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Apache is functioning normally

The bond market–which dictates interest rates–had a generally favorable response to yesterday’s update from the Federal Reserve.  While the Fed didn’t cut rates, and while they’re increasingly acknowledging that rate cuts are moving farther into the future, they still think data will evolve in a way that results in the next move being a cut as opposed to a hike.

Positive momentum continued today, in spite of several economic reports that argued the opposite case.  Had these reports been top tier market movers, the counterintuitive victory would have been highly unlikely.

Friday is a different sort of day in terms of economic data.  The big monthly jobs report is in a league of its own when it comes to labor market data, and while it may not currently be the most important report on any given month, it’s a consistent 2nd place behind CPI.  After the jobs report, we’ll get a strong 2nd tier contender in the form of ISM’s service sector index.  

These two reports have the power to accelerate or reverse the friendly tone seen in rates over the past 2 days.  As for today, the average lender inched just barely to the lowest levels since April 12th.  This wasn’t the case in the first half of the day, but as bonds improved, many lenders were able to issue mid-day reprices. 

Source: mortgagenewsdaily.com

Apache is functioning normally

Higher interest rates are increasing pressure on homebuyers who are already facing a challenging housing market. Many would-be buyers are understandably putting purchasing plans on hold, but there are no signs mortgage rates will drop significantly in the near future, and there are some sensible steps to take if you want to become a homeowner soon.

Mortgage rates surged past 7% for the first time this year on April 18 and continued to climb last week. According to Freddie Mac’s benchmark survey, the rate on a 30-year, fixed-rate loan is averaging 7.17% — more than half a percentage point higher than at the start of the year. And the upward trend may not be over.

Len Kiefer, Freddie Mac’s deputy chief economist, says it’s hard to predict just how much higher rates could rise, given the volatility in the market. A lot depends on data regarding inflation, which is proving to be stickier than everyone hoped for, and market expectations as to when the Federal Reserve will start cutting short-term interest rates.

“Given the current [economic] trajectory we’re on, it’s looking like there’s still some upward momentum,” Kiefer says. “In the very near term, we’ll probably see these rates be at the current level or a little bit higher.”

How much higher could mortgage rates go?

Most early-year forecasts predicted that mortgage rates would start moving in a slow downward trend throughout the year. While those outlooks seemed to be on the money during the first two months of the year, the opposite has been true in recent months.

According to Bob Smith, head of real estate for Advisor Credit Exchange, for at least the remainder of the year, “Rates are going to be bounded in a range . . . probably in the 6%s, low 7%s.”

It’s unclear when inflation will finally be under control, meaning mortgage rates will probably remain volatile for a while before settling down.

In the long term, Kiefer and Smith see inflationary pressures easing later this year. That should help nudge mortgage rates lower — just “not as much as we had thought,” Kiefer says.

Impact on homebuyers, sellers and the housing market

High mortgage rates are hitting buyers right in the middle of the spring buying season. According to Freddie Mac, about 36% of all home sales take place between March and June, making these months the busiest time in the housing market.

Elevated mortgage rates, combined with high home prices and a lack of enough inventory to meet buyer demand, have led to record-high monthly payments. Homeowners insurance costs are at all-time highs as well, up 20% in the past year. These factors are pushing many would-be buyers to put their plans on hold. According to a report by BMO Financial Group, 71% of would-be homebuyers are waiting for rates to drop before buying a house.

Potential home sellers are also feeling the crunch, especially those who bought when rates were much lower. The cost of obtaining a new mortgage at a higher rate is keeping owners locked into their homes.

Despite the challenges, buyers shouldn’t panic. “Rates are, for a large part, temporary. At some point, [they] will go down,” says Scott Bridges, chief CDL production officer at lender Pennymac.

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How buyers can cope with high mortgage rates

Instead of worrying about things that are out of your control, it’s best to focus on the fundamentals of homebuying to see if purchasing a home right now is the right move (regardless of the rate). Here’s what you can do:

Take care of your credit score.

Check your credit score and try to improve it while you’re shopping for a home. Buyers with better credit generally have access to lower mortgage rates. On the other hand, taking on extra debt during this time will reduce your score as well as your debt-to-income ratio, which will cause lenders to offer a higher interest rate on a mortgage. “When rates are higher, every bit of debt counts,” says Bridges.

Be prepared to negotiate.

Higher mortgage rates could move some buyers out of the market, which means more opportunities and less competition for those who can afford to buy. Don’t be afraid to lowball a little bit. With fewer buyers, you may be able to negotiate a lower price or concessions with a motivated seller.

Cast a wider net to find a home.

