Market Commentary for the Week of September 30th

 

This week brings us the release of only three monthly economic reports that are likely to influence mortgage rates. However, two of those three releases are extremely important to the financial and mortgage markets and can cause significant movement in mortgage rates if they show surprises. We also have the pending government shutdown early this week that will influence trading and could affect two of those scheduled economic releases.

There is nothing of importance scheduled for release Monday in terms of economic data. However, it will still be an interesting day because it appears that a deal in Washington D.C. to avoid a government shutdown is not going to happen. This means that many government operations will come to a halt at midnight ET Monday evening. While that is a problem outside the mortgage world, it also should be noted that there are some specific problems to mortgage shoppers. As of Tuesday, most government mortgage loans (FHA/USDA) would come to a standstill but VA loans should not be affected unless the shutdown turns into an extended period. All conventional loans should proceed without issue. And it is my understanding that the National Flood Insurance Program will not be affected by a temporary shutdown either.

Still, the impact on the financial and mortgage markets could be significant. It is widely believed that a shutdown cannot be avoided at this point, so we can expect to see the markets open Monday reflecting that result. Also complicating matters is the fact that a shutdown means we will not get the economic reports that are compiled and posted by government agencies this week, one of which is extremely important to the markets. That would be Friday’s monthly employment report from the Labor Department.

Tuesday has the first report of the week when the Institute for Supply Management (ISM) posts their manufacturing index for September at 10:00 AM ET. The ISM is not a governmental agency, so the shutdown will not impact this release. The index measures manufacturer sentiment and it can be highly influential on the markets and mortgage rates. Analysts are expecting to see a small decline from August’s 55.7 reading, meaning surveyed manufacturers felt business conditions worsened from the previous month. The 50.0 benchmark is extremely important since a reading below that level means more surveyed executives felt business worsened in the month than those who said it had improved. This data is important not only because it measures manufacturer sentiment, but it is also very recent data. Some economic releases track data that is 30-60 days old, but the ISM index is only a few weeks old. Actually, it is the first report that we see each month. If it reveals a reading below 55.1, meaning sentiment fell short of expectations, we should by theory see the bond market move higher and mortgage rates fall Tuesday.

Wednesday’s monthly economic data will come from the Commerce Department, who are set to post August’s Factory Orders data at 10:00 AM ET. This manufacturing sector report is similar to last week’s Durable Goods Orders release, but also includes orders for non-durable goods. It can impact the bond market enough to slightly change mortgage rates if it varies from forecasts by a wide margin. Analysts are forecasting a 0.3% increase in new orders, meaning manufacturing activity grew slightly in August. Good news for the bond market and mortgage pricing would be a sizable decline in orders.

The Labor Department is scheduled to post September’s Employment report early Friday morning. This report will reveal the U.S. unemployment rate, number of new payrolls added or lost during the month and average hourly earnings. These are considered to be very important readings of the employment sector and can have a huge impact on the financial markets. The ideal scenario for the bond market is rising unemployment, falling payrolls and a drop in earnings.

If we do see this report and it gives us weaker than expected readings, bond prices should move higher and mortgage rates should move lower Friday. However, stronger than forecasted readings could cause a sizable spike in mortgage pricing and erase the improvement in rates since the Fed opted to delay tapering their bond purchases. Analysts are expecting to see the unemployment rate remain at 7.3%, an increase of 183,000 new jobs from August’s level and a 0.2% increase in earnings.

Overall, I am expecting to see a good amount of volatility in the markets and mortgage rates this week. Based on an economic calendar, Tuesday and Friday are the key days but the impasse in Washington puts into question whether we will even see some of that data let alone if it will be the biggest influence on this week’s trading. Monday is likely to be an extremely active day barring a last minute trick during early trading to avoid the shutdown Monday night. Tuesday will also be a key day with the ISM index, regardless of the outcome in Washington. The rest of the week’s data is in limbo, so it is difficult to make a prediction beyond that point. Accordingly, it would be prudent to maintain fairly constant contact with your mortgage professional this week if still floating an interest rate as we may see significant moves multiple days.

Mortgage News Roundup

 

We noticed the temperature drop this week as we celebrated the first day of Fall on Monday. We hope you’ve had a wonderful week and have some fun things planned for this weekend.

Our mortgage news roundup focuses on home prices, solar panels and falling interest rates. Let us know what you think in the comments.

July home prices rise, but pace is slowing

Home prices were up 12.4% for the 12 months through July, according to the 20-city Standard & Poor’s/Case-Shiller Index released Tuesday. July prices were also up a robust 1.8% from June. However, when adjusted for seasonal factors, July prices were up 0.6% from June, the smallest month-to-month increase since September of last year.

David Blitzer, chairman of the index committee at S&P Dow Jones Indices notes that prices may have peaked for a while because of the dramatic slowdown being seen in most major metro areas.

Since January, the inventory of existing homes for sale has risen 5%, on a seasonally adjusted basis, Jed Kolko, chief economist for real estate website Trulia said. Individual investors accounted for 17% of existing home sales in August, down from 22% in February, the National Association of Realtors reported.

