Your mortgage rate: Beyond the data

January 28th, 2011

As reported by Freddie Mac on Thursday mortgage rates increased for the second week in a row. As reported by the Mortgage Bankers Association refinance applications are at their lowest level in twelve months. As reported by the Commerce Department the 4th Quarter of 2010 showed surprising economic growth. All this data impacts the mortgage rates you input for your mortgage calculator results. But data is not the only factor that impacts mortgage rates as events this week have shown.

Mortgage rates climb and applications drop

In its Primary Mortgage Market Survey of interest rates released on January 27, 2011, Freddie Mac reported the benchmark 30 year fixed rate mortgage increased from the prior week to 4.80 percent at a cost of 0.7 origination points. Note that PMMS data is collected by Freddie Mac from approximately 125 lenders from Monday to Wednesday each week and the results are posted on Thursdays. As a result economic data and other news that impacts mortgage rates on Thursdays and Fridays do not impact the weekly rate, unless the impact of such news carries over to the following week.

On Wednesdays the Mortgage Bankers Association releases its Weekly Application Survey. The survey is of member institutions and the number of mortgage applications taken each week and is broken into purchase, refinance, fixed rate, Adjustable Rate Mortgage applications. The survey released on January 26 shows the total application index from MBA members declined 12.9 percent from the prior week, a very large decrease; however the index was not adjusted for the Martin Luther King holiday when most banks and financial institutions were closed. Relatively however the drop in refinance applications of 15.3 percent from the prior week is still fairly significant and can be attributed not only to the Martin Luther King holiday but also an increase in mortgage rates.

If you are considering a refinance mortgage using the refinance calculator determine your monthly savings at the higher mortgage rates versus waiting to see if rates will drop again in the future. Weigh the risk of rates not dropping significantly against the savings you may already achieve by acting now.

Economic data

Early in the week the S&P Case Schiller home price indexes were released showing home prices across the country declined in November. This was the fourth month in a row the Case Schiller indexes have declined. With rising interest rates and foreclosures not declining the concern from the Case Schiller results is that many markets may experience “double-dip” price declines, i.e. another round of housing price declines. Mortgage rates are generally not impacted by the Case Schiller reports, however the reports do impact consumer sentiment and willingness to enter the housing market. If you are using a prequalification calculator to determine your purchasing power you will want to consult with a local professional regarding the housing market in your area.

On Friday January 28, 2010 the Commerce Department released data on economic activity for the 4th Quarter of 2010. The data released would normally have a negative impact on mortgage rates as the information showed the economy performed pretty well in the 4th Quarter. Good economic news and signs of economic growth are indicators of future inflation, inflation scares bond investors who subsequently drive up interest rates. The primary number released for the 4th Quarter was the Gross Domestic Product which rose 3.2% in the quarter from the prior quarter. With 4th Quarter growth the total GDP is at the same level as the GDP was prior to the recession beginning in 2007. Further good news was that consumers were spending money to close out 2010 with 4th Quarter spending up 4.4%. Since consumer activity accounts for 70% of the economy an increase in spending bodes well for economic growth.

Outside the data: Flight to quality

Not reflected in the Freddie Mac rates posted on Thursday, but having a major impact on mortgage markets on Thursday and Friday of this week are the events in the Middle East. Stock markets have declined sharply to end the week and bond prices have increased (resulting in interest rates falling) as investors worried about the situation with protestors in Egypt looking to bring down the government. Fearing the violence and turmoil that has already toppled the government of Tunisia, has spread to Yemen and now Egypt and may spread further, investors are undergoing what is known as a “flight to quality.” This means divesting of risky stocks and investing in safer bonds, and mortgages.

International events that create uncertainty have impacts on your home mortgage rates. This week has shown how closely tied our global economies and political structures are, unrest in Cairo, Egypt has an impact on a family refinancing their mortgage in Cairo, Illinois.

If you are using mortgage calculators to determine whether refinance your mortgage or purchase a new home keep an eye on economic data, and international events, that impact your mortgage rate.

Posted By :
Dennis C. Smith is co-owner and broker of record for Stratis Financial in southern California. He has over twenty years' experience in the mortgage industry.

No payments? No Closing Costs? Lower interest rate?

February 15th, 2011

There are many ways a seller can participate to assist you with your new home loan and home purchase. Fannie Mae, Freddie Mac and FHA guidelines allow for the seller...  Read More

More Americans decide to rent despite better home affordability

February 08th, 2011

Reports by the U.S. Census Bureau and the National Association of Realtors (NAR) indicate fewer mortgages are part of families’ new housing decisions. The philosophy of homeownership has also changed...  Read More

Mortgage rates rise for third straight week

February 04th, 2011

In spite of rising tensions in Egypt and elsewhere, it appears foreign affairs had little impact on mortgage rates this week. New home loan and mortgage refinance applicants are continuing...  Read More

Home prices continue to fall, does it pay to wait?

February 02nd, 2011

A national index reports that home prices across the country have fallen for the fourth month in a row. Is this good news for those seeking to purchase...  Read More

0 Responses to "Your mortgage rate: Beyond the data"

No Comments

Leave a Comment