Rates are at their lowest levels in almost 4 weeks.

There is not much on the schedule for release this week.  We have consumer confidence today and retail sales on Friday.

This week is all about two things:

• The economic recovery isn’t being “felt” but it is being “seen.”  Friday’s Jobs Report increased the belief that the economy is improving.
• The concern that the economic recovery will stall if energy prices sap too much money from the economy too quickly.

The former will push up mortgage rates.  The latter is interesting.  Rapid inflation is one time where the economy can tank and mortgage rates go up.

The general trend is towards higher rates.   Since last year, we’ve seen rates go from 4.23% in October’s survey to 4.95% in February’s survey.  For the weekly survey of February 10th, we’d hit as high as 5.05%.

It is also a volatile trend.  Freddie Mac releases rates weekly, lenders release them 2-3 times per day.  In the past those Freddie Mac rates were +/- 0.125% from being accurate.  Now, they might be +/- 0.375% off on any given day.

If you’re looking at buying a home in 2011, it might make sense to push your time line up.

Housing supply stats show that there will be less total homes.  With less home supply and an even smaller supply of desirable, move-in ready homes, things could get competitive.   The general housing market has nothing to due with what you pay for a home compared to whether or not there is a multiple-offer situation.

Whether or not mortgage rates go up is irrelevant.  Mortgages are going to cost more.  We have the new Fannie Mae and Freddie Mac LLPA hits plus the increased MIP on FHA loans. Added fees have the same effect as mortgage rates going up.

It’s going to be less expensive to buy for most people now than it will be in just a few months.

In a very closely related statistic, Consumer Confidence is rising too.  The current confidence reading is now double from its low in February 2009. 

The relationship between sales and confidence is no surprise.  Confident consumers are much more likely to make big ticket purchases than those who are running scared.  Unfortunately, both figures also point to higher mortgage rates.

Spending is two-thirds of the economy and the related lack of spending is what has been keeping rates so low.  The recent news explains part of the .375% run-up in rates over the past 10 days:

• Retail Sales made a 2-year high in October
• Existing and New Home Sales showed big improvement in September
• Jobs growth returned in October

Mortgage rates are recovering a little bit today, but the long-term trend seems to be reversing.  With QE2 dragging on long-term interest rates and increasingly good economic data, the time to act may be sooner rather than later.

We’re seeing a crazier Chicago mortgage rate market than we’ve seen in a while.   Nearly every trading session has been volatile.

Interest rates are jumpy because there continues to be no decisive movement as to whether the economy is expanding or contracting.

The recession officially ended in June 2009, but that hasn’t translated to consumer spending or consumer confidence figures that would clearly indicate that the economy is healing.

Last week, we saw more conflicting data.  Separate Consumer Confidence reports showed sentiment falling in September, but then we have this contradictory data:

• Initial jobless claims dropped 3%
• Household income is shown to be rising
• GDP is improving year-over-year

Right now, we have a mountain of data that is indicating that things are improving, but the average consumer simply isn’t believing it.  No confidence, no spending.  No spending, no recovery.  No recovery, no need for rates to increase.

Interest Rate Predictions

Wall Street is uncertain.  When Wall Street is uncertain, mortgage rates are nearly impossible to pin down.  We’re going to continue to look at the data for an indication of where mortgage rates are heading.

This week, we have a new home sales report and additional consumer confidence data.  We also have the government’s Non-Farm Payrolls report and it looks to be the biggest market mover for the week.

Normally called “the jobs report,” Non-Farm Payrolls details the workforce, size, and unemployment rate.  Consensus expectations are for similar data as we saw in August.  August was considered “fair.”  If we see surprising strength or weakness in the jobs report, look for interest rates to make a move.  Otherwise, we’re in this sideways pattern waiting for a break out.

The jobs report will hit Friday morning, 7:30 Central.

Investors cannot discern if the U.S economy is growing, contracting, or flat.  Thus, we get these volatile weeks and end up right back where we started.