Solar Panel Is Next Granite Countertop for Homebuilders

At least six of 10 largest U.S. homebuilders led by KB Home include the photovoltaic devices in new construction, according to supplier SunPower Corp. (SPWR) Lancaster and Sebastopol, two California towns, are mandating installation of solar panels into all new homes. Demand for the systems that generate electricity at home will jump 56 percent nationwide this year, according to the Solar Energy Industries Association.

Lashing panels to roofs during construction is about 20% cheaper than after a house is built. Homeowners who can afford the extra $10,000 to $20,000 cost in return for free power threaten the business of traditional utilities such as Edison International of California.

Power companies nationwide are losing business since they cannot reduce their rates to compete with the prices of residential solar systems. Those cost about $4.93 a watt in the first quarter, down 16 percent from a year earlier following an 18% slump in prices for solar panels and related hardware during the same period.

PG&E Corp. has said this jeopardizes their power grid because there’s less revenue to maintain the infrastructure. In California, consumers have already noted a rise in prices, and the utility companies may eventually pass on as much as $1.3billion in annual costs to customers who don’t have panels.
If you’re thinking of selling your home, having solar panels could be a positive selling point.

As Rates Fall, Loan Demand Rises Again

Realtor Mag is reporting that mortgage applications bounced back in the most recent week as interest rates fell, offering some temporary relief to borrowers.

The Mortgage Bankers Association’s index of mortgage application activity reflecting both refinancing and home purchase demand, increased 5.5 percent for the week ending Sept. 13. The previous week the index had posted an 11.2 percent gain.

Then this week, the purchase index, rose 7 percent during the week. Then, the refinancing index increased 4.9 percent. Two weeks ago, the refinancing index had dropped to its lowest level since June 2009 as mortgage rates had risen.

Market Commentary for the Week of September 23rd

 

This week brings us the release of six relevant economic reports for the bond market to digest in addition to two potentially influential Treasury auctions. Most of the reports are considered to be of moderate to fairly high importance to the markets, so they do have the potential to affect mortgage rates although I am expecting to see less volatility in the financial and mortgage markets than we saw last week.

The first release of the week is September’s Consumer Confidence Index (CCI) late Tuesday morning. This Conference Board index will be posted at 10:00 AM ET and gives us a measurement of consumer willingness to spend. It is expected to show a decline in confidence from last month’s reading, indicating that consumers were less optimistic about their own financial situations than last month, therefore, less likely to make a large purchase in the near future. This is good news for the bond market and mortgage rates because consumer spending fuels economic growth. Analysts are calling for a reading of approximately 80.0, down from August’s 81.5 reading. The smaller the reading, the better the news it is for the bond market and mortgage rates.

August’s Durable Goods Orders is the week’s most important data and will be posted early Wednesday morning. This report gives us an indication of manufacturing sector strength by tracking orders for big-ticket items at U.S. factories. Big-ticket products are items that are expected to last three or more years such as electronics and appliances. Analysts are expecting to see a small increase of 0.4% in new orders, indicating minor growth in the manufacturing sector. A sizable decline could help boost bond prices and cause mortgage rates to drop Wednesday because signs of economic weakness make longer-term securities more appealing to investors. However, a sizable increase would indicate a stronger than expected manufacturing sector and would likely help push mortgage rates higher. It is worth noting that this data is known to be quite volatile from month-to-month, so a slight or moderate change may not affect mortgage pricing.

August’s New Home Sales will be released late Wednesday morning. The Commerce Department is expected to say that sales of newly constructed homes rose last month, indicating housing sector strength. This report will likely not have a noticeable impact on mortgage rates unless its readings differ greatly from forecasts. This is the week’s least important report in terms of potential impact on mortgage rates, partly because it covers only the small portion of all homes sales that last week’s Existing Home Sales report did not.

The Treasury will sell 5-year Notes Wednesday and 7-year Notes Thursday, which will tell us if there is an appetite for medium-term securities. If investor demand in these sales is strong, particularly from international buyers, the broader bond market should move higher, pushing mortgage rates lower. But a lackluster interest from investors could lead to bond selling and higher mortgage pricing. The results of the sales will be announced at 1:00 PM ET each day, so any reaction to the results will come during afternoon trading Wednesday and Thursday.

Thursday morning has the final revision to the 2nd Quarter Gross Domestic Product (GDP). Since this data is aged now and the preliminary reading of the 3rd Quarter GDP will be released next month, I don’t see this revision having much of an impact on the financial markets or mortgage pricing. The GDP is important because it is the total sum of all goods and services produced within the U.S. and is considered the best measurement of economic activity. It is expected to show no change from the previous estimate of a 2.5% increase in the GDP. It will take a fairly large revision for this data to move mortgage rates Thursday.

