Since the Employment Situation Report (ESR) on November 8th mortgage rates have had a bumpy ride but have stayed within technical ranges. Over the past two months technical ranges, using the 10 year treasury yields, are 2.5% to 2.8%, currently trading 2.72%. How does that equate to the current mortgage rate environment? Here are the current best execution rates.
30YR FIXED – 4.25% (4.297% apr)
15 YEAR FIXED – 3.375% (3.49% apr)
5 YEAR ARMS – 3.0% (2.975% apr)
The November 8th ESR revealed a surprising 204K jobs created in October. This was versus an expected 120K, a significant beat. 10 and 30 year yields moved sharply higher by 25 basis points in the following two trading days with mortgage rates following suit. Since then rates have settled down as statements from the next prospective Fed chief, Janet Yellen, indicated to the interest rates markets that the Fed stance will, with respect to Quantitative Easing (QE), in the near term, remain accommodative. More from Reuter’s columnist, James Saft CLICK HERE.
After taking a deeper examination of the jobs report, many market pundits and economists have come to the conclusion that while jobs ARE being created, that the downside is that the quality of jobs created is decidedly lackluster. The following infographic compiled by Matthew C. Klein at Bloomberg View tells the tale. CLICK HERE
Further, last night’s statements to the National Association for Business Economics, or NABE, by outgoing Fed Chair Ben Bernanke may indicate that the Fed may be well aware of the diminished quality of the jobs being created. He stated that the Fed’s balance sheet will remain large and short-term rates near zero for a long period, “perhaps well after the unemployment threshold is crossed.” That threshold being 6.5% unemployment.
CORNUCOPIA-THE HORN OF PLENTY
Diane Swonk, Chief Economist at Mesirow calls QE “the punchbowl” from which the markets “drink” and “get tipsy”. Reuter’s columnist James Saft opined a piece yesterday describing the effects of QE on households and investors, relating QE as “very strong liquor which the Federal Reserve is putting in the punch”. As homage to our national holiday, Thanksgiving, I will refer to QE as the “horn of plenty”.
Year over year statistics show that there has been a 60% drop off of refinance activity resulting in a decreased supply of Mortgage Backed Securities (MBS). The Fed is currently purchasing 68% of the MBS supply, as opposed to 64% when the program began. It is estimated that by years end, with a diminished supply of new MBS, that the Fed could account for 90% of the purchases of new issuance. Rob Chrisman from Mortgage News Daily explains, CLICK HERE. We don’t have to be brilliant to figure out that if this trend continues the horn of plenty will soon, in aggregate, be missing a few pieces of fruit and not be as large.
Mortgage rates now, while slightly volatile, remain historically very low. The market’s reaction to both perceived and real tapering is sure to be swift. Therefore it makes sense for those that are in the market for a purchase or refinance to be prepared for the coming upward adjustment to mortgage rates.
How to prepare? Consult with a mortgage professional who is in tune with rates, different loan programs, and the ever changing regulatory environment.
Please look to this column in the 1st week of December for a preview of the November payroll data coming out on December 6th along with other mortgage news.
I bid you, your families, and everyone a Happy Thanksgiving!
If you would like to contact Gil about questions about mortgages, you can call him at 312-961-4510 or email him at firstname.lastname@example.org for a FREE consultation. To find out more about him and the people he works with, please go to www.gilvalentine.com Gil is a licensed Loan Officer, NMLS#1019717
Midwest Lending Corporation 1732 West Hubbard #2A Chicago IL 60622. Illinois Mortgage Licensee#MB6759631 NMLS#204212 Equal Housing Lender