Home loan rates continue to hover at historic lows, presenting an incredible opportunity for existing and future homeowners.
Will rates move another leg lower or is this the bottom? Stocks had a rough week. What’s next for them?
There are 3 things to track as we move through summer:
- Spikes in coronavirus cases in several states: This is a real concern that comes with both a human and economic toll. We have to watch and pray that hospitalizations don’t increase significantly. From an economic standpoint, there will be a negative effect. At the very least, it delays state re-openings and continues the “incremental” improvement in the economy. Should cases rise significantly and cause even more chaos, Stocks may decline, thereby helping Bonds and rates.
- Overwhelming policy response: The Fed, Treasury, and administration are spending trillions of dollars to help underwrite the economic recovery, and many trillions more will be spent. There are rumors that another PPP (Paycheck Protection Program) plan will come together before Congress recesses in August. There is also a $1 trillion infrastructure bill being debated. In addition, the Fed will continue to purchase mortgage-backed and Treasury securities in the open market, and will hold rates near zero for as far as the eye-can-see. Stimulus helps both Stocks and Bonds, but Stocks even more, as the overwhelming support takes a bit of risk out of the markets … hence the term, “Don’t fight the Fed.”
- Watch the technicals: For all rates — including home loan rates — to improve much further, the 10-year yield has to move beneath .60%. This is something that has only happened a couple of times during the darkest moments of COVID-19. For Stocks, the S&P 500 is trying to remain above its 200-day moving average, currently at 3,020, an important technical marker. If Stocks regain some of this week’s losses, it could be at the expense of Bonds and rates. Should the S&P 500 move sharply beneath its 200-day moving average, we will likely see an extended selloff, thereby helping Bond prices.
The next directional move in the financial markets and the overall economy will likely be determined by the first two bullets, with the technicals further confirming this move.
Bottom line: With rates at all-time lows, now is a wonderful time to lock in a mortgage. No one knows what the future will bring, but we do know the policy response will continue to grow which generally helps Stocks and limits Bond/rate gains.
Last Week in Review: Fear Versus Hope Driving the Markets Again
This past week, Freddie Mac reported mortgage rates hit the lowest in U.S. history — 3.13%.
The improvement in rates is a direct result of jobs returning, lowering the risk of mortgage default, coupled with increased competition forcing the industry to “sharpen” pricing.
What happens next for rates?
We are watching fear versus hope play out again and the coronavirus is taking the headlines.
A spike in cases and hospitalizations in several “re-opened” states is causing fear, anxiety, and uncertainty, which Stocks hate and Bonds and interest rates love.
On the other side of the coin, there are many positive, optimistic, and hopeful reasons why Stocks remain elevated and are limiting the improvement in rates. These include:
- States and businesses re-opening.
- Fed stimulus continuing to support Stocks and Bonds.
- Low rates helping homeowners and fueling consumer spending.
- Pent-up demand. The savings rate hit 33%, with many Americans staying home and just starting to get outside.
- Homeownership demand and housing is doing extremely well and will add to the economy.
- Additional Treasury and administration stimulus will be passed to underwrite the economic recovery.
Bottom line: With home loan rates at historic lows, housing demand increasing, and many positive forces at play, today makes an incredible time to lock at the best rates ever. If the positive forces mentioned win the day and a second surge in cases doesn’t reemerge, rates may not improve much further, if at all. Finally, remember that the 10-year Note yield has not moved beneath .60% for any sustained time during the darkest days of COVID-19. This means that in order for rates to improve much further, things may have to get even more uncertain than those times.
Last Week in Review: Fed says Zero – Rates Improve
About every six weeks the Federal Reserve meets and decides whether to make potential changes to the Fed Funds Rate, an overnight lending rate. They also release their Monetary Policy Statement which includes the reasoning for their action or inaction.
This past week, it was Fed Week and while they didn’t change rates or offer any big surprises it was the actual “zero” which ultimately hurt Stocks and helped Bonds and home loan rates.
The Fed said they are likely to keep the Fed Funds Rate at the current rate of zero, potentially through 2022.
Why would the Fed not hike rates for possibly 18 months or more?
It’s important to understand the Fed’s dual mandate and primary functions: to promote full employment and manage price stability (inflation). At the moment unemployment is highly elevated at 13.5% and it will take time for the labor market to get back to the 3.5% we saw just a few months ago.