Ideally, you’ll find a move-in ready home that fits your budget. The reality is that homes requiring little to no work attract a lot of attention and you may find yourself in a bidding war. Don’t be afraid to look for homes that may need some TLC. The asking price is likely more negotiable, and you may find you can use the money you save to fix up the home to your taste.

Know how much house you can afford.

Set a budget you’re comfortable with. Use a housing affordability calculator to get an estimate of how much you can pay towards a home purchase. You can also get loan estimates from several different lenders to find the best rates and loan terms. And remember, the maximum amount a lender is willing to lend isn’t necessarily what you should spend on a home. Set a lower budget if it makes better financial sense or if you want to have some wiggle room if you have to compete against other buyers.

Don’t rush.

A house is likely the most amount of money you’ll ever spend. Bridges says that homebuyers typically make mistakes when they rush the process. Take the time to inspect the property and ask to see a home appraisal. Make sure it’s the right fit for your needs at the right price for you.

“Try to do things patiently,” says Bridges. “Don’t overpay, and don’t panic.”

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Source: money.com

Apache is functioning normally

Bonds Hold On to NFP-Driven Gains Despite Some Push-Back

By:
Matthew Graham

Fri, May 3 2024, 5:18 PM

Bonds Hold On to NFP-Driven Gains Despite Some Push-Back

Whether you view it as a perfectly logical reaction to NFP coming in at 175k vs 243k or a bit too much of a rally relative to the motivation, no one could argue that bond yields were destined to drop after seeing this morning’s jobs report.  But employment data is only worth so much these days.  The main event continues to be inflation and we were reminded of that with the 10am ISM Services data.  The ISM headline was actually rate friendly, but the inflation component was the bigger mover, and it was not friendly.  Bonds lost almost all of their post-NFP gains in response, but managed to level off in the PM hours.  Combined with the 2 previous days of green, the net effect is the best closing levels since April 9th.

    • Nonfarm Payrolls
      • 175k vs 243k f’cast, 315k prev
    • Unemployment Rate
      • 3.9 vs 3.8 f’cast/prev
    • Wages
      • 0.2 vs 0.3 f’cast, 0.3 prev
    • ISM Non Manufacturing
      • 49.4 vs 52.0 f’cast, 51.4 prev
    • ISM Prices
      • 59.2 vs 55.0 f’cast, 53.4 prev

08:43 AM

Modestly stronger overnight with additional gains after NFP data.  10yr down 8bps at 4.50, and MBS up 3/8ths

10:15 AM

losing some ground after ISM.  MBS still up 11 ticks (.34) and 10yr down 5.3bps at 4.526

02:16 PM

gradually bouncing back and now sideways in the middle of the post-NFP range.  MBS up 3/8ths.  10yr down 7.3bps at 4.507

04:49 PM

Very flat since noon with MBS up 11 ticks (.34) and 10yr yields down 8bps at 4.499.

 Download our mobile app to get alerts for MBS Commentary and streaming MBS and Treasury prices.

Source: mortgagenewsdaily.com

Apache is functioning normally

Rates have been in retreat as bond market investors who fund most mortgage loans react to the latest economic news and scaleback in tightening by Fed policymakers.

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Mortgage rates retreated for the third day in a row Friday as the latest numbers from the Labor Department showed employers added fewer jobs than expected in April, pushing unemployment closer to 4 percent, a level not seen in more than two years.

The U.S. economy added 175,000 jobs in April, down from 315,000 in March and the most anemic growth since October 2023. Economists had expected April employment growth of 240,000 jobs.

The report came on the heels of Wednesday’s announcement by Federal Reserve policymakers that they intend to slow the pace of “quantitative tightening” — an unwinding of the central bank’s $7 trillion balance sheet — to $40 billion a month, less than half the pace envisioned two years ago.

Job growth cooled in April

Change in employment, by month. Red bars are the latest forecast, including revisions to previous estimates for February and March. Source: U.S. Bureau of Labor Statistics.

“This report is nothing like bad enough to trigger a wholesale rethink at the Fed, but things will be different if the July numbers are weaker still, as we expect,” economists at Pantheon Macroeconomics said in a note to clients. “The downshift in payroll growth has come exactly when the [National Federation of Independent Business] suggested it would, and the signal for the future is unambiguous.”

Futures markets tracked by the CME FedWatch Tool last week predicted that the odds were against the Fed making more than one 25-basis point rate cut this year. On Friday, investors had repositioned their bets in line with expectations that there’s a 61 percent chance of two or more Fed rate cuts by the end of the year, with the first move now expected in September rather than December.

Pantheon economists are sticking to their forecast that the central bank will bring the federal funds rate down by a full percentage point, starting in September.