Friday has two reports scheduled that may influence mortgage rates. The first is August’s Personal Income and Outlays early Friday morning. It gives us an indication of consumer ability to spend and current spending habits. This is relevant to the markets because consumer spending makes up over two-thirds of the U.S. economy. Rising income generally indicates that consumers have more money to spend, making economic growth more of a possibility. This is negative news for the bond market and mortgage rates because it raises inflation and economic growth concerns, making long-term securities such as mortgage-related bonds less attractive to investors. It is expected to show an increase of 0.4% in income and a 0.2% increase in spending. If we see weaker than expected readings, the bond market should react positively, leading to lower rates Friday.

The second report of the day is the University of Michigan’s revised Index of Consumer Sentiment for September. The preliminary reading that was released earlier this month showed a 76.8 reading. Analysts are expecting to see a small upward revision, meaning consumer confidence was slightly stronger than previously thought. As with Tuesday’s CCI release, a lower than expected reading would be good news for bonds and should help improve mortgage rates.

Overall, I don’t see an obvious choice for most important day of the week but Wednesday does have two economic reports scheduled including the most important of the six. So, let’s label it as likely to be most active although Friday does have two reports scheduled also. The least important day will probably be Monday with nothing of relevance scheduled. I suspect we will see changes in mortgage rates multiple days this week, but in small increments rather than sizable moves.

Now Is The Time To Buy Before 2014 Begins

 

In today’s blog, we’re pulling out the sledgehammer to give you a nudge if you’re on the fence: This last quarter is a great time to buy a home before 2014.

There had been concerns that the feds would tighten requirements for home loans, but that hasn’t happened yet. Many banks and credit unions have easier criteria to help some people get that home loan they’ve been wanting.

If you have good credit and some savings for a down payment, you probably can get your own home. If you stay in your home at least five years, you could profit from the sale.

Home prices aren’t at rock bottom anymore, but they are still relatively low. And they will continue to rise. The Home Price Expectation Survey projects an increase in home values over the next five years to be between 12.3% and 32.8%. If you wait longer, the house will cost more.

There is less competition from home flippers. Investors can’t move as quickly now as they used to coupled with increasing housing prices are making house flipping less attractive. That gives you more inventory. And as we also mentioned, home builders are still building new homes to also increase the inventory.

MSN Real Estate reported that builders are offering aggressive discounts with completed new homes. The nice thing about a new home is you get a warranty not only on the home, but also the appliances.

“[Builders] want to save their credit, save their brand, save their reputation and clear out inventory,” he said. “They can go buy cheap land today with that cash.”

Did we mention it’s cheaper to buy than to rent in most areas? You also get the mortgage interest deduction which isn’t going away any time soon. Plus instead of putting money into savings, you’re building up equity in your home. And you’re avoiding the cost of rising rents. How many of us have met people who had their rents increased recently because the landlords felt they could?

Interest rates aren’t at their lowest, but they are still relatively low. Unfortunately, they could start increasing again.

As reported by Freddie Mac, interest rates for 30-year fixed-rate mortgages have risen about one full percentage point over recent historic lows. 

The National Association of Realtors, the Mortgage Bankers Association, Freddie Macand Fannie Mae, in their July forecasts, have all projected 30-year-fixed mortgage interest rates to be between 4.8 and 5.1% by this time next year.

One percent could mean the difference in the amount of house you can afford.

There’s still time to get your credit in order. Talk to a reputable loan officer about what your options could be and how much you could afford. It’s still a solid investment if you’re intending on living there for a few years.

Mortgage News Roundup

 

Can you believe it’s Friday already? And did you catch the full moon the other night?

We have quite a few good stories for you today. We’ll first look at the impact of the government deciding not to taper off purchasing mortgage bonds, and then we’ll look at whether buying a home is cheaper than renting. Finally, we’ll look at the stats for underwater mortgages.

To Lock or Not To Lock. That Is The Question

CNBC posted a story on Yahoo Finance reporting that real estate stocks rallied and mortgage rates fell after the Federal Reserve announced that they will continue to buy U.S. Treasury securities and agency mortgage-backed securities which have kept mortgage rates well below what is considered an average rate for the past few years.

Many people looking to refinance or to buy a home were thrilled to have the chance to lock in at a lower rate. Economists took a bleaker view feeling that it means the housing market is not on the way to recovery yet.

But was it a good day for the housing market? What did it really say about the health of the recovery? It’s like when you were a kid, and you don’t have to go school because you are sick. Great! No school! Except you’re still sick. That is exactly what the Federal Reserve’s message was to the U.S. housing market. 

“An insipid victory for housing markets,” tweeted economist Sam Chandan. “Fed doesn’t believe rebound can be sustained absent artificially low mortgage rates.”

It’s a valid question. The increase in interest rates over the summer dramatically slowed down the housing recovery with fewer home sales and mortgage applications. Home builders noticed fewer buyers coming in to see the model homes, and their confidence index went flat in the beginning of this month.

It’s unclear if this will help the volatile interest rate market or if it will calm it down. Your best next step is to talk to a reputable loan officer to find out what is the best solution for you. They diligently research factors that impact interest rates, and have access to many mortgage packages.

