Rates Up On Jobs & Bond Data, What Homebuyers Should Do

Posted by Leslie Bauer on Wednesday, August 12th, 2009 at 2:24pm.

RATE LEVELS

Rates on conforming loans up to $417k and super-conforming loans up to $729k continue to trade up and down as much as .5% per week, and this week we’re on the wrong side of that. Rates on Jumbos from $729k to $3.5m are about the same. Unlike loans up to $729k, jumbos aren’t currently securitized, so while jumbo lenders look to mortgage bond markets for pricing cues, jumbo rates are priced more according to lender competition than mortgage bond trading levels. 

With respect to mortgage bond trading, the question is whether this week is another brief rate spike or we’re entering into a generally higher rate range. The main drivers of this week’s mortgage bond selloff (when bond prices drop in a selloff, yields or rates rise) were concerns over Treasury supply diluting the bond complex in general, and today’s jobs report.

ECONOMIC TRENDS AFFECTING RATES

Treasury auctions announced this week call for $75b to be issued next week, which follows about $100b that was issued last week. The trend has been that Treasury auction announcements hurt bond markets (and rates), and if the actual auctions go well, markets improve. But with the government issuing ongoing massive supply to raise nearly $1t for stimulus activities, the effect would mostly be dilutive over time. When too much supply causes investors to sell bonds, rates rise.

As for jobs, today’s monthly report which showed ‘only’ -247k job losses for July, a drastic improvement over last month’s -443k number as well as previous months. Unemployment also dropped from 9.5% to 9.4%. Bond markets are getting hammered on this otherwise positive economic news. This could mean an improving economy, but that would also mean higher rates and an eventual reversal of home price declines.

WHAT HOMEBUYERS SHOULD DO

All year, my position with homebuyers has been the same: nobody can pick the bottom of any market, and even the most sophisticated market participants can only hope to get close. A home finance transaction involves both housing and rate markets, and if there was a sweet spot where the bottoms of these two markets most closely meet it would be in 2009, most likely some time before Fall. So far this position has retained credibility, and the market sentiment as we near the end of summer still supports this position.  

CONFORMING RATES ($200,000 – $417,000) – 1 POINT

30 Year: 5.375%   (5.495% APR)

FHA 30 Year: 5.375% (5.495% APR)

SUPER-CONFORMING RATES ($417,001 to $729,750 cap by county) – 1 POINT

30 Year: 5.625% (5.77% APR)

FHA 30 Year: 5.5% (5.63% APR)

JUMBO RATES ($625,500 – $3,500,000) – 1 POINT

30 Year: 6.5 %   (6.63% APR)

10/1 ARM: 6.25%   (6.39% APR)

5/1 ARM: 5.25 %   (5.43% APR)

Scenarios assume full doc pricing on purchase or rate/term refi (but not cash-out refi) loans for borrower with 720 FICO score or greater, at least 20% equity (unless FHA), and 6-12 months reserves left over after close (retirement assets counted at 70% of value for reserves). Better or worse rates apply to specific client profiles. Better rates are available using tax deductible points. ARM rates adjust the first month after initial fixed period shown, and once per year thereafter until year 30. Adjusted rate calculated by adding 2.25% margin to 1yr LIBOR index at time of adjustment. At first adjustment LIBOR+margin cannot exceed start rate+5%, subsequent yearly adjustments can never be greater than 2% per year, total of all adjustments for 30yr life of loan can never exceed start rate+5%. This is not a loan commitment nor a loan guarantee, rates based on loan amount ranges shown and rates available at the time of production. Rates subject to change without notice. California Department of Real Estate license #01376428. Equal Housing Lender.

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