March 3, 2012

WeeklyBasis 3/3: Upward Rate Bias

March 3, 2012

WeeklyBasis 3/3: Upward Rate Bias

Rates were up .125% last week: 30yr single family home loans to $417k closed at 3.875%. Here are Friday’s rates for all loan tiers.

Rates actually rose .25% Wednesday/Thursday as Greece concerns died down temporarily, and markets liked the trends: stronger pending home sales, decreasing jobless claims, low inflation, and steady manufacturing. But rates improved a bit Friday as mortgage bonds (MBS) rallied.

Rates drop when bond prices rise, and Friday’s rally was partly from Spain debt worries and partly because of trading patterns, aka technicals.

Just like stock markets have benchmark indicators like the Dow and S&P 500, mortgage lenders follow certain bond market indicators to price consumer rates. The Fannie Mae 3.5% MBS coupon is most relevant right now, and it showed resilience holding above it’s 50-day moving average into Friday, then rising a bit.

In short, that’s why rates regained some ground to end the week.

But I have an upward rate bias for next week because MBS could sell and break below that important 50-day average on improving jobs data throughout the week, previewed here.

Stocks would continue to rally in such a “risk on” scenario, even though the S&P 500 (at 1370) is already up more than 15% over the last three months.

That said, rising rates/stocks could be tempered by two things:

(1) If next week’s jobs reports come in below estimates.

(2) Markets get rattled as Europe works through several critical deadlines to finalize the Greek bailout needed by March 20.

BOTTOM LINE: Even if rates rose next week, we’re still in for more global economic bumps that bring rates down at miscellaneous short-term intervals. But mortgage shoppers should be fully pre-approved by their selected lender BEFORE they execute rate locks. Waiting for a given low-rate-day to lock a rate, THEN seeing if you and your property qualify reduces your chances of closing as intended. More in the related links below.

Also, don’t forget FHA mortgage insurance is rising next month for new FHA loans. Existing FHA borrowers are unaffected.
Economic Stats/Trends: Recap & Preview
Rate Chart: 1971-PRESENT
How To Make Sure Your Locked Rate Closes