Rate update: Are we going to break the range this week?

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Are we going to break the range this week?
May 312016
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Mortgage rates remained on the range again last week, but that may be about to change, at least temporarily. Fed governors spooked markets a couple weeks ago by suggesting that a Jun rate hike was in the cards, but it didn’t take long for an anxious calm to resume.

The Fed meets Jun 14th and 15th, and a rate hike is possible, but I don’t think it’s likely. The Fed has been watching and reacting this year to economic events overseas, and we’ve got a big one coming up. Great Britain votes on 6/23 whether it will remain in the European Union. The “remain” side is winning in polls, but by a slim margin. Some economists are predicting economic turmoil if the “leave” side wins. I suspect the chances of that will keep the Fed on hold in Jun.

However, that doesn’t mean markets will take a nap until then. This week is a jobs report week. Remember that last month’s report was disappointing, and markets have that baked into their current mood. Given the anxiousness, I think a strong report could result is a quick rate spike.

But remember the Fed doesn’t control mortgage rates directly. In fact, it controls very short-term rates. So, even if we see a spike, I think it will be short-lived unless we see additional stronger economic data. So far this year, housing is about the only area of strength.

Rate update: Will inflation spoil the mortgage party?

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Will inflation spoil the mortgage party?
May 172016
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Mortgage rates stayed on the range last week, and chances are they won’t stray too far this week. The most important economic data is the consumer price index, which was released today. The headline number spiked, and if you’ve filled up recently, you probably know why. Gas prices are rising again. But markets generally are smart enough to look past the volatile components of the index, like gas and food. The core rate rose in line with expectations. While the core rate is just over the Fed’s stated inflation goal at 2.1%, it’s been stable for the last few months.

Maybe the more important event this week is the release of the minutes from the Fed’s Apr meeting. Markets seem convinced that in private the Fed has been conjuring up ways to raise interest rates. Based on recent comments from Fed governors, I suppose it’s possible, but Fed head Yellen’s comments the other day about negative interest rates make me think otherwise. My expectations are that nervousness about the minutes will cause some volatility, but rates will remain on the range a while longer.

Rate update: Rates riding the range

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Rates riding the range
May 102016
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Mortgage rates are at 3-year lows, so should you be locking your rate, or are rates going even lower? The answer is not as straight-forward as it would seem.

Rates have been riding a range all year. Currently, we’re at the lower end of that range, which suggests that locking your rate makes sense. However, unless you’re closing soon, it may make no difference. It’s certainly possible rates will bounce towards the other end of the range soon, but I think it’s also likely they’ll revisit their current lows.

This is what I’m watching. Bond markets seem to be mostly ignoring economic data. The jobs report last Fri was disappointingly low, and markets yawned. This week’s big report is retail sales on Fri. I doubt markets will care. Markets seem convinced the Fed is backtracking on its move to raise interest rates, and one justification for that would be a weakening economy. Thus, it doesn’t matter what the reports say. The Fed hitting the pause button must signify weakness. That suggests that rates probably won’t leave the range anytime soon.

The only economic data that I think still bears watching is inflation. Core price and wage inflation are still very low. However, should the slope increase for a couple of months, I think it would catch the Fed’s attention.

USDA to make its loans more affordable

 Loan Programs, Owner-occupied, Residential Mortgage  Comments Off on USDA to make its loans more affordable
May 072016
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

The USDA recently announced that for fiscal year 2017 (which begins on Oct 1st) it’s dropping the fees it charges for its guaranteed rural housing loans. Currently, USDA charges an upfront guarantee fee of 2.75% of the loan amount and an annual fee, or monthly mortgage insurance (MI), of 0.5%. On Oct 1st, those rates drop to 1% and 0.35%. That really is a huge change.

So, how would that affect a potential homebuyer? Let’s say you’re trying to buy a $180k home. Remember the USDA program doesn’t require a down payment, and most folks roll the upfront guarantee fee into the loan, so we have a roughly $185k mortgage. Using today’s fees, the monthly principal, interest, and MI payment would be about $908.

Okay, what if the fees are at 2017 levels? The monthly payment drops to $869. Over the life of the 30-year loan, that $39/m adds up to more than $14k in savings.

I find the timing of the announcement interesting. Based on our experience, USDA has lost of lot of market share to FHA, which lowered its mortgage insurance rates last year. While I suspect the announcement will shut down use of the program for the summer, maybe it will build some anticipation for it again in the fall.

Rate update: Mortgage rate comfort zone

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Mortgage rate comfort zone
May 032016
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Mortgage rates continue to hang out in their recent range, which is close to their all-time low. Day-to-day, week-to-week they move up a little, then down a little, but there seems to be no motivation to break the range.

Chances are good that won’t change soon. Our current low interest rates are a reflection of expectations for mediocre economic growth and very low inflation. Economic data over the last week reinforced those expectations.

But it’s the inflation expectations that really caught my eye. During the first quarter of the year, I grew concerned that two of the Fed’s favorite inflation measures, the personal consumption expenditures (PCE) index and wage growth were showing sign of life. Last week, both measures were below forecast, which should ease markets’ collective mind.

The big event this week is the jobs report on Fri; however, I’m not sure markets will really care unless it badly misses or beats expectations. At this point, I think it’s going to take a big, unexpected event to move rates out of their current comfort zone.