“Businesses — especially small firms — are responding to the lagged effect of the huge increase in interest rates and the tightening in lending standards, which have made working capital much more expensive and harder to obtain,” Pantheon economists said. “At the margin, this is depressing hiring and lowering the bar to layoffs.”

Unemployment, which dipped below 4 percent in February 2022, is once again flirting with that level, hitting 3.9 percent in April, up half a percentage point from a year ago.

The Fed doesn’t have direct control over long-term rates, but bond market investors who fund most mortgage loans are reacting to this week’s news.

10-year Treasury yields down 25 basis points

Yields on 10-year Treasurys, which often predict trends in mortgage rates, fell 7 basis points Friday to 4.50 percent, a 25-basis point drop from the 2024 high of 4.75 percent registered on April 25.

Surveys of lenders by Mortgage News Daily showed rates for 30-year fixed-rate loans dropping for a third day in a row Friday, to 7.28 percent, down 24 basis points from a 2024 high of 7.52 percent, also registered on April 25.

Mortgage rates retreat from 2024 highs

Data tracked by Optimal Blue, which lags by one day, showed borrowers were locking in rates on 30-year fixed-rate mortgages Thursday at an average rate of 7.21 percent, down 6 basis points from the 2024 high of 7.27 percent recorded on April 25.

Borrowers taking out jumbo loans have seen spreads over conventional mortgages widen as higher interest rates and defaults on commercial loans weigh on regional banks that are often the source of those loans.

The rates published by Mortgage News Daily (MND) are higher than those reported by Optimal Blue because MND’s rate index is adjusted to account for points that borrowers often pay to get a lower rate. Optimal Blue uses actual rates provided to borrowers for rate locks, whether they paid points or not.

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Source: inman.com

Apache is functioning normally

On most months in modern economic memory, a gain of 175k payrolls would be welcome news for the labor market.  Depending on the context, it still is.  But in today’s case, it’s much lower than the market expected and not a high enough number to justify the 4.6+ 10yr yields seen yesterday.  Bonds rallied instantly when the news printed, but one rate-friendly jobs report is only a fine tuning adjustment to a rate environment dominated by inflation concerns.

Evidence of inflation concerns was available in real time today following the ISM Services data.  The headline was weaker, which would normally be good for bonds.  But the price component was quite a bit higher, which was enough for the bond market to react negatively.  

Despite the push-back, bonds remain in much stronger territory and have now mad solid gains 3 days in a row.  Yields are back in line with the afternoon of the last CPI day on April 10th.

Source: mortgagenewsdaily.com

Apache is functioning normally

While mortgage rates remain higher than they were during the housing market’s booming pandemic years, Moody’s Ratings has predicted them to finally start declining over the next few years in a new report.

Exactly a week ago, the Federal Home Loan Mortgage Corporation, better known as Freddie Mac, reported that the average rate for a 30-year-fixed mortgage—the most popular among U.S. borrowers—had reached 7.1 percent, a record high for this year so far.

Read more: How to Find the Right Mortgage for You

Moody’s Ratings’ experts believe mortgage rates will come down—just not as quickly as homebuyers might wish for. The financial research company is currently estimating that mortgage rates will remain higher “than the extremely low levels during the decade of aggressive central bank stimulus that preceded the past two years” in the coming months, but will likely reach around 6 percent or somewhat less by the end of 2025.

This is good news for aspiring homebuyers who have been squeezed out of the market by skyrocketing home prices and high mortgage rates, which climbed as a direct consequence of the Federal Reserve’s aggressive rate-hiking campaign to combat the rise of inflation last year.

An aerial view shows a subdivision that has replaced the once rural landscape on July 19, 2023 in Hawthorn Woods, Illinois. Mortgage rates are likely to come down to 6% by next year, Moody’s Ratings…
An aerial view shows a subdivision that has replaced the once rural landscape on July 19, 2023 in Hawthorn Woods, Illinois. Mortgage rates are likely to come down to 6% by next year, Moody’s Ratings experts predict.

Scott Olson/Getty Images

While most analysts expect the central bank to lower interest rates this year, the Federal Reserve has so far failed to do so, as the latest data on the cost of living show that inflation remains higher than expected at 3.48 percent in March. The Federal Reserve does not directly set mortgage rates, but any rise in interest rates impacts new mortgage lending.

Read more: Compare Low Rates With the Best Mortgage Lenders

Higher mortgage rates led to a drop in demand in late summer 2022 due to the unaffordability of buying a home for many Americans; but the price correction that followed this slide in demand was rather modest. In spring 2023, prices started climbing back up across the country, as the supply of homes remained low.

