Mortgage rates seem to be comfortable in their current range and are seemingly ignoring movements of the ten year treasury. That's all good for home buyers - at the moment.
We've had a variety of economic information, some good, some not as good and the ten year treasury's 3.0% resistance level seems to be holding although it's been tested numerous times in the past week. Meanwhile mortgage investors seem somewhat unconcerned now that the plan for the taper has been laid out and rates are remaining steady. Here's what's happening on the reports:
Factory orders came in above consensus at 1.8%, 0.3% higher than predicted. But contrarily last month's numbers were revised downward by 0.5%. That downward revision more than offset the gain. At the same time Monday, the ISM Non-Manufacturing Index came out, 1.8 below expectations and below the bottom of the consensus range. All that is good for rates.
On Tuesday, the International Trade Report showed Exports rising and imports falling slightly more than expected. This was the lowest monthly deficit since October 2009 and wasn't particularly good for rates. The impact would have been greater but much of the drop was due to the drop in oil prices not necessarily a real import/export unit change.
Wednesday we saw the ADP Employment Report and last month's numbers were revised upward from 215,000 to 229,000 jobs created. This month's consensus number was 205,000 and the actual was 238,000. That's good for the economy and bad for rates. That being said, this report has been all over the map in recent months and the consensus range of estimates was a ridiculously large 130,000 to 208,000. Friday's Employment Situation Report will give us a much more clear idea of job creation.
What To Expect
The end of the week includes only two major reports but they are big ones. Thursday's Jobless Claims are expected to be slightly lower than last week at 331,000, although the holiday volatility will still be a factor. Friday's Employment Situation Report is expect to be down slightly to 203,000 jobs created. In theory, the ADP number of 238,000 doesn't bode well for interest rates but we have been seeing large variances between these reports.
If we see either report show significantly better numbers than predicted or both showing some improvement over consensus, the 3% resistance level may give way and rates may climb about 3.09%. Given the reluctance of mortgage rates to follow treasuries the past few weeks, if the market turns more bearish, we could see rates climb to 4.875% by week's end.
Not a risk worth taking. Lock if you are under contract.
Mortgage Industry Changes Slated for Friday
Many news reports and mortgage company ads are headlining the mortgage industry changes on applications taken after Friday, January 10. While there are some changes of importance, most are internal to the mortgage companies themselves.
For Realtors and consumers the biggest changes are:
Interest only loans, 3% down payment conventional loans and some ARM loans now belong to the history books.
The concept of paying the mortgage insurance for the life of your loan, up front, in cash is effectively gone. Since it was never a big product, it shouldn't matter.
The implementation of the government's interpretation of a borrower's Ability To Repay a loan is now in full swing. We have seen the impact of the ruling over the past year as qualifying ratios have continued to decrease. The movement is back towards a maximum of a 43% total debt to income level from the over 50% number we saw in years prior. This of course, is still much higher than the traditional 36% maximum of the 1970's and 1980's.
With rates being steady and underwriting turn times being the best in years, it's a great time to purchase a home.
We'll talk Friday.
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