Author bio section
The Federal Reserve raised the Fed Fund overnight rate by one-quarter percent yesterday, as predicted. Commentary by Fed President Powell also indicted another increase will come at their December meeting. The markets expected this rate increase so minimal movement in the markets as a result.
Further based on the commentary released from the Fed meeting yesterday, going forward the Federal Reserve Board is going to be more reactive and sensitive to market changes. Given this strategy, it’s difficult to predict the timing of future rate hikes over the next two years. The Fed doesn’t expect inflation to be a significant issue going forward, nor wage inflation, despite a lot of anecdotal reports to the contrary. Fed Chair Powell even commented that he sees inflation dropping a bit in the future, which had a positive impact on rates.
Other economic data of note: the GDP is at 4.2% – the best level in four years, the international trade deficit grew from $71B to $75.8B, and pending home sale declined by -2.3%, the fourth monthly decline out of five months and the slowest sales pace since January. In the West, where prices are highest, pending home sales dropped 11.3%. Overall, this is a result of not enough inventory and too high prices.
Mortgage Rates Increase
This candlestick chart below covers the past weeks’ Mortgage Backed Securities (MBS) activity and the impact on interest rates. MBS started the week at 100.79 and closed trading at 100.94 September 20th. MBS directly impact mortgage rates, and the days with red indicate higher rates and those with green – lower rates.
This week’s Mortgage Banking Associations’ (MBA) weekly rate survey shows effective rates decreased slightly for all loan products, with the exception of the 30-year fixed Jumbo which remained unchanged. The information below applies to all loans with an 80% loan-to-value.
Per the MBA weekly survey: “The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($453,100 or less) increased to its highest level since April 2011, 4.97 percent from 4.88 percent, with points increasing to 0.47 from 0.44 (including the origination fee.)”
1 point in cost = 1% of the loan amount
“The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $453,100) increased to 4.92 percent from 4.77 percent, with points increasing to 0.30 from 0.28 (including the origination fee.)”
“The average contract interest rate for 15-year fixed-rate mortgages increased to 4.38 percent from 4.30 percent, with points increasing to 0.52 from 0.49 (including the origination fee.)”
“The average contract interest rate for 5/1 ARMs increased to its highest level in the history of the survey, 4.22 percent from 4.17 percent, with points increasing to 0.60 from 0.29 (including the origination fee.)”
Mortgage Rate Activity and Predictions
Bankrate’s weekly survey of mortgage and economic experts, countrywide, shows the majority (55%) predicting interest rates will fall this coming week (plus or minus two basis points), while 36% predicting rates will increase. The remaining 9% expect interest rates to remain unchanged next week.
My prediction is that rates will remain unchanged this week, as quoted in the Bankrate report, “Mortgage rates will go down. As expected the Fed increased the rate. However, there weren’t any major surprises in the minutes of the meeting that was released. With lack of overtly bearish news, expect the mortgage rates to trend lower this week. With four back-to-back weeks of the rate increase, it’s time for correction. Borrowers can expect a tad lower rate this coming week..”
The chart below, from Freddie Mac’s weekly mortgage survey, shows conforming rates increased for the week of September 20th to September 27th, for 30Y fixed, 15Y fixed and the 5/1 ARM.
Freddie Mac’s weekly mortgage survey noted, “The 30-year fixed-rate mortgage rose for the fifth consecutive week to 4.72 percent – a high not seen since April 28, 2011 (4.78 percent).
The robust economy, rising Treasury yields and the anticipation of more short-term rate hikes caused mortgage rates to move up.
Even with these higher borrowing costs, it’s encouraging to see those prospective buyers appear to be having a little more success. With inventory constraints and home prices starting to ease, purchase applications have now trended higher on an annual basis for six straight weeks.
Consumer confidence is at an 18-year high, and job gains are holding steady. These two factors should keep demand up in the coming months, but at the same time, home shoppers will likely deal with even higher mortgage rates.”
Rates may fall a small amount in the coming week, so if you are contemplating locking in a rate, you may want to risk holding off to see what gains may be achieved in the next five days. With mortgage bonds trading pretty much sideways, there won’t be much to gain at all so you won’t leave much money on the table if you lock in a rate now.