While the historic shortage of homes in the U.S. can primarily be traced back to the fact that the country has under-built following the bursting of the housing bubble and the financial crisis of 2007-2008, high mortgage rates have also caused many homeowners to hold on to their homes instead of putting them on the market.

“Many U.S. homeowners have low fixed-rate mortgages that they are reticent to give up, which is constraining existing property listings and sales,” Moody’s wrote in the report.

Faced with a growing demand for new constructions and mortgage interest rate buydowns, the company’s experts expect home prices to avoid significant decline in the coming months, sliding by a moderate 5 percent this year after falling 6.6 percent in 2023.

Uncommon Knowledge

Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.

Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.

Source: newsweek.com

Apache is functioning normally

Decent Data and Palatable Powell

By:
Matthew Graham

Wed, May 1 2024, 4:49 PM

Decent Data and Palatable Powell

Bonds managed modest to moderate gains after digesting all of the morning’s economic data and events.  None of the reports were too exciting and one might conclude that traders were slightly more interested in buying bonds regardless of the data.  Yields flat-lined in stronger territory ahead of the Fed.  The announcement itself was largely as-expected.  The same could be said of the press conference, but with the qualification that Powell definitely stopped short of expressing as much concern about inflation as the recent data justified.  Rate cuts aren’t likely any time soon, but the next move is still seen as much more likely to be a cut rather than a hike.  Markets also appreciated Powell’s reiteration that the Fed wouldn’t hesitate to do what it needed to do based on the data/economy without considering political implications.

    • ADP Employment 
      • 192k vs 175k f’cast, 208k prev
    • TSY refunding announcement
      • increases in shorter part of the curve
      • no increases in 10yr and up
      • small buyback announced
    • S&P Manufacturing PMI
      • 50.0 vs 49.9 f’cast, 51.9 prev
    • ISM Manufacturing
      • 49.2 vs 50.0 f’cast, 50.3 prev
    • ISM Prices
      • 60.9 vs 55.0 f’cast, 55.8 prev

08:59 AM

unchanged overnight and modestly stronger after ADP/Treasury.  MBS up an eighth.  10yr down 2.3bps at 4.66

09:46 AM

Slightly stronger leading up to S&P PMI.  No reaction afterward.  MBS up 7 ticks (.22).  10yr down 3.2bps at 4.65

10:05 AM

No major reaction to 10am data. 10yr yields are down 4bps at 4.643 and MBS are up nearly a quarter point.

02:18 PM

Modestly stronger after Fed.  10yr down 4.2bps at 4.462.  MBS up a quarter point

02:47 PM

Additional gains as Powell press conference continues.  MBS up half a point.  10yr down 10bps at 4.587

 Download our mobile app to get alerts for MBS Commentary and streaming MBS and Treasury prices.

Source: mortgagenewsdaily.com

Apache is functioning normally

Mortgage rates have climbed five weeks in a row and are now at their highest levels since the week before Thanksgiving.

The average rate on the 30-year fixed-rate mortgage rose to 7.32% in the week ending May 2, according to rates provided to NerdWallet by Zillow. It was an increase of nine basis points over the previous week. (A basis point is one one-hundredth of a percentage point.) It marked the highest level since mid-November.

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Source: caledonianrecord.com

Apache is functioning normally

Mortgage rates rose for the fifth consecutive week, but so far it has had limited influence on this year’s spring home purchase season, Freddie Mac commented.

The 30-year fixed rate mortgage increased by 5 basis points this week to 7.22%, tying a level last seen at the end of November, the Freddie Mac Primary Mortgage Market Survey found.

For April 25, the 30-year FRM was at 7.17%, while for the same week in 2023, it averaged 6.39%.

For the 15-year FRM, the average rose three basis points, to 6.47%, from 6.44% and a year ago at this time, the 15-year it averaged 5.76%.

“With two months left of this historically busy period, potential homebuyers will likely not see relief from rising rates anytime soon,” Sam Khater, Freddie Mac’s chief economist, said in a press release. “However, many seem to have acclimated to these higher rates, as demonstrated by the recently released pending home sales data coming in at the highest level in a year.”

According to LenderPrice data posted late morning on Thursday on the National Mortgage News website, the 30-year FRM was at 7.36%, nearly 10 basis points lower than it was at the same time last week, 7.457%.

One of the elements in pricing mortgages, the 10-year Treasury yield, has remained elevated, even though it was down from one week ago, when on April 25, it peaked at 4.74%. By April 29, it closed at 4.61%.

This reflects market conditions following the Federal Open Market Committee’s decision at its April/May meeting not to change short-term rates. Investors, who once thought a June cut was likely, have backed off that position.

