Mortgage rates dropped to another all-time low last week as concerns for global economic growth helped U.S. home buyers and refinancing households nationwide.
U.S. mortgage rates responded to non-U.S. events and, for rate shoppers and home buyers in Salt Lake City , home affordability improved.
Early in the week, with Greece and Spain debating new austerity measures, and with citizen protests rampant, a flight-to-quality helped to boost demand for U.S. mortgage bonds. So did rumors of a weakening Chinese economy.
“Flight-to-quality” is a trading term for when investors shun investment risk in favor of safer, more high-quality portfolio assets. Typically, this involves selling stocks and buying bonds, including mortgage-backed ones.
When demand for mortgage-backed bonds rise, mortgage rates tend to fall.
Demand for bonds is also receiving a boost from the Federal Reserve’s latest market stimulus program — QE3.
“QE3″ is a shorthand term for the Fed’s third qualitative easing, a program by which the nation’s central banker buys mortgage-backed securities on the open market in hopes of driving mortgage rates down.
So far, it’s been working. Since the Federal Reserve announced QE3 in mid-September, conforming mortgage rates have been on steady decline.
According to Freddie Mac, the average 30-year fixed rate mortgage rate slipped to 3.40% nationwide last week with an accompanying 0.6 discount points plus closing costs. The average 15-year fixed rate mortgage rate moved to 2.73%, also with 0.6 discount points and closing costs. Both rates are at all-time lows.
This week, mortgage rates have a lot of data on which to trade, and may be poised to bounce higher.
In addition to the release of manufacturing, construction and retail sales reports, the Bureau of Labor Statistics will post its September Non-Farm Payrolls report Friday. More commonly called the “jobs report”, the monthly release takes on added significance now that the Federal Reserve has said that its open-ended QE3 program will be linked to the U.S. jobs economy.
Wall Street expects to see 120,000 net new jobs created in September. If the actual reading exceeds this figure, mortgage rates should rise.
Mortgage markets worsened slightly in last week’s holiday-shortened week. As expected, Wall Street took its cues from Europe and from the U.S. jobs market, and mortgage rates moved across a wide range.
Home buyers in Salt Lake City and would-be refinancing households were greeted with wildly varying mortgage rates, depending on which day they loan-shopped.
According to Freddie Mac’s weekly mortgage rate survey, 30-year fixed rate mortgage rates averaged 3.55% nationwide last week, with an accompanying 0.7 discount points.
That is, until Thursday’s meeting of the European Central Bank.
The ECB is similar to the Federal Reserve in that, among its primary functions, it provides liquidity to banking systems in times of crisis. Thursday, the European Central Bank intervened with force.
To aid Spain and Italy, the third- and fourth-largest Eurozone economies, the European Central Board launched a bond-buying program meant to reduce speculation that the two nations — and the Euro itself — would fail.
The move calmed investors and sparked a broad equities market rally.
U.S. mortgage rates did not fare so well, however, climbing as much as 0.25% and leaving that “Freddie Mac mortgage rate” in the dust. If you tried to lock a loan Thursday, you may have been greeted with a rate nearing 4.000 percent.
Fortunately, those rising rates were short-lived.
Friday morning, the U.S. Bureau of Labor Statistics released its August Non-Farm Payrolls report and mortgage rates dropped. Far fewer jobs were created in the U.S. than was expected. 96,000 net new jobs were made in July. Wall Street had expected 130,000. This increases the likelihood of new Fed-led stimulus — perhaps as soon as this week.
The Federal Open Market Committee meets for the 6th of eight times this year later this week; a 2-day get-together scheduled for September 12-13. The Fed may announce a new round of market stimulus. If it does, mortgage rates should fall. If it doesn’t, mortgage rates may rise.
Other news affecting potential housing payments this week includes the release of key inflation data Thursday and Friday, and Friday’s Retail Sales data.
Mortgage markets improved last week. Mixed data highlighted the U.S. economy’s slow, steady expansion; the Federal Reserve changed market expectations for the new stimulus; and, sovereign debt concerns moved back to the forefront in Europe.
Conforming mortgage rates fell last week for the first time this month, breaking a 4-week losing streak that had stymied would-be refinancing households inUtah and nationwide.
Mortgage rates had been higher since the start of August.
In published minutes from its July 31-August 1, 2012 Federal Open Market Committee meeting, the Federal Reserve revealed that, absent “substantial and sustainable” economic growth, many of its members believe further monetary easing would be warranted.