Last week’s August Retail Sales report is a great example.  The headline data showed sales were strong nationwide.  The subset of the data that excludes the impact of rising gas prices and auto sales shows a virtually flat economy.   That one report pushed the market both higher and lower before leaving it virtually unchanged.

Another example, consumer confidence hit a 12-month low.  That nearly always would push mortgage rates lower.  However, its release coincided with an improving employment report that shows a looming jobs recovery, again allowing the market to make large swings in both directions before finishing virtually unchanged.

On the week, the 30-Year Fixed pricing deteriorated, the 15-Year Fixed pricing held steady, and the 5/1 ARM improved on its already absurdly low levels.

Interest Rate Predictions for This Week

We’re in one of the the always-volatile weeks that includes a Federal Reserve Open Market Committee meeting, plus a “moderately” loaded economic calendar:

• Monday : Homebuilder Confidence Survey
• Tuesday : Housing Starts, Building Permits, FOMC Meeting
• Wednesday : FHFA Home Price Index
• Thursday : Existing Home Sales
• Friday : New Home Sales

Mortgage rates are going to be subject to at least one housing-related news release per day, plus the Fed’s post-meeting announcement.

It is entirely possible that mortgage rates will again experience wild and crazy swings and end up exactly flat.  It’s unlikely, but certainly possible.  Should the market develop any conviction, it is certainly more likely that mortgage rates would jump significantly rather than go down substantially.   In handicapping these rates, there is just so much risk of interest rates moving higher and yet not much room for them to move lower.

Data released last week underscored a slowing U.S. economy.

The stock market found 2010 lows in response to a weak jobs report and other soft economic data pushed money over to fixed income like U.S. government bonds and mortgage bonds.

This demand pushed rates lower once again and Freddie Mac is reporting further all-time lows on the big three mortgages.  We’re seeing simultaneous lows on the 30-Year Fixed, 15-Year Fixed, and 5/1 ARM.

This is significantly than the early portion of the credit crunch when the 5/1 ARM v. 30 Year Fixed comparison was actually inverted–showing lower rates on the 30 Year than the 5/1.

This Week in Interest Rate Predictions

This week could be sort of crazy.   It’s a holiday week.  Holiday weeks tend to mean thin volume and wild swings.   Still, this week is the second week of the month, one that has very few economic reports scheduled for release.  That could mute what could be a volatile week.

There are three reports scheduled for release that are individually not important, but collectively could show any changes to economic forecasts.  We have consumer confidence today, Thursday has jobless claims plus consumer credit levels, and Friday has wholesale inventories.  That’s pretty much the whole week’s news.

In the vaguest of overviews, economic growth = higher rates, economic contraction = lower rates.

That’s almost a side story at this point.  Rates are historically low.  I understand the methodology and intent of Freddie Mac’s survey, but it’s not smart.  They ask the lenders for a rate AND closing costs.   We discussed average mortgage closing costs a few weeks back.  The Freddie Mac headline data shows lower rates, but most of the surveyed lenders are showing increased closing costs.  Effectively, if you are using an ‘average lender’ as defined by Freddie Mac, rates really haven’t dipped.  It means that the average borrower is carrying the risk of the float v. lock decision, but they haven’t gained all that much.

If you’re working with us, our closing costs remain the same as before and rates have indeed dipped in the past few weeks.  Still, I’d be in a position to lock before “that day” that we’re all waiting for.

Well, confidence surged, yielding the highest reading in 34 months.  Just think about that, for nearly three years we’ve been looking at monthly readings that have averaged below a 50% reading.

Greenspan’s famous “irrational exuberance” quote was one end of the spectrum back in 1996.  Yet, have we just lived through “irrational depression?”

Consumer confidence is not based on hard economic data.  It’s a “how you feeling” poll.   Since World War II, we had a 60-year cycle of increasing leverage and the related good vibes that follow from big houses, flashy cars, and loose credit.  Reality is that a household negative savings rate is not only not good, but not sustainable.