Is Buying A Home Cheaper Than Renting?

In March of 2012, SFGate reported that it is cheaper to buy than to rent in 98 out of the 100 largest U.S. metro areas. The two areas where there is too tight of a supply of homes are San Francisco and Honolulu.

Why is it cheaper to buy? Housing prices have fallen more than 30% since the housing bubble peaked in 2006. And rent has increased. The average monthly apartment rents for $1,263 in the fourth quarter, the highest since 2008, according to brokerage CBRE Group Inc.

So, is that still true today?

Apparently it is. It may not be as big of a savings, though. USA Today has a video analyzing home costs versus renting. Trulia Chief Economist Jed Kolko says mortgage rates would have to climb to more than 10% nationally to tip the market in favor of renting.
His other talking points included:

• One of the big new markets will be young people living with their parents. When they get jobs, they will start looking into purchasing their first home.
• It’s still 35% cheaper to buy rather than rent.
• Housing prices are still undervalued even though they have gone up.
• Interest deduction and people stay in their homes for a long time which increases your savings over time as you’re building up equity.
• In parts of California, it’s only 4% cheaper. Location matters, so know your neighborhood.

2.5 Million Mortgage Borrowers No Longer Underwater

CNN Money reported that a sharp increase in home prices last quarter meant that 2.5 million more mortgage borrowers no longer owe more on their homes that they’re worth.

The improvement is mainly due to soaring home prices, which jumped 7% during the quarter, according to the S&P/Case-Shiller national home price index.
The trend will likely slow as the pace of home price increases starts to steady, said Mark Fleming, CoreLogics’s chief economist.

CNN Money concluded that more homes will be put up for sale now because they know they can get cash out of the deal. In addition, sellers will no longer have the hit on their credit score if they do a short sale.

Where do you see the mortgage market going in the near future?

Market Commentary for the Week of September 16th

 

This week brings us the release of five relevant economic reports that may influence mortgage rates in addition to an afternoon of FOMC events. A couple of items on this week’s calendar are considered to be highly important to the financial and mortgage markets, meaning there is a high probability of seeing significant changes to rates this week. This is especially true the middle days of the week.

August’s Industrial Production data will be posted mid-morning Monday. This report gives us a measurement of manufacturing sector strength by tracking output at U.S. factories, mines and utilities. It is considered to be moderately important but could help change mortgage rates if there is a significant difference between forecasts and the actual reading. Analysts are expecting to see a 0.5% increase from July’s level of output. A sizable increase could lead to slightly higher mortgage rates, while a weaker than expected figure would indicate a softer than thought manufacturing sector and would be considered good news for bonds and mortgage rates.

The Consumer Price Index (CPI) that will be released early Tuesday morning is one of the most important monthly reports for the bond market. It is considered to be a key indicator of inflation at the consumer level of the economy. As with its’ sister PPI report last week, there are two readings in the report- the overall index and the core data reading. Current forecasts show a 0.2% increase in the overall reading and a 0.2% rise in the core data reading. The core reading is the more important of the two because it excludes more volatile food and energy prices, leaving more reliable data for analysts to digest. A sizable increase would signal rising inflation that erodes the value of a bond’s future fixed interest payments, causing bond prices to fall, yields to rise and mortgage rates to move higher

Tuesday morning. Ideally, bond traders would like to see little change or a decline in the CPI readings.
August’s Housing Starts will start Wednesday’s activities at 8:30 AM ET. This report will probably not have much of an impact on the bond market or mortgage rates. It gives us a measurement of housing sector strength and mortgage credit demand by tracking construction starts of new homes, but is usually considered to be of low importance to the financial and mortgage markets. It is expected to show an increase in new home starts between July and August. I believe we need to see a significant surprise in this data for it to have a noticeable impact on Wednesday’s mortgage rates since what follows later in the day is much more important to the markets.

Wednesday’s Fed events start with the 2:00 PM ET adjournment of the FOMC meeting that began Tuesday. It is widely expected that Mr. Bernanke and company will not change key short-term interest rates at this meeting, but there is a great deal of speculation in the markets that they will take the first step towards winding down their bond buying program (QE3). Tapering talk has been widespread over the past several months and we have finally reached the day of reckoning for all those predictions. I would not be surprised to see a small token reduction in the monthly bond purchases, more or less to break the ice or get that first step out of the way. However, I don’t believe that economic growth has gained momentum at the rate that the Fed was expecting over the summer months, at least not enough to justify a significant reduction. They are currently buying $85 billion a month in government and mortgage-related securities.

Generally speaking, a reduction in the purchases will be negative news for the bond market and mortgage pricing. This is partly because it is mortgage-related bonds being purchased that affect mortgage rates. An announcement that they will continue to buy these bonds at the current pace should cause a bond rally and lead to lower mortgage rates. I would not be surprised to see stocks and bonds move the same direction in reaction to the Fed’s move, or lack of a move. It is my guess that a token reduction will be announced to take the first step, still maintaining the objective of the program. My estimate reduction is in the neighborhood of $5 billion or $10 billion a month. This would be an amount that gives the Fed the option to hold that level for as long as needed yet still have started the unwinding process and allows the markets to react to the fact they have started to taper.