Rates are likely to remain in the 7% range in the future, said Richard Martin, director, real estate lending solutions for analytics firm Curinos, which also tracks mortgage rate data. He added that while he expects rates to fall a bit by the end of the year, he is a little more bearish than Fannie Mae’s latest outlook.

In terms of the impact on mortgage rates, the Fed’s decision was anticipated and already priced in.

“I like to characterize it as no one predicted the level and pace of increases no one’s going to predict the level and paces of decreases,” Martin said. If the FOMC was to cut rates, it would likely be closer to the end of the year.

On April 30, the first day of the FOMC meeting, the yield moved higher again, by a little over 7 basis points to just shy of 4.68%. However, the next day, it went down to 4.60%.

As of mid-morning on Thursday, the 10-year yield was almost 4 basis points higher.

Where mortgage rates currently are makes the environment tough for mortgage originators and title underwriters, but is good for companies that are “servicing-heavy,” said Bose George in a commentary issued after the FOMC meeting.

“Despite the headwinds around mortgage volumes, stable home price appreciation should remain a positive for mortgage credit,” George said.

Martin expects rates to hold in the current range, as does Redfin’s economic research lead Chen Zhao.

“The Fed meeting is unlikely to push mortgage rates down — but the good news is that it won’t push them up, either, which could have happened if the Fed took 2024 rate cuts off the table,” Zhao said in a press release. “Even though housing costs shouldn’t climb much more, they will remain elevated for the foreseeable future, which could push more buyers away.”

Martin is leaning towards a mild recession occurring in the future, noting the U.S. economy is not yet out of the woods.

The 10-year Treasury is just one influence on mortgage pricing; the other is the primary-secondary market spreads related to securitization activity.

Federal Reserve Chairman Jerome Powell noted that the Fed will reinvest any proceeds from mortgage-backed securities run-off over $35 billion into Treasuries. That translates into lower purchase activity

“While this is in line with market expectations, we think this will continue to be negative technical for agency MBS,” George said.

It is not just those spreads that could influence pricing, Martin said, noting the record per-loan production losses originators suffered last year.

Homebuyers are still suffering from interest rate shock, said Jeremy Sicklick, CEO of real estate firm HouseCanary. “With mortgage rates creeping over 7%, many buyers and sellers alike seem to be holding out for rate cuts in the months ahead before jumping into the housing market,” Sicklick said in a press release.

HouseCanary data found the median price of all single-family listings rose 3.2% over a year ago, while closed listings rose 8%.

“With high mortgage rates and surging home prices tamping down market activity, we expect to see a subdued spring buying season continue throughout May, despite inventory increases,” Sicklick declared.

But besides higher rates, the problems around inventory and affordability remain.

“I think we’ve got to solve for those in concert,” Martin said. “Lower rates will help but I don’t think it’s enough to really materially move that needle.”

Source: nationalmortgagenews.com

Apache is functioning normally

A mortgage rate is highly subjective and can vary for a variety of reasons.  A news story that provides an outright level like 7.5% requires context and qualification.  Some online advertisements (especially among builders) could still be showing rates in the high 6’s.  Some borrowers will be seeing rates of 7.625 or higher. 

Loans with less than 25% down will have higher and higher costs, either in terms of upfront closing costs or the rate itself.  Investment properties incur significant extra costs as do lower credit scores (you start getting hit for anything under 780 in many cases these days).  

These are just a few considerations to illustrate the point that a 30yr fixed rate isn’t necessarily apples to apples. Fortunately, we can control for most of the variables by only ever looking at the same scenario, free from most of the subjective adjustments.  We can also control for the practice of advertising lower rates by quoting them with implied discount points (extra upfront cost that goes toward “buying down” the prevailing rate). That’s one of the reasons the MND index is higher than Freddie Mac’s weekly survey.

All that to say, 7.5%+ might not be the exact rate you see today, but after adjusting for everything we can control, that’s the most prevalently quoted top tier conventional 30yr fixed rate again today.  It’s the 3rd time we’ve seen 7.5 in the past 2 weeks.

Today’s increase followed the release or the Employment Cost Index–one of the economic reports the Fed watches closely in determining rate policy.  In not so many words, it suggested higher momentum in price pressures than previously expected.  This wasn’t necessarily out of line with any of the other recent inflation-related reports, but the confirmation was worth a bit of extra weakness in rates nonetheless.

Speaking of Fed rate policy, we’ll get the latest Fed announcement tomorrow.  There’s zero chance of a cut (or a hike), but the Q&A portion is always worth some potential volatility in the afternoon.  

Source: mortgagenewsdaily.com