Rochester MN Real Estate Market Blog » Interest Rate News

Interest rates are great now but…

admin — Thu, 08 Jan 2009 01:58:01 +0000

We currently at record low interest rates which is great for the current real estate market but how long can we expect to see them at these levels. Larry Baer with Market Alert has written a great commentary regarding this subject.

Commentary By Larry Baer:

Thank-you Mr. Bernanke – your plan is working like a charm so far.

In the past two trading sessions, the yield on the 30-year Treasury bond has jumped by more than 30 basis points, the biggest two-day rise in more than 15-years. Expectations that inflation will soar from a coming massive spike in government borrowing has led traders the world over to dump Treasuries. Normally, soaring Treasury yields would drag mortgage interest rates higher as well. But not this time.

Fortunately for all of us in the mortgage industry Fed Chairman Bernanke and his fellow central bankers moved proactively in November to put a $500 billion buffer between rate sheets and the stresses in other areas of the credit market. While the Treasury market has been crushed with sell orders – the Fed has been busy aggressively buying mortgage-backed securities to support steady to lower mortgage interest rates. As long as the money holds out — this will be a sweet, sweet deal for mortgage lenders and borrowers alike.

I have no intention of raining on anybody’s parade but I think it is worth at least noting that at the current pace mortgage-backed securities will soon be approaching yield levels that only a Fed Chairman could love. Once Mr. Bernanke and his band of merry central bankers exhaust their available capital – no one else (in terms of other investors) will be at home to pick-up the slack and mortgage interest rates will rise. That is certainly not going to happen today, this week or even this month probably – but somewhere toward the end of the year (in my opinion) mortgage interest rates will likely begin to move notably higher from current levels as they are finally allowed to seek their natural level.

The central feature on this week’s economic calendar will be Friday’s December nonfarm payroll report. The market has already priced in the expected loss of 485,000 jobs together with the likelihood the national jobless rate ratcheted up to 6.9% from last month’s 6.7% level. Chances are the actual numbers will match or fall within shouting distance of the consensus estimate values. If so, the report’s impact on the trend trajectory of mortgage interest rates will not be large, if it registers at all. In the off-chance the headline December payroll shows a job loss of 470,000 or less and/or the national jobless rates posts a reading of 6.7% or less look for mortgage interest rates to edge fractionally higher.

Rates Higher as Stocks Climb

admin — Sun, 20 Jul 2008 01:38:25 +0000

Last week, the stock market declined and mortgage rates fell, as investors worried about Fannie Mae and Freddie Mac and oil prices reached record highs. In a pivotal reversal, the opposite took place this week. With increased confidence in the financial sector and lower oil prices, the Dow gained over 400 points. As investors returned to stock assets, they sold relatively safer investments such as bonds, which pushed mortgage rates higher.

While Fannie and Freddie dominated most of the headlines this week, Fed Chief Bernanke presented the latest Fed forecast for the economy during his testimony before Congress. The Fed lowered its projections for economic growth for 2008 and 2009 and expressed concern about the risk of higher inflation. Bernanke described the inflation outlook as “unusually uncertain”. From Bernanke’s comments, investors concluded that the Fed’s primary goal right now is to promote stability in financial markets, rather than fighting inflation, and they expect the Fed to hold rates steady in the near-term.

The news in the housing sector was mixed. June Housing Starts rose 9%, far above the consensus. Similarly, June Building Permits, a leading indicator of future housing market activity, rose 12%, which also far exceeded the forecasts. However, a change in the New York City building codes contributed much of the gains. Separately, the National Association of Home Builders (NAHB) sentiment index fell to a record low in July.

The Second Mortgage Industry continues to restrict as well primarily caused by concerns in the banking arena. Many banks announced this week further conservative guidelines or have made the decision to exit this business as further stock pressures arose.

Fed Leaves Interest Rates Unchanged

admin — Thu, 26 Jun 2008 01:35:39 +0000

As expected, the members of the Federal Open Market Committee voted to hold their key fed fund rate unchanged. Today’s decision is the first time the Fed has held short-term interest rates steady since they embarked on a series of rate cuts that dates back to last September.

In their much anticipated post-meeting policy statement, policymakers signaled that while the economy still faces some rather stiff headwinds, the chance of a severe economic slowdown or outright recession has diminished. The Committee went on to say, “In light of the continued increase in the prices of energy and some other commodities and the elevated state of some indicators of inflation and the elevated state of inflation expectations, uncertainty about the inflation outlook remains high.”

