Mortgage rates made another big drop last week as weaker-than-expected economic data sparked a mortgage bond rally. Home buyers and refinancing households are benefitting. The average 30-year fixed rate mortgage rate is now 4.13% nationwide for borrowers paying 0.8 discount points -- nearly one-half percentage point lower than this summer's mortgage rate peak. 15-year mortgage rates are similarly low. It's an excellent time to revisit your ability to refinance. Especially because the Federal Reserve meets this week. A few "wrong words" from the Fed, and low rates could reverse for the worse.
FHA, VA, Conventional Mortgage Rates Drop
As compared to one week ago, mortgage rates are better across all government-backed loan types. Mortgage rates moved lower for FHA loans, VA loans, conventional loans, and USDA ones. Rates for these particular loan types are based on the price of mortgage-backed securities (MBS) which are bonds backed by homeowners' mortgage payments. The price of a Fannie Mae 3.5% coupon improved 65 basis points last week. This reduced the number of discount points a buyer would pay at closing by the same, or gave mortgage applicants the ability to lock rates close to 0.25 percentage points lower as compared to the week prior. Pricing for FHA and VA bonds improved, too. The Ginnie Mae 3.5% coupon climbed 71 basis points, which reduced the rates for FHA loans and VA loans by 0.25 percentage points. USDA mortgage rates fell by a similar amount. The only mortgage rates which did not drop last week were mortgage rates for jumbo loans. Jumbo mortgages are loans which exceed local loan size limits. For conventional loans, this amount is $417,000 in most areas, and $625,500 in special "high-cost" areas. For FHA loans, loan size limits range to $729,750. Loan size limits may reduce in 2014. Mortgage rates dropped last week, in part, because the September Non-Farm Payrolls report failed to show meaningful labor market growth within the U.S. economy -- just 148,000 new new jobs were created in September. In addition, Wall Street remains concerned about this month's 16-day government shutdown and its lasting effects. Consumer confidence appears to have been shaken, and business confidence may be affected, too. Lower confidence levels may delay spending, investment, and hiring into early-2014, putting a pause on this year's economic recovery. The prospect of economic weakness is aiding U.S. mortgage rates. Investors are betting on the Federal Reserve keeping stimulus at full throttle, including the program known as "QE3" which works to keep mortgage rates low.
This Week : Will Mortgage Rates Fall Below 4%?
For today's mortgage rates, this week could bring a breakthrough. Along with the usual housing and economic data set for release, the Federal Open Market Committee (FOMC) has a scheduled, two-day meeting -- its seventh of the year. The FOMC is the sub-group within the Federal Reserve which votes upon U.S. monetary policy. At its meeting, the FOMC is expected to vote on holding the Fed Funds Rate near 0.000%; and to make a statement on the future of its QE3 program. It's this second piece which remains important to the future of low mortgage rates. QE3 is a program by which the Fed purchases $40 billion of mortgage-backed securities on the open market monthly, creating excess demand that holds mortgage bond prices elevated. With high demand comes low rates. QE3 launched in September 2012. No surprise, then, that within weeks of QE3's start, mortgage rates had dropped to the lowest levels of all-time. Nor should it surprise that in May 2013, when the Fed said QE3 could soon end, mortgage rates spiked. Within a two-month period, average 30-year mortgage rates leaped from 3.32% to 4.57% -- the fastest two-month jump in the history of U.S. rates. Since the surge, though, the economy has done little to show that QE3 should end. Job growth is slower-than-expected; housing markets have cooled; and, consumer spending has failed to keep up. The economy is expanding, the Fed has said, but too slowly to warrant a change in course. How the Federal Reserve describes the future of QE3 will be the big news this week. What the Fed says, and what the Fed does could pull rates higher or push them down. With the right language from the Fed this week, sub-4 percent rates become possible.
Here is the week's complete economic calendar :
•Monday : Pending Home Sales Index; Dallas Fed Manufacturing Survey
•Tuesday : Retail Sales, Producer Price Index; Case-Shiller Index; Consumer Confidence
•Wednesday : FOMC adjourns; Consumer Price Index
•Thursday : Initial Jobless Claims;
•Friday : ISM Manufacturing Index
There are also multiple Treasury auctions which can influence the direction of mortgage rates. This is because demand for U.S. Treasury debt often correlates to demand for mortgage-backed bonds. High auction demand tends to result in lower U.S. mortgage rates. The Treasury will auction 5-year notes on Tuesday and 7-year notes on Wednesday.
For more information and assistance with buying or selling a home, please contact us at 310-928-9035. My team and I are here to help you with your real estate plans. We are a top real estate team in the South Bay and have been helping clients buy and sell property since 1999. A large part of our business comes from referrals so please let us know who we can help. Call us now, we're here to help.
Frank Kenny Real Estate Team 310-928-9035