That 25% reading back in early 2009 wasn’t economic, it was the equivalent of a financial hangover from being punch drunk on credit for 60 years.

This is the new normal.  And about two-thirds of Americans are starting to grasp and embrace it.

We also spend when we’re not in total panic mode.  Old appliances get replaced, cars get upgraded, and we do vacations, not just staycations.

Well, we also buy homes.  If this data continues and extends into the housing market, the big winners will be the mid- to upper price range homes.   That growing family in a 3BR/1.5BA starter starts to see that 4BR/3BA as attractive now knowing that it will cost more and have a higher rate in the future.

If you’ve been smart enough to look for maximum affordability, it’s staring you straight in the face.

If consumer confidence pops up another 10%, it’s fair to say that home prices will jump at least a few percent.  It’s also fair to say that, eventually, mortgage rates must follow.

So, if you’re buying a home or thinking of a refinance, rising confidence in the economy may be a signal to act sooner rather than later.

Last week’s interest rates moved higher largely because concerns moved lower.

Mortgage Rate Predictions: Week of June 1, 2010

This week could be even worse.

In addition to the release of May’s jobs report and consumer confidence data, fears of broader economic slowdown appear to be easing.

As the week goes on, we see report after report and all of them are highly influential.

Tuesday:  Consumer Confidence.  This is linked to the economy since 70% of the economy is based on consumer spending.   High confidence = good economy = worse mortgage rates.

Wednesday:  Pending Home Sales and Auto Sales for last month.  Both are “big ticket” items and are therefore tied to consumer confidence.   High sales of big ticket items = high confidence = good economy = worse mortgage rates.

Thursday:  Jobless claims.  This isn’t a big report, but will be watched as a forecasting tool for Friday’s big dog of the week.

Friday:  Non-Farm Payrolls.  April was a net 290k gain.  May, economists are thinking we might see 500k.  As evidenced by the graph, 500k doesn’t even fit.   If job growth even comes close to the 500,000 marker, mortgage rates could zoom higher.  Again, employed consumers are confident consumers and high confidence = good economy = worse mortgage rates.

Mortgage rates moved higher last week but are still very low.   One of these weeks will be “that week” when the whole mortgage rate game changed.  If you’re thinking about refinancing, stop.  Call us.  It’s time.

The biggest stories of last week were actually non-stories.

First, the ash cloud from Iceland’s Eyjafjallajökull volcano dissipated, allowing warehouses to move inventory, airlines to move people, and businesses to move product.  In addition, Greece moved closer to securing emergency funding that will help it stave off default.

When these two issues were threats earlier in the month, mortgage bonds rallied on safe haven buying, driving rates down. As the threats lessened over the course of last week, however, mortgage bonds sold off and mortgage rates rose.

By contrast, this week features lots of stories. Economic data will be at the forefront, as will the Federal Reserve which meets for one of its 8 scheduled meetings of the year.

• Monday : Greece is expected to announce an aid package
• Tuesday : Case-Shiller Index reports on home values from February
• Wednesday : Fed adjourns from its 2-day meeting
• Thursday : Initial Unemployment Claims are released
• Friday : GDP and consumer confidence numbers are released

Furthermore, Wall Street will have its eye on the Senate’s questioning of key Goldman Sachs employees in the wake of the SEC’s fraud charge.

In general, news that’s “good” for the U.S. economy will be bad for mortgage rates, and vice verse.  And with mortgage rates changing as quickly as they have been, rates could really rise in a hurry.

The best defense against rising mortgage rates is to execute a rate lock. If you’re nervous about rates moving higher, call your loan officer and execute your rate lock today.

The Fed’s $1.25T purchase program is gone and the economy is improving.  Shout if from the mountain tops:  the economy is improving.  From last week:

• Pending Home Sales posted a strong monthly improvement
• Wholesale Trade data pointed to higher consumer spending ahead
• Inflationary threats on the economy are receding, according to the Fed

Furthermore, continuing jobless claims were down again.  Rates should have jumped.

