently predicted higher inflation over the past several years, only to see their predictions fall flat, seems nonplussed by this situation, and still seems intent on hiking rates this year. if you believe the various interviews and speeches that came out of the Jackson Hole Symposium. Tim Duy put up a nice run-down of this on Friday. I’d suggest reading the whole thing, but this is the jist of it:

“The Fed very much wants to ignore the inflation data and follow the labor markets. And even as inflation drifts further away from their target, they keep doubling down on their bets. It’s what the Phillips curve is telling them they should do.
Bottom Line: The Fed doesn’t want to take September off the table. Many officials had what they believed was a solid case for hiking rates at the next meeting, and they don’t want market turmoil to undermine that case. And that case is not complicated. It’s the Phillip curve combined with an estimate of full employment (an estimate of full employment that remains sticky despite the persistent downtrend in inflation). If they move in September, that’s the story they will run with. They don’t have another paradigm.”

Seems to me that a near-term hike would have a neutral impact at best, and would be disastrous at worst. I cannot see how it would be good, except to maintain the Fed’s “integrity,” as they’ve been talking about hiking for what seems like forever now. I understand they don’t want to be perceived as looking at one month’s data, and reacting. But when things change drastically, it seems imprudent/strangely inflexible not to react. As Bob Dylan once said, “you don’t need a weatherman to know which way the wind blows.”

As for mortgage rates?

Mortgage rates are going to move with Treasury yields, and Treasury yields are currently being moved by stocks which are being moved by overseas influences, and to a degree, the Fed. As some point things will settle down, but right now we’re all over the place. I’ve backed away from a prediction of 30-year rates ending the year between 4.25-4.50%, but if the Fed hikes in September (or October), I do believe that rates will spike. Right now we’re enjoying a dip in rates, and if I were looking for a mortgage, I would take advantage of it.

And now for something completely different:

Is there a more dysfunctional organization on this planet than the Washington Redskins? Perhaps one of the European governing bodies? Perhaps. I don’t care one way or another about the Skins, but it’s certainly a fun show to watch. It’s a little reminiscent of the 80’s Steinbrenner Yankees.

This week’s economic data that could impact mortgage rates:

Monday:

Chicago PMI
Dallas Fed Manufacturing Survey

Tuesday:

PMI Manufacturing Index
ISM Manufacturing Index
Construction Spending

Wednesday:

ADP Employment Report
Factory Orders

Thursday:

International Trade
Weekly Jobless Claims
ISM Non-Manufacturing Index

Friday:

Nonfarm Payrolls

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