Rates ended even last week at record lows: 30yr single family home loans to $417k closed at 3.75%. Here are Friday’s rates for all loan tiers.
Rates held lows on weaker U.S. retail sales and jobs data, and S&P’s broad EU credit downgrades.
The downgrades now raise a new issue: the possible downgrade and reduction in size of the EFSF, EU’s bailout fund. Also Greece will resume trying to get Greek bond investors to agree on losses this week. Those talks stalled last week.
Plus there’s lots of 4Q earnings and key housing data next week. Here I preview each item.
As for stocks, the S&P 500 closed last week at at 1289, up .86% on the week and well above its 200-day moving average of 1259. While this is slightly overbought territory, the 200 DMA and the 50 DMA at 1244 both provide some downside support if earnings disappoint and the EU situation, especially Greece, grows more dire this week.
Looking at mortgage bonds (MBS), the 3.5% Fannie Mae coupon—a key benchmark lenders use to price consumer rates—rose 11 basis points last week to close at 103.20.
Rates drop when bond prices rise, but this isn’t enough of a rise for lenders to adjust consumer rates down, which is why rates held.
Another reason for lender hesitation is that MBS closed last week a hair below record highs set in September when the Fed renewed their low rate commitment by saying they’d keep buying MBS.
MBS are a comfortable 62 basis points above their 25-day moving average, and have several layers of support below that at the 50, 100, and 200 day moving averages.
These MBS technical signals continue to suggest rates will hold in their current record low range or .125% higher near-term.
People in contract to buy homes must lock rates in order to stay on target with loan approvals and closing, but refinancers have two choices: (1) hold for better, or (2) lock record lows now.
Option two is advisable since mortgage bonds are now at record levels. Even if they rise a bit, lenders are still unlikely to lower rates. We’d need MBS prices to spike for that to happen.
With EU problems driving our rates down for so long, it’s easy to get complacent, but if U.S. economic data improves next week and beyond, MBS can reverse quickly.
Remember, rates change all day everyday as mortgages trade, so the best thing to do is give your mortgage lender a rate target you can’t or won’t go above and give them a standing order to lock it when it comes.
Economic Data Roundup:
–Recap Last Week, Preview Next Week