Do Mortgage Rates Continue Fall or Hit a Wall? , June 29, 2010
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- David Coster - MortgageLoan.com
Mortgage Rate Trend Direction: Down
Economic Reports/Rate Impact: Case-Shiller Home Price Index, 9:00 AM ET, Moderate Rate Impact
Consumer Sentiment, 10:00 AM ET, Moderate Rate Impact
Key News: European Debt Crises, Slower Growth in China
Summary
Yesterday ended with rates at or near all-time lows. Today should bring even lower rates as markets in Europe and Asia have fallen and US stock markets will open sharply down. Some guidance will be provided by reports on home prices and consumer confidence that are released this morning, though neither report is expected to provide any surprises. Remember surprises in economic data can provide sharp and unexpected changes in mortgage rates. More important as an impetus for mortgage rates today are renewed concerns about the European debt crises. A key report of economic growth in China was dramatically reduced overnight increasing fears of an international slowdown.
Finally, as reported here last week, there are concerns within the mortgage origination industry that rates may not be able to drop much further due to economic and technical factors. Those concerns not withstanding, mortgage rates are likely to drop in initial pricing today.
Impact of economic reports
The Case-Shiller Home Price Index is expected to show that home prices are stabilizing throughout the US. Concerns are for the future of home prices as banks have recently dramatically increased foreclosure activity. This will put more supply into the markets and could lead to additional losses in home values. The Consumer Sentiment report is expected to show an increase in confidence of consumers in their prospects going forward. While this is an encouraging sign it is an indication of current feelings. If, as expected, the economy slows over the next several months, consumer confidence will likely deteriorate as well.
Impact of international or political events
European analysts sounded renewed concerns over the debt crisis in Europe and the strength of certain European banks. The possibility that the spending cuts by European countries will cause economic growth to fall across the world, has lead international stock markets lower. In China a mistake in a key report of economic growth has changed views regarding that nation's ability to lead the world economy toward growth in the future.
Some mortgage-backed securities (MBS) analysts are pointing out that mortgage rates may have a floor due to technical issues within the market and basic economics. On the technical side, trades in MBS are at the bottom of the lowest value MBS ever traded. There simply isn’t any experience to guide whether or not MBS can be sold with lower returns for investors. Will investors who desire higher returns stop buying MBS and switch to other types of investments? Economic theory suggests that there is a floor to what a rational investor would expect in return from a specific investment. Have mortgage rates reached that floor?
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National Rates
| Loan Type | Today | +/- |
|---|---|---|
| 30 yr fixed | 3.69 |
|
| 15 yr fixed | 3.00 |
|
| 5/1 ARM | 2.69 |
|
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