Also worth noting is that this FOMC meeting is one that will be followed by updated economic predictions and a press conference with Fed Chairman Bernanke. Traders will be looking for any revisions to the Fed’s outlook on unemployment, GDP growth and their timetable for keeping key interest rates at current levels. The meeting will adjourn and the economic forecasts will be released at 2:00 PM ET while the press conference will start at 2:30 PM. All this will most likely lead to afternoon volatility in the markets and mortgage rates Wednesday.

Thursday has the remaining two relevant reports scheduled, both at 10:00 AM ET. The first is August’s Existing Home Sales from the National Association of Realtors. This report will give us an indication of housing sector strength by tracking home resales. It is expected to show a small decline from July’s sales, however, this data probably will be neutral towards mortgage pricing unless its results vary greatly from forecasts.

The Conference Board will post its Leading Economic Indicators (LEI) for August Thursday also. The LEI index attempts to measure economic activity over the next three to six months. It is expected to show a 0.6% increase, meaning that it is predicting moderate growth in economic activity over the next several months. A larger increase would be considered negative news for bonds and could lead to a minor increase in mortgage rates Thursday, but neither of the day’s reports is considered to be highly important.

Overall, there is little doubt that this is going to be an active week for the financial and mortgage markets. Wednesday is the key day due to the FOMC schedule and hopefully some resolution to the tapering question. Monday isn’t too concerning, but Tuesday’s data is very important to bonds and Wednesday’s afternoon trading could carry into Thursday morning also. Friday appears to be the lightest day with nothing of importance scheduled except for a couple of Fed member speeches mid-day. In other words, expect to see the most movement the middle days of the week. I would not be surprised to see a significant move in bond prices and mortgage rates this week, so it is strongly recommended to maintain contact with your mortgage professional if still floating an interest rate and closing any time in the near future.

Mortgage Lenders, Home Buyers Feel Rate Squeeze

A rise in interest rates is slamming homeowners' demand for mortgages, prompting large and midsize banks to cut jobs and warn investors of declining profitability in the home-loan business.

Wells Fargo WFC +0.79%& Co., the nation's largest mortgage company by loan value, on Monday told investors at a conference that it expects mortgage originations to drop nearly 30% in the third quarter to roughly $80 billion, down from $112 billion in the second quarter.

JPM +1.85%J.P. Morgan Chase JPM +1.85%& Co., the largest U.S. bank as measured by assets, said during the conference sponsored by Barclays BARC.LN +2.32%PLC that it expects to lose money on its mortgage-origination business in the second half of the year. On Aug. 29, Bank of America Corp., BAC +0.35%notified about 2,100 employees that they were being let go largely due to a decline in refinancing activity, said a bank spokesman.

Mortgage originations include loans for home purchases and refinancings.

Rates are rising on investor worries the Federal Reserve soon will take steps toward reducing an $85-billion-a-month bond-buying program designed to help stimulate the economy.

The average rate on a 30-year fixed-rate mortgage stood at 4.73% for the week ended Aug. 30, up from 3.60% at the end of April, according to the Mortgage Bankers Association.

Now Reporting

Track the performances of 150 companies as they report and compare their results with analysts' estimates. Sort by date and industry.

• More photos and interactive graphics

"Rate volatility is the enemy of mortgage banking," wrote Paul Miller, an analyst at FBR Capital Markets & Co. in a research report published Monday. Given the recent jump in mortgage rates, "we expect third-quarter results to be relatively weak for mortgage-centric companies."

All told, Mr. Miller expects lenders to originate $1.654 trillion of mortgages this year, down from $1.75 trillion in 2012. The decline is expected to bottom at $1.46 trillion in 2014 before rising again in 2015, according to FBR estimates.

The slowdown is the latest hurdle for the banking industry, which already is grappling with tepid loan demand from corporate borrowers and higher compliance costs as regulators crack down on a broad swath of banking practices.

The warnings come even though the U.S. housing market is posting its strongest year-over-year gains since the tail end of the real-estate boom in 2006. Many lenders had ramped up their mortgage businesses in the past two years to take advantage of a surge in refinancing activity that was spurred by historically low rates.

Ultimately, big banks should benefit as they will be able to raise interest rates on new loans. That will widen the gap between their cost of borrowing and the income they earn from lending. But that won't happen for several months, as banks work through pending applications and loans.

"We are bullish on the long term, but the short term is going to be rocky," said Mr. Miller.

Michael Kafka, a broker at New York-based Douglas Elliman Real Estate, said he has two clients who are waiting for final approval from their co-op and are concerned about closing quickly to avoid higher interest rates.

"They are nervous about their rate locks expiring before they can close," he said.