The initial sell off in the mortgage market was created by that last sentence. All many mortgage investors heard was the “. uncertainty about the inflation outlook remains high” phrase. After the initial knee-jerk sell off in the mortgage market calmer, cooler heads have since entered the market – realizing that the Fed stopped well short of suggesting an imminent acceleration of inflation pressures is likely – which by extension also means attendant short-term interest rate hikes are not likely to develop any time soon either

I look for mortgage investors to remain very cautious with their pricing – at least until he Treasury’s auction of $20 billion in 5-year notes ends tomorrow afternoon at 1:00 p.m. ET. Once the auction is over – I think the potential for upside investor price gains will improve notably.

Fed Cuts Interest Rates

admin — Fri, 02 May 2008 01:18:28 +0000

The Federal Reserve has cut interest rates by one-quarter of a percentage point yesterday, in what many economists are predicting might be the last such cut by the Federal Reserve for a while. It is the seventh cut since late August, and it comes as the Fed is trying to balance between fears of impending recession and signs of inflation. The Federal Reserve Funds are now at 2.00%, which means most banks will now be lowering their Prime Rate to around 5.00%

What does this mean for home buyers, home sellers and homes for sale in Rochester Minnesota? Any time the Fed cuts rates it’s viewed as a positive move by the general public. In actually however the Fed interest rates are not directly tied to mortgage rates. Mortgage rates are tied to the 10 year treasury bill and influenced more by bond prices. When the fed cuts their rate, it’s good news for the consumer as any consumer debt like car loans, and home equity lines of credit will usually adjust accordingly. Bottom line it does make buying or selling a house a little easier as the home buyer has a little extra free cash to spend if they are not spending as much on other consumer debt.

Rates Down Slightly For the Week

admin — Sat, 12 Apr 2008 01:15:56 +0000

We didn’t see the broad swings in interest rates this week as were experience in weeks past. With little new economic news for the week rates settled in for a slightly lower average then last week.

Ecnomic news was mixed for the week. The Fed is forecasting that with the recent rate cuts and the government stimulus packages will lead to faster economic growth for the remainder of the year. On the other side of the fence, the Pending Home Sales index fell more then expected in January and the index was down marginally from a year ago. Pending Home Sales is the leading indicators for the future direction of the housing market and NAR (National Association of REALTORS) is predicting flat home sales for the next several months.

Mortgage Meltdown Maps

admin — Sat, 05 Apr 2008 01:14:36 +0000

WASHINGTON, D.C.

• Federal Reserve maps show key areas of concern

• What color is your state?

• Scroll down to the bottom for the website link

The Federal Reserve System now has a set of dynamic maps and data online that illustrate sub prime and alt-A mortgage loan conditions across the United States. The maps display regional variation in the condition of securitized, owner-occupied sub prime, and alt-A mortgage loans. The more intense the color, the bigger the problem or potential problem. Monthly updates are planned. The maps and data can be used to assist in the identification of existing and potential foreclosure hotspots, the Fed says. (Click on the link below to see the maps. Be advised that the site loads slowly, apparently affected by demand.)

The maps show the following information for sub prime and alt-A loans for each state and most of the counties and zip codes in the United States:

• Loans per 1,000 housing units

• Loans in foreclosure per 1,000 housing units

• Loans real estate owned (REO) per 1,000 housing units

• Share of loans that are adjustable rate mortgages (ARMs)

• Share of loans for which payments are current

• Share of loans that are 90-plus days delinquent

• Share of loans in foreclosure

• Median combined loan-to-value ratio (LTV) at origination

• Share of loans with low credit score (FICO) and high LTV at origination

• Share of loans with low- or no documentation

• Share of ARMs with initial reset in the next 12 months

• Share of loans with a late payment in the past 12 months

The maps are maintained by the Federal Reserve Bank of New York.

To access the data visit: http://www2.newyorkfed.org/mortgagemaps/

Mortgage Rates Higher

admin — Sat, 29 Mar 2008 01:13:14 +0000

After two weeks of nice declines, mortgage rates rose during the week, back to the levels seen at the end of February. March was an extremely volatile month, with large daily swings a common occurrence. Investors bought mortgage backed securities during periods of increased concern about the stability of the credit markets. Just as quickly, they sold mortgage backed securities when the fears eased. Last week, investors generally felt that the Fed’s rate cuts and other actions were sufficient to combat the difficulties in credit markets, demand for mortgage investments fell, and mortgage rates rose. Mortgage rates were also hurt last week by a series of Fed officials who talked tough about inflation. Higher inflation is bad news for mortgage markets, as investors require a higher yield to offset the inflation. With all the attention on inflation, Friday’s release of the Fed’s preferred inflation indicator was highly anticipated. The February Core PCE price index rose at a 2.0% annual rate, as expected, which was at the upper boundary of the Fed’s perceived comfort zone. In the housing sector, the news was somewhat encouraging. February Existing Home Sales came in stronger than expected. The inventory of unsold homes declined modestly, while median prices fell. Sales activity has held in a narrow range since September, and the chief economist of the National Association of Realtors (NAR) suggested that the data was “another sign that the market is stabilizing”. February New Home Sales also came in a little higher than the consensus. Separately, the government’s OFHEO housing index showed that January prices were down 3% from one year earlier.

