EU affecting U.S. mortgage ratesMortgage markets improved only slightly last week despite a large 2-day rally that lasted through Wednesday and Thursday.

Unfortunately for mortgage rate shoppers in Henrico , markets were worse throughout the other 3 days of the week, which kept mortgage rates from dropping to new all-time lows.

As with many weeks since the start of the year, political and economic action within the Eurozone dictated the direction of domestic mortgage rates. Last week’s 2-day EU Summit was the major driver of markets.

In the days leading up to the summit, mortgage rates worsened as optimism in the summit’s outcome grew. This is because a stable Europe is good for the world’s economy which, in turn, encourages Wall Street investors to move money from “safe investments” such as U.S. mortgage bonds into more risky ones such as equities.

This creates an excess supply of mortgage bonds which causes mortgage rates to move higher.

On the day prior to the summit, though, optimism faded. Several Eurozone leaders expressed an unwillingness to compromise with each other and the rhetoric drove investors back into “safe” asset classes, which explains the mid-week drop in mortgage rates.

However, Friday, in a surprise move, EU officials announced a plan to recapitalize Europe’s banks, and to reduce borrowing costs for Spain and Italy. Once again, this puts investors in a risk-taking mood, and mortgage rates rose in response.

The news in Europe overshadowed strong housing reports here in the United States.

New Home Sales and the Pending Home Sales Index both gave strong results and inflationary pressures were shown to be in check. The housing market continues its slow, steady recovery.

This week, mortgage rates are expected to remain volatile. The markets have had the weekend to pick through the EU agreement and, later this week, the Bureau of Labor Statistics will release the June 2012 Non-Farm Payrolls report. In addition, this is a holiday week so trading volume is expected to be lighter-than-usual.

Date Time (ET) Statistic For Market Expects Prior
07/02/12 10:00:00 AM ISM Index Jun 52.2 53.5
07/02/12 10:00:00 AM Construction Spending May 0.20% 0.30%
07/05/12 08:15:00 AM ADP Employment Change Jun 105K 133K
07/05/12 08:30:00 AM Initial Claims 06/30/12 385K 386K
07/06/12 08:30:00 AM Unemployment Rate Jun 8.20% 8.20%

Mortgage markets will be closed Wednesday.

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FOMC meets this weekMortgage markets improved last week, moving mortgage rates in Virginia back on a downward trajectory. Wall Street investors bid down mortgage bond yields on weaker-than-expected economic data from the U.S. and concern for events within the Eurozone.

Freddie Mac reports the average 30-year fixed rate mortgage rate at 3.71% for borrowers willing to pay 0.7 discount points plus accompanying closing costs.

It’s the second-lowest reading in Freddie Mac’s recorded history and, as a point of comparison, one year ago, the 30-year fixed rate mortgage averaged 4.50% nationwide.

A homeowner giving a $200,000 mortgage at last year’s 4.50% rate would have paid $1,013 monthly for principal + interest. Today, that same homeowner pays just $922 per month — nine percent less.

Mortgage rates may drop even more this week.

Sunday, in Greece’s bid to re-elect a government, a pro-bailout party won the most votes in a highly-watched election, dampening fears that Greece may leave the European Union. However, the winning party must still form a new government and it beat the “anti-bailout” party by just 3 points — 30% to 27%. Some analysts question whether Greece can form a coalition government within its required 3-day window.

If Greece fails to form a government, the nation-state’s future in the European Union will, again, be in doubt — a potentially positive development for U.S. mortgage rates.


Date Time (ET) Statistic For Market Expects Prior
06/19/12 08:30:00 AM Housing Starts May 719K 717K
06/20/12 12:30:00 PM FOMC Rate Decision Jun 0.25% 0.25%
06/21/12 08:30:00 AM Initial Claims 06/16/12 380K 386K
06/21/12 10:00:00 AM Existing Home Sales May 4.56M 4.62M
06/21/12 10:00:00 AM Philadelphia Fed Jun -0.2 -5.8
06/21/12 10:00:00 AM Leading Indicators May 0.00% -0.10%
06/21/12 10:00:00 AM FHFA Housing Price Index Apr n/a 1.80%
06/21/12 01:15:00 PM 30Y TIPS Auction n/a n/a n/a


Also this week, the Federal Open Market Committee meets for its fourth scheduled meeting of the year, a two-day event beginning Wednesday. The FOMC doesn’t set mortgage rates, but it does set U.S. monetary policy which can have an effect on mortgage rates. If the Federal Reserve votes to add new stimulus, mortgage rates may rise on concerns for inflation.

The FOMC is not expected to add new stimulus.

And, lastly, this week will see the release of several housing reports including the homebuilder confidence survey, the Existing Home Sales report, and the Housing Starts report. Strength in housing may be viewed as a plus for the economy, which can cause mortgage rates to rise.

Expect volatility this week as mortgage markets wrestle with events at home and abroad. This may be aprudent time to lock a floating mortgage rate.