San Francisco-based Wells Fargo, which financed nearly one in four U.S. mortgages in the second quarter, has already cut 3,000 jobs in the mortgage business since July. The reductions represent roughly 1% of the bank's total workforce.

The bank will "continue to make adjustments in the current environment," said Tim Sloan, chief financial officer of Wells Fargo, during the banking-industry conference.

At J.P. Morgan, mortgage originations are on pace to drop as much as 40% from the first half of 2013, said Marianne Lake, J.P. Morgan's chief financial officer, at the conference. She attributed the decline to a drop in refinancings. She said refinance applications are down more than 60% from the peak in May 2013.

Mortgage-banking income dropped 3% at Wells Fargo and 14% at J.P. Morgan in the second quarter from a year earlier. At Bank of America, the decline was 22% from the year-ago period.

The mortgage slump also is taking a toll on smaller lenders, some of which pumped up their home-loan business to help offset a slowdown in commercial lending.

M&T Bank Corp. Chief Financial Officer Rene Jones on Monday told investors that they should brace for a "significant" decline in mortgage-banking volumes in the third quarter, noting that analyst projections for the industry have been a "little rosier than we would have expected" given the environment.

The Buffalo, N.Y., lender racked up $91.3 million in mortgage-banking revenue in the second quarter, up roughly 30% from the same period in 2012.

The slowdown is perplexing to industry veterans like Gerald Lipkin, who has been chief executive of New Jersey lender Valley National Bancorp since 1989.

Mortgage volumes are "way down" at the bank even though Valley already has switched its focus away from refinancing deals to new home loans, he said. Mortgages represent roughly 20% of Valley's loan portfolio.

Mr. Lipkin said rates are still at historically low levels despite the recent increase.

"I remember when mortgage rates were 14% and if you got a loan at 12%, everyone thought it was terrific," he said.

In a stock market that moved broadly higher Monday, Wells Fargo's shares rose 29 cents, or 0.7%, to $41.72, J.P. Morgan Chase gained 30 cents, or 0.6%, to $52.86, and Bank of America added 12 cents, or 0.8%, to $14.48.

—Dan Fitzpatrick
contributed to this article.

Market Commentary for the Week of September 9th

 

This week brings us the release of only three pieces of monthly economic data in addition to two Treasury auctions that have the potential to affect mortgage rates. Despite the low number of reports, we still will likely see a fair amount of movement in the markets and mortgage pricing due to the importance of those economic reports and the likelihood of the Syria issue being in the spotlight with congress coming back into session. The economic data is set for late in the week and the Treasury auctions will take place mid-week. It is hard to say that exactly which day a vote will come in Congress on how to respond to what happened in Syria, but we can expect it to be in the forefront of the news media and on traders’ minds.

There is nothing of relevance scheduled to be posted or announced Monday, Tuesday or Wednesday morning with possible exception to news out of Washington regarding the Congressional proceedings. In the absence of anything on the schedule, look for the stock markets to affect bond trading and mortgage pricing early this week. As long as no major news or events transpire, stock strength will probably lead to bond weakness and higher mortgage rates. If the major stock indexes fall from current levels, bond prices should rise, pushing mortgage rates lower.

There are two Treasury auctions this week that have the potential to influence mortgage rates. The first is Wednesday’s 10-year Treasury Note auction, which will be followed by a 30-year Bond auction Thursday. It is fairly common to see some weakness in bonds before these sales as investors prepare for them. If the sales are met with a decent demand from investors, indicating that interest in longer-term securities such as mortgage-related bonds is strengthening, the earlier losses are usually recovered after the results are announced. The results of each sale will be posted at 1:00 PM ET of auction day. If demand was strong, particularly from international investors, we should see mortgage rates improve during afternoon trading Wednesday and Thursday. However, weak levels of interest could lead to broader selling in the bond market that could push mortgage rates higher.

Friday morning has all three pieces of economic data scheduled with two of them considered to be major releases. Those highly important reports are August’s Retail Sales and Producer Price Index (PPI), both of which will be posted at 8:30 AM Friday. The sales report from the Commerce Department will give us a very important measurement of consumer spending, which is extremely relevant to the markets because it makes up over two-thirds of the U.S. economy. Current forecasts are calling for a 0.4% increase in sales. Analysts are also calling for a 0.3% rise in sales if more volatile auto transactions are excluded. Larger than expected increases would be considered bad news for bonds and likely lead to an increase in mortgage pricing since it would indicate economic growth.

The Labor Department will post August’s Producer Price Index (PPI), giving us an important measurement of inflationary pressures at the producer level of the economy. There are two readings that analysts follow in this release. They are the overall index and the core data reading. The core data is the more important of the two since it excludes more volatile food and energy prices. Analysts are predicting a 0.2% increase in the overall index and a rise of 0.1% in the core data. Stronger than expected readings could fuel inflation concerns in the bond market. That would be bad news for bonds and mortgage rates because inflation is the number one nemesis of the bond market as it erodes the value of a bond’s future fixed interest payments. As inflation becomes more of a concern in the markets, bonds become less appealing to investors, leading to falling prices, rising yields and higher mortgage rates.