Fed Plan Lifts Mortgage Markets

admin — Mon, 17 Mar 2008 01:11:23 +0000

Tuesday, the Fed’s surprise announcement of a new $200 billion lending facility led to a 400 plus point rally in the Dow, the biggest one day percentage gain since March 2003. The effect on mortgage rates was also favorable. The newly available funds will make it more appealing for financial institutions to borrow money from the Fed, which is expected to increase the demand for mortgage backed securities. Mortgage markets should benefit, and the spread between mortgage rates and Treasury yields narrowed significantly, reversing the trend from the prior week.

Later in the week, sentiment turned sour, however. Investors were reminded on Thursday that the problems in credit markets were not yet over. Carlyle Capital, a large hedge fund, defaulted on $16.6 billion of its debt, and the collateral was mostly mortgage backed securities. An even bigger jolt hit the markets on Friday. Bear Stearns, a major Wall Street investment bank, announced that they would receive financing to address liquidity problems. The repercussions of losses at financial institutions continued to be felt, and investors responded to the uncertainty by shifting out of the stock market and into the relative safety of fixed income investments including mortgage backed securities. Mortgage rates fell significantly during the week, reversing a similar sized rise the prior week. That said, not all areas of the mortgage market benefited equally last week. Demand for securities backed by Adjustable Rate Mortgages (ARMs) dropped sharply, and ARMs rates did not share in the declines seen in fixed rate mortgages. The Jumbo Mortgage sector experienced liquidity issues very similar to last August as sellers far out numbered buyers in this arena driving Jumbo interest rates significantly upward.

The economic data released last week was favorable for mortgage markets. Notably, the closely watched Consumer Price Index (CPI) inflation data came in much lower than expected. The core rate was still running higher than the Fed would like, but investors were prepared for worse news. In addition, the Retail Sales data fell far short of the consensus forecast. Slower economic growth typically means lower future inflation, and mortgage markets reacted positively to both economic reports.

3 month interest rate trend graph

admin — Wed, 12 Mar 2008 01:10:12 +0000

Related posts:Interest Rate Commentary Mortgage Meltdown Maps Mortgage Rate Volatility Continues Related posts:

Mortgage Rate Volatility Continues

admin — Sat, 08 Mar 2008 01:07:13 +0000

In a week packed with major economic news, the biggest story for mortgage markets was the widening spread between mortgage backed securities and Treasury bonds. Issued by the US government, Treasury bonds are generally considered to be the benchmark for a “safe” security, since the risk of default is extremely low. During the week, the economic news was mixed, and Treasury rates barely changed. Mortgage rates, however, jumped by about half a point. Investors are demanding a higher return from mortgage backed securities, and the result is higher mortgage rates. In another unusual reversal, the mortgage market has been more volatile than the Treasury market, and wide swings in mortgage rates have become a daily occurrence. This past 30 day window could be the most volatile period of daily pricing movements the mortgage markets have ever experienced.

On the economic front, the highly anticipated Employment report failed to meet even Wall Street’s reduced forecast. Against expectations for a gain of 25K new jobs, the economy lost -63K jobs in February, and the figures for January and December were revised lower as well. This marked the largest monthly decline since March 2003. The Unemployment Rate surprisingly fell to 4.8%, but that reflects a large number of people who stopped looking for a job last month, meaning that they officially left the labor pool. Once again, the manufacturing and construction sectors showed the greatest weakness. Until November, the service sector had been steadily producing job gains of 100K or more per month, but even that sector barely produced any new jobs in February.

Big news came out from the Department of Housing and Urban Development (HUD). In accordance with the new legislation passed a couple of weeks ago, HUD released the new loan limits for FHA, Fannie Mae, and Freddie Mac, and they did it a week earlier than expected. The new minimum for FHA is $271,050 nationally and many Metro Markets received increases. In the Midwest, Minneapolis/St.Paul Metro area FHA limit was raised to $365,000 and the Chicago Metro area FHA limit increased to $410,000. The Fannie/Freddie minimum remained unchanged at $417,000 throughout the Midwest.. The formula is based on 125% of each region’s median price within the posted limits. As a practical matter, it will still take some time for Fannie Mae, Freddie Mac, and FHA to prepare their systems and implement the changes.