The other reason is inflation or price stability. At the moment, inflation is running well below the Fed’s target of 2.00% and is likely to do so for the foreseeable future. With inflation currently no threat, there is no pressure for the Fed to raise rates.
What does this mean for mortgage and housing? Mortgage-backed securities are Bonds which influence home loan rates. Inflation is the main driver which pushes them higher or lower. If inflation indeed remains low as the Fed is currently forecasting, then home loan rates will remain relatively low for the foreseeable future.
Supporting the notion for low inflation in the near-term is the incremental re-opening of states and businesses. This will make consumer demand return more slowly as well.
In addition to the status quo on rates, the Fed also said they will continue to buy Treasuries and mortgage-backed securities on a daily basis to “sustain smooth functioning” of the markets. This action will also help keep home loan rates lower for longer.
The bottom line: The backdrop for housing and the economy continues to be bright. Inflation is low, jobs are returning, consumers are eager to spend, housing demand is increasing, and we should expect the Fed, Treasury, and administration to do whatever it takes to underwrite a full economic recovery.
Last Week in Review: Four Reasons Why Rates are on the Rise This Week
This past week, home loan rates ticked a bit higher from their best levels in U.S. history. More importantly, this increase in rates may be the start of a trend in higher rates.
Here’s four reasons why rates rose and why they may continue to do so:
- Economic optimism: More and more states are reopening, and people are getting back to work. Friday’s Jobs Report showed 2.5 million jobs were created, when 8 million jobs were expected to be lost. The unemployment rate rose to over 13%, but expectations were for a much worse 20% unemployment rate. Bonds and rates don’t like good news, and this was good news.
- Overwhelming policy response: The Fed and U.S. Treasury’s response to help the economy get through the coronavirus impact is by far the largest monetary stimulus in the history of the country. This is more positive news which has helped Stocks trade to their best levels since March 4. As Stocks move higher, many times rates do as well. We saw that this week.
- Coronavirus uncertainty abating: Hope and optimism are rising now that we are well beyond the worst of the coronavirus. If states continue to see unemployment and new cases go down, the optimism will be justified and better times will be ahead. Stocks and rates increase during better days.
- Global yields are increasing: In Germany, their 10-year Bund yield has moved from -.60% to -.27% as of this weekend. This is for the same three previous reasons. If yields in Germany continue to move higher from negative territory, U.S. rates, including home loan rates, will continue to tick higher as well.
The good news: Any uptick in rates in the near-term may be limited for two reasons. The Fed continues to purchase Bonds on a daily basis, thereby holding yields down, and economies are reopening slowly, so rates should increase slowly over time as well.
Bottom line: With rates at all-time lows, if you can secure a home loan to either refinance or purchase a home, now is a great time.
Last Week in Review: All-Time Low Home Loan Rates
This past week, Freddie Mac reported the 30-year home loan rate hit an average all-time low of 3.15%.
As the unofficial start of summer has begun and states continue to reopen, this is welcome news, but there is even more to the story.
- Refinance activity remains elevated and with the average refinance loan amount declining, it means many borrowers with smaller loan amounts are able to lower their interest rate expense. This can be a positive economic contributor in the months ahead.
- Housing demand has increased sharply over the past couple of weeks and the low interest rates have been a contributing factor.
There was a lot of bad economic data this past week, but most of it was backward-looking. Within Weekly Initial Jobless Claims was continuing claims, a ray of sunshine and a leading indicator of labor market strength.
Last Thursday, nearly 4 million more people than expected came off unemployment benefits — meaning people are finding work or have gotten rehired. We are watching to see if this trend continues as the U.S. economy continues to reopen.
Bottom line: With rates at all-time lows, housing demand remaining strong, people going back to work, and optimism rising, we should expect the housing market and broader economy to continue to improve and ultimately thrive in months ahead.
Last Week in Review: Three Trends to Follow as Summer Begins
As the unofficial start of summer began with the Memorial Day holiday, there are three trends worth following which may determine how the economy moves past the coronavirus.
- The reopening. Most states have begun to open up in some form. A few states have been open for weeks and have not yet seen a resurgence in cases, which if the trend continues, would be a great proxy for the rest of the country.
- Don’t fight the Fed. Last Sunday on 60 Minutes, Fed Chairman Powell reiterated that the Fed will do whatever it takes to help underwrite the economic recovery. If the Fed, Treasury, and administration continue to throw every resource necessary to help the economy, it will likely work.