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Jobs in focus this weekMortgage markets worsened slightly last week as demand for mortgage-backed bonds slacked. There was little surprise in U.S. economic data and the unfolding story lines of the Eurozone continued unabated.

Mortgage rates in Virginia worsened slightly on the news, climbing for the first time in two weeks.

The change was a small one, however, and rates only eased higher Wednesday through Friday. As such, Freddie Mac’s weekly mortgage rate survey failed to capture the change — Freddie Mac’s survey is conducted Monday and Tuesday.

According to the Primary Mortgage Market Survey, the average 30-year fixed rate mortgage rate slipped to 3.78% last week, on average, down from 3.79% during the week prior. At the same time, the number of discount points charged by banks increased to 0.8 from 0.7.

Stated differently, 30-year fixed rates mortgage rates dropped but mortgage applicants paid higher fees to get access to them. 1 discount point is equal to $1,000 per $100,000 borrowed.

Freddie Mac also reported no change in the 15-year fixed rate and the 5-year adjustable rate mortgage rates. Average mortgage rates for the twp benchmark products remained at 3.04% and 2.83%, respectively, with no change in discount points.

This week, mortgage rates figure to show a bit more movement. It’s a 4-day week because markets were closed for Memorial Day, and there is a glut of new data set for release. Most notably, the May Non-Farm Payrolls report hits Friday morning.

Date Time (ET) Statistic For Market Expects Prior
05/29/12 10:00:00 AM Consumer Confidence May 69.4 69.2
05/31/12 08:15:00 AM ADP Employment Change May 157K 119K
05/31/12 08:30:00 AM Initial Claims 05/26/12 368K NA
05/31/12 08:30:00 AM GDP – Second Estimate Q1 2.00% 2.20%
06/01/12 08:30:00 AM Nonfarm Payrolls May 150K 115K
06/01/12 08:30:00 AM Unemployment Rate May 8.10% 8.10%
06/01/12 08:30:00 AM Personal Income Apr 0.30% 0.40%
06/01/12 08:30:00 AM Personal Spending Apr 0.30% 0.30%
06/01/12 08:30:00 AM PCE Prices – Core April 0.30% 0.20%
06/01/12 10:00:00 AM Construction Spending Apr 0.50% 0.10%

The jobs report affects mortgage rates because mortgage rates are linked to U.S. economic strength. Wall Street is expecting to see 164,000 net new jobs created in May. If the actual results fall short of that estimate, mortgage rates should fall. If the actual number exceeds estimates, mortgage rates should rise.

Other releases include the  Consumer Confidence, the Pending Home Sales Index, and Personal Income and Outlays.

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Existing Home Sales Mortgage bonds improved last week on lingering concerns for the European Union, plus weaker-than-expected economic data here at home. Global investors were net buyers of mortgage-backed securities last week, pushing mortgage rates lower nationwide.

According to Freddie Mac’s mortgage rate survey, conforming 30-year fixed rate mortgage rates slipped to 3.79%, on average, last week for borrowers willing to pay 0.7 discount points and a full set of closing costs.

This is the lowest on-record.

15-year conforming fixed rate mortgage rates also fell to a new all-time low, registering 3.05% with 0.7 discount points and closing costs.

Unfortunately, not all mortgage applicants in Virginia are getting access to Freddie Mac’s posted rates. This is because the “national mortgage rates” assume a 30-day closing window and few banks have been closing loans in 30 days lately. Persistently low mortgage rates have created an appraiser scarcity which, among other reasons, is forcing banks to stretch the traditional 30-day closing window by fifteen days or more.

Longer rate locks carry higher mortgage rates.

For home buyers in Henrico , purchase money loans can often be accommodated in 30 days. For refinancing households, however, the process can take up to 60 days. As a result, refinancing homeowners are finding the 3.79% mortgage rates promised by Freddie Mac’s survey somewhat elusive.

This week, though, as chatter of a European Union dissolution grows, investors are seeking safety of principal. Lately, they’ve been finding it in the U.S. mortgage bond market. As demand for mortgage bonds rises, mortgage rates should fall for both 30-day locks and 60-day ones.

This will aid everyone looking for a home loan.

Date Time (ET) Statistic For Market Expects Prior
05/22/12 10:00:00 AM Existing Home Sales Apr 4.65M 4.48M
05/22/12 01:15:00 PM 2-year Treasury Note Auction

05/23/12 10:00:00 AM New Home Sales Apr 339K 328K
05/23/12 10:00:00 AM FHFA Housing Price Index Mar NA 0.30%
05/23/12 01:15:00 PM 5-year Treasury Note Auction

05/24/12 08:30:00 AM Initial Claims 05/19/12 365K 370K
05/24/12 08:30:00 AM Durable Orders Apr 0.30% -3.90%
05/24/12 01:15:00 PM 7-year Treasury Note Auction

05/25/12 09:55:00 AM Michigan Sentiment – Final May 77.5 77.8

Other news set for release this week includes April’s Existing Home Sales report and New Home Sales report. Both will be closely watched because housing is tied to U.S. economic recovery. Strong results in either data set may push mortgage rates higher.

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