They didn’t.  Continued fears over the Greek mess drove investors to seek safe investments in the US.   Most loans for first time home buyers saw roughly 2/3′s of the prior week’s losses come back last week.  That’s great news.

Mortgage Rate Projections – This Week

If you are a first time home buyer and not under contract, I have a recipe for your long-term financial well-being.  Add equal parts of calmness and urgency.   Find your car keys.  Get your future home under contract.

There are two converging forces and they are big ones:

1. Rates are going to be volatile
2. There are other first time home buyers

For just this week’s rate projections, it could be volatile.  Very volatile.  Any resolution in Greece that removes the widespread panic in the Eurozone means at least .25% to interest rates in a matter of moments.  Beyond that, we have a loaded economic calendar from Wednesday to Friday.  A number of the big reports hit all towards the end of the week including the Consumer Price Index, Retail Sales, Consumer Confidence, and Housing Starts. That’s a lot of data.

The sooner you have a contract, the sooner you can lock in these absurdly low rates.  Rates will go up and they won’t wait until it is convenient for you.

First time home buyers are facing another simple reality:  There aren’t that many great homes in the market.  When a negotiation is a simple negotiation between a buyer and a seller, the offer-counteroffer sequence is pretty simple.  When there is a looming deadline like an $8,000 first time home buyer tax credit, the rules change.  Now, unless you’ve found the least desirable, most overpriced home in the market, you’ll run into multiple-offer situations.  It doesn’t matter what you think “the market” is like.  If a seller has more than one contract in their hands, your price just went up.  Perhaps only $1,000, perhaps only $2,000, but it could be more and it will happen if you wait.  We saw it in November, we’ll see it at the end of the month.

Rates are heading higher.  Possibly this week, possibly next.  If you’re not under contract, you can’t lock a rate.

Get shopping.

The volume was relatively light, saw rates improve for the first four days, and then get slapped back down after Friday’s jobs report beat expectations.

Overall, mortgage rates dropped last week, but only by a small margin.   Rates were best Thursday afternoon.  It was the second consecutive week in which mortgage rates fell.

It was an odd week in that both mortgage rates and stocks improved.

Mortgage Rate Predictions For This Week

Expect volatility.  We have a few things all happening at once.

It’s a light week in terms of data with just Consumer Confidence and Retail Sales due out.  We could see momentum swings driving the trading and that is not good for rates.  If there is change, rates are significantly more likely to go up than down.  If there’s no volatility, then the rates stay where they are.

The Federal Reserve is only 3 weeks away from ending its support of the mortgage market.  For weeks, money has been pouring into the country as a US investment seemed safer than anywhere else in the world.

If the Fed is no longer buying mortgage bonds AND foreign investors decide to sell them to return their investments to other markets, rates can get very ugly, very fast.

Early spring has always been a cheaper time to buy a home rather than waiting for all of the other buyers to get out in the market.  With the $8,000 first time home buyer tax credit looming, rates at the edge of a potential cliff, and the confidence of sellers slightly battered, buying in March rather than April seems smarter than ever.

Last week was also interesting in that both stock markets and bond markets improved, proving that rates don’t always rise when stock prices do. 455 of the S&P 500 companies posted gains last week.

If you’re shopping for a home or a refinance, though, don’t rest on your laurels. After Friday’s big sell-off, this week opens into a major headwind and, plus, the Federal Reserve’s support for mortgage markets ends in just 3 weeks.

This week, without much data to influence traders, the upward momentum in rates may have little cause to temper. We’ll see the Consumer Confidence numbers on Tuesday and Retail Sales on Friday.  Beyond that, there’s not much else.

After last week’s performance, conforming mortgage rates in Illinois may be poised to rise rather sharply. If you’re waiting for the right time to lock your rate, it may have been this past Thursday. Consider locking your rate early this week to protect against further rate hikes.