- American spirit. We are seeing incredible increased demand in online shopping, DIY projects, and more. It seems reasonable that American spirit and optimism can continue to rise as we enter the summer months and states gradually reopen.
When you couple American spirit and states reopening safely, along with continued Fed support, you have all the ingredients required for an economic recovery. Let’s see what the next few weeks bring.
Meanwhile, home loan rates are at all-time lows and the housing market continues to see buying demand.
On the other side of the virus, we may very well see a strong housing market for all the reasons above, plus the pent-up demand created by increased household formation.
Better days are surely ahead.
Last Week in Review: Fed Speak Shakes Markets
Home loan rates remain near historic lows and have stabilized, thanks mainly to the Federal Reserve, as the central bank continues to purchase mortgage-backed securities on a daily basis.
The Fed also helped rates this past week in another way, but it may have been unintentional. Fed Chairman Powell spoke last Wednesday and uttered remarks that lifted uncertainty about the economic recovery. By saying the U.S. is facing an “extended period” of economic weakness, Stocks fell sharply, providing an improvement to rates.
The reality is the U.S. economic recovery is likely to be gradual as states re-open at a slower pace, while consumer demand may take some time to return to more normal levels. At the same time, we should expect the Fed, Treasury, and U.S. government to do whatever it takes to help the economy through this deep, yet temporary, recession — and revive it upon coming out of the other side of the virus.
The next couple of weeks are important to see whether the unemployment rate can decline in states that are re-opening, alongside a continued decline in cases.
Bottom line: Home loan rates are at all-time lows. Even all of the uncertainty and the sharp decline in Stocks could not push rates another leg lower this past week. Anyone with an opportunity to lock a 30-year mortgage, should do so.
Last Week in Review: Oversupply of Bonds and Unemployment
One week after home loan rates failed to improve further in the face of multiple Bond-friendly stories, such as low inflation, high unemployment claims, and the Fed’s continued commitment to purchase Bonds, we watched home loan rates tick up this past week.
Oversupply. The U.S. Treasury announced they will need to borrow $3 trillion through the third quarter of 2020 to pay for the economic stimulus package related to the coronavirus. In order to “borrow” the $3 trillion, the Treasury will issue a new 20-year Bond that will need to be purchased by investors.
Investors, at the moment, are showing early signs that rates will need to tick higher to meet the buying demand for this enormous new supply of Bonds. Early in the week, the 10-year yield hovered near .60% but ticked higher to .73% during the week and this weighed on mortgage-backed securities, which home loan rates are derived from.
On Friday, the Bureau of Labor Statistics reported that 20,500,000 were unemployed in April, lifting the unemployment rate to 14.7%. It was the worst Jobs Report in the history of the U.S.
Home loan rates didn’t improve in response to the horrible “oversupply” of unemployed shown in the Jobs Report. This is because the markets are forward-looking, and April’s Jobs Report is backward-looking.
Bottom line: The Bond market is more focused on the additional supply of Bonds that will need to be purchased and the cautious optimism seen in reopening parts of the U.S. economy. For this reason, consumers who have an opportunity to lock home loans at current all-time low rates would be wise to do so.
Effective May 11, 2020, the Wholesale/Correspondent lock policy will allow a 60-day lock at the Approval milestone regardless of whether the appraisal has been received. There is no longer an option for a 45-day lock term. See updated Minimum Lock Term table below.
Revised Lock Policy
Encompass and Optimal Blue will enforce these requirements.
Lock Extension Policy
- Maximum of up to two extensions
- Maximum extension period of 15 days in the aggregate
- Current extension fee charges remain in place (see rate sheet)
- Free 3 day remains in place (existing policy applies)
- No additional concessions will be considered for extension fees charged
Refer to the CMS Wholesale Rate Lock Policy for additional information.
We are doing all we can to provide an exceptionally high level of service during this unprecedented time, so that you can close every loan as swiftly as possible.
To better serve you and eliminate delays, we’ve put together a list of tips to help get your loan closed quickly and smoothly.
All New Submission Files Must Contain:
- Recent 30 days of paystubs
- Proof of available assets within the last 30 days
- W-2s for the last 2 years
- Tax returns for the last 2 years
- Credit report within the last 60 days
- For FHA loans put the case # in Carrington’s name
For File Currently in Process:
- Submit all conditions 7 days prior to closing
- Allow 48 hours for closing after CTC
- Understand VVOE will be done within 5 business days before funding
Got Questions? Talk to your Account Executive or call us at (866) 453-2400