The last release of the week will be posted by the University of Michigan late Friday morning. Their Index of Consumer Sentiment will give us an indication of consumer confidence, which projects consumer willingness to spend. If a consumer’s confidence in their own financial situation is rising, they are more apt to make large purchases in the near future. But, if they are growing more concerned about their job security or finances, they probably will delay making that large purchase. This influences future consumer spending data and therefore, impacts the financial markets. It is expected to show a reading of 82.0 that would mean confidence was nearly unchanged from August’s level of 82.1. That would be considered slightly favorable news for bonds and mortgage rates. Good news for mortgage shoppers would be a sizable decline in the index.

Overall, Friday is the best candidate to be labeled most important day with all of the week’s economic data scheduled, but we could see noticeable movement in rates multiple days. It is unlikely that we will get a vote in Congress on Syria during business hours Monday, so with nothing else scheduled for release it looks to be the least important day of the week. The Treasury auctions raise the possibility of afternoon volatility in the middle part, although I would not be surprised to see afternoon changes to mortgage pricing other days also. With the FOMC meeting looming next week, any surprises this week will affect theories about what the Fed will do regarding their current bond buying program and lead to noticeable changes in the markets. Therefore, if still floating an interest rate and closing in the near future, I strongly recommend maintaining contact with your mortgage professional the entire week.

Mortgage News Roundup

 

There’s quite a lot of interesting news out this week. Mortgage rates are going up, and the rates for “Jumbo” mortgages have dropped below regular interest rates. Mortgage applications are increasing and home prices are slowly stabilizing.

Home Prices Surging

CNN is reporting that while home prices are soaring 12.1% over the last year, the pace of the gains are slowing down which is moving us towards more stable housing prices. They suspected the increasing mortgage interest rates may be the cause.

June marked the first time in over a year that the overall increase has been smaller than the month before. S&P/Case-Shiller home price index monitors 20 major metro areas. Six cities in June saw price increases larger than the month before, down from 10 cities in May.

Record-low rates, a lack of new homes on the market and years of pent up demand have been the driving forces behind the recent home price spike, according to Erik Johnson, senior U.S. economist at IHS Global Insight.

Mortgage Rates Near Highest This Year

The Washington Business Journal analyzed the rising interest rates. They were starting to decrease last week and did a reverse to start their increase again.

Freddie Mac says a 30-year fixed-rate mortgage averaged 4.57 percent in the week ending Sept. 5, up from 4.51 percent last week. A year ago, 30-year mortgages were averaging 3.55 percent.
A 15-year fixed averaged 3.59 percent this week, up from 3.54 percent last week. A one-year adjustable-rate mortgage rose to 2.71 percent this week.
“Mortgage rates edged up this week on signs of a stronger economic recovery,” said Freddie Mac (OTC: FMCC) chief economist Frank Nothaft.

Mortgage Applications Rise As Rates Dip

As is typical of economic reports, USA Today is reporting that interest rates are decreasing, and there has been another increase in the number of mortgage applications.

Mortgage applications increased 1.3% last week reported the Mortgage Bankers Association. This number was seasonally adjusted for the week ending August 3rd as the interest rate on 30-year fixed mortgages fell to 4.73%, from a 2013 high of 4.80% the prior week.

The gains were primarily from refinancing rather than new mortgages. The refinance index increased from 60% to 61%.

The real estate rebound has been driven by Federal Reserve policy that includes $85 billion in monthly purchases of mortgage-backed bonds and U.S. government bonds in an effort to keep borrowing rates low. Interest rates have started creeping up with the rumors that the feds may ease up the purchasing of mortgage-backed bonds.

‘Jumbo’ Mortgage Rates Fall Below Traditional Ones

The Wall Street Journal Online is reporting that “jumbo” mortgage rates have done something that they’ve never done before: gone below regular interest rates.

Interest rates on mortgages for pricey homes have dropped below those on smaller mortgages, an event that lending executives say has never happened before.
Borrowing rates for so-called jumbo mortgages, which are too big for government backing, historically have been set higher than rates on what are known as conforming loans, which are backed by Fannie Mae, Freddie Mac or government agencies.
But in the past two weeks, the relationship has flipped, a combination of interest-rate volatility, government policy and banks flush with cash that are enjoying lower funding costs, making jumbo mortgages an attractive investment for them.

Jumbo mortgages are those that exceed the $417,000 limit for loans eligible for backing by mortgage companies. However, there are some metro areas such as Los Angeles where that limit is as high as $625,500.

The current interest-rate volatility has driven up yields on mortgage bonds issued by Fannie and Freddie as investors anticipate the slowdown in the Federal Reserve’s bond-buying program. This has boosted rates on regular loans.

Jumbo mortgages, on the other hand, are increasingly kept on banks’ balance sheets, and are fairly immune from the bond markets.