Recent data shows that growth may be sustainable, but it’s hardly substantial.
Should the Fed add new stimulus, it would likely come in the form of a third round of quantitative easing, a program by which the Federal Reserve purchases government-backed bonds on the open market, including mortgage-backed bonds.
The new-found demand for bonds helps raise their respective prices which, in turn, moves down their respective yields.
“QE3″ would push mortgage rates lower, likely. It’s not expected to be released (if at all) until the FOMC’s next scheduled meeting, September 12-13, 2012. There is a small chance it’s announced this Friday, however; the Federal Reserve is meeting in Jackson Hole, Wyoming for its annual retreat.
For this week’s rate shoppers, this week is filled with data and rhetoric. New U.S. housing data will be released along with recent inflation statistics. Both have the ability to cause mortgage rates to rise. In addition, second quarter GDP figures will be revisited and revised. If they’re revised lower, Fed-led stimulus may be more likely.
Lastly, Eurozone leaders reconvene to discuss the terms of Greece’s bailout. If terms are changed for the worse for Greece, mortgage rates may drop in a bout of safe-haven buying.
Mortgage markets improved only slightly last week despite a large 2-day rally that lasted through Wednesday and Thursday.
Unfortunately for mortgage rate shoppers in Salt Lake City , markets were worse throughout the other 3 days of the week, which kept mortgage rates from dropping to new all-time lows.
As with many weeks since the start of the year, political and economic action within the Eurozone dictated the direction of domestic mortgage rates. Last week’s 2-day EU Summit was the major driver of markets.
In the days leading up to the summit, mortgage rates worsened as optimism in summit’s outcome grew. This is because a stable Europe is good for the world’s economy which, in turn, encourages Wall Street investors to move money from “safe investments” such as U.S. mortgage bonds into more risky ones such as equities.
This creates an excess supply of mortgage bonds which causes mortgage rates to move higher.
Then, on the day prior to the summit, the optimism faded. Several Eurozone leaders expressed an unwillingness to compromise, rhetoric which drove investors back into “safe” asset classes, explaining the mid-week drop in mortgage rates.
However, Friday, in a surprise move, EU officials announced a plan to recapitalize Europe’s banks and to reduce borrowing costs for Spain and Italy, once again, pushing investors back into a risk-taking mood.
The news in Europe overshadowed strong housing reports here in the United States.
New Home Sales and the Pending Home Sales Index both gave strong results and inflationary pressures were shown to be in check. The housing market continues its slow, steady recovery.
This week, mortgage rates are expected to remain volatile. The markets have had the weekend to pick through the EU agreement and, later this week, the Bureau of Labor Statistics will release the June 2012 Non-Farm Payrolls report. In addition, this is a holiday week so trading volume is expected to be lighter-than-usual.
Mortgage markets will be closed Wednesday.
Mortgage markets worsened last week, halting a multi-week mortgage rate winning streak in Utah and nationwide. With little economic news on which to trade, investors took their cues from the world’s central banks.
Fed Chairman Ben Bernanke neither dismissed nor promised new market stimulus in the near future, nor did leaders in the Eurozone. China, however, did cut its interest rates for the first time since the start of the global financial crisis.
Conforming mortgage rates edged higher amid a series of volatile trading sessions. Mortgage bonds moved more sharply as compared to prior weeks and analysts expect volatility to continue.
Last week, the biggest story was the ongoing deterioration of confidence within the Eurozone. While Greece continues to struggle under its national debt load, Spain emerged as the area’s newest bailout candidate. Then, on Saturday, the bailout was confirmed.
In seeking up to 100 billion euros ($125 billion), Spain becomes the fourth European Union nation to seek bailout funds since the debt crisis began nearly three years ago.
The Spain bailout temporarily overshadows investor concern for Greece and the nation-state’s June 17 election.
Sunday, the citizens of Greece will vote to elect a new government, the outcome of which may determine whether Greece remains a member of the European Union. If Greece leaves the EU, it would likely make a negative impact on equities markets, and would benefit U.S. mortgage rates.
This week, mortgage markets will take their cues from the political and economic developments abroad. Initially, investors are looking favorably upon the Spain resolution, and mortgage rates are rising as a result. As the Greek election nears, however, that trend may change.
With little or no data set for release, this week’s mortgage rates are subject to investor sentiment. Expect volatility.