If you have any questions about loans and interest rates, contact your reputable loan officer who will know the latest on the economic factors and how it affects interest rates. They’ll also be able to discuss what mortgage packages are best for your situation.

Market Commentary for the Week of September 3rd

 

This week brings us the release of six pieces of economic data, with two of them considered to be highly important to the markets and mortgage rates. Adding to the significance of these reports is the fact that they will be the last versions before the FOMC meeting later this month that many believe will bring a reduction in the Fed’s current bond-buying program. The financial and mortgage markets will be closed today in observance of the
Labor Day holiday, meaning we will not see new mortgage rates until Tuesday morning.

The first release of the week will come from the Institute for Supply Management (ISM), who will post their manufacturing index for August at 10:00 AM ET Tuesday. This index measures manufacturer sentiment and is expected to show a reading of 53.6, which would be a decline from July’s reading of 55.4. A reading below 50 is considered a recessionary sign because it means that more surveyed manufacturers felt business worsened during the month than those who felt it had improved. A larger decline in the index would likely cause selling in the stock markets and lead to an improvement in mortgage rates Tuesday as it would hint at manufacturing sector weakness.

July’s Goods and Services Trade Balance data will be posted early Wednesday morning, giving us the size of the U.S. trade deficit. It is expected to show a deficit of approximately $38.2 billion, which would be an increase from June’s $34.2 billion. However, I would consider this the least important of this week’s events, meaning it will likely have little impact on Wednesday’s bond trading or mortgage rates unless it varies greatly from forecasts.

The Federal Reserve will release its Beige Book report at 2:00 PM ET Wednesday. This report details current economic conditions in the U.S. by Federal Reserve regions. It is believed to be a key source of data when the Fed meets for their FOMC meetings and is usually released approximately two weeks prior to each meeting. If it reveals any significant surprises or changes from the previous release, we may see movement in the markets and mortgage pricing as analysts adjust their theories on the Fed’s next move when they meet September 17-18.

Thursday has two monthly or quarterly releases, but neither is considered to be highly important. The first is the revised 2nd Quarter Productivity numbers, which measures employee productivity in the workplace. Strong levels of productivity allow the economy to expand without inflation concerns. It is expected to show an upward change from the previous estimate of a 0.9% increase. Forecasts are currently calling for a 0.6% upward revision, meaning productivity was better than previously thought from April through June. This would technically be good news for the bond market and mortgage rates, but this data is considered to be only moderately important to the markets. Therefore, it will take a sizable variance from forecasts for this report to affect mortgage rates. Favorable news would be a sizable increase in productivity.

The second report of the day Thursday will come from the Commerce Department, who will post August’s Factory Orders data at 10:00 AM ET. This manufacturing sector report is similar to last week’s Durable Goods Orders release, but also includes orders for non-durable goods. It can impact the bond market enough to change mortgage rates if it varies from forecasts by a wide margin. Analysts are forecasting a decline of 3.7% in new orders, meaning manufacturing activity slowed considerably in August. This would be good news for the bond market and mortgage pricing, but I believe we will need to see a much larger decline for this report to create a noticeable improvement in rates.

The biggest news of the week and arguably the most important that we see monthly comes early Friday morning. The Labor Department will post the unemployment rate, number of new jobs added or lost and average hourly earnings for August at 8:30 AM ET Friday. The ideal scenario for the bond market and mortgage rates is rising unemployment, a drop in payrolls and earnings to fall slightly. Analysts are expecting to see that the unemployment rate remained at 7.4% and that 180,000 jobs were added during the month. Weaker than expected readings would signal softer employment sector growth than predicted and would be very good news for bonds and mortgage rates Friday. However, if we get noticeably stronger than expected numbers, mortgage rates will probably spike higher Friday.

The monthly employment report will take on even more significance this month than it usually does, which seems difficult to believe is even possible. But this is the last major employment sector reading before the next FOMC meeting and the Fed has partly targeted their tapering plans to growth in employment. If Friday’s report shows stronger than expected employment numbers, it may be enough for the Fed to take the first step in winding down their current bond buying program. On the other hand, unexpected weakness in the numbers could cause them to delay the tapering that many are expecting. So, besides just an employment sector reading, this month’s numbers will also help us predict the Fed’s move less than two weeks later. This doesn’t alter our wishes though regarding its results. Weaker numbers indicate economic weakness and raises the possibility of the Fed delaying their move, both of which are good news for the bond market and mortgage rates.

Overall, this is likely to be a highly active week for the financial markets and mortgage pricing. Friday is the key day with the Employment report but Tuesday could also be one of the more active days due to the ISM report that follows a three-day weekend. We also need to watch the Syria crisis as it could cause ripples in the world markets and here. Since Congress isn’t scheduled to be back in session to take up the matter until the following week, it may not have much of an impact on this week’s trading. However, if they do come back to session this week to address it, the markets will be focused on it also. Therefore, with so much scheduled and the potential for even more, I strongly recommend maintaining contact with your mortgage professional if still floating an interest rate and closing in the near future.