Financing Homes in Lake Tahoe and Truckee since 1992.

Rates are Rising, Indeed-Commentary May 28, 2013

Tahoe Mortgages and Tahoe Home Loans-Blog:

 It is always somewhat bemusing to read in the financial press that applications for new mortgages declined sharply in the past week when mortgage interest rates jumped by 9 basis points one week and 8 basis points the next, as occurred in the past two weeks. That’s a total of 17 basis points…about a sixth of a percent. It depends on how you look at it, but to most of us, a sixth of a percent isn’t usually a deal-breaker if we’re arranging new home financing.

 So let’s look at it more closely. As of May 9, the Freddie Mac average 30-year fixed rate was 3.42%. A $400,000 mortgage at 3.42% requires a monthly payment of $1778.36. At 3.59%, where the Freddie Mac average ended up on May 23, the monthly payment only rises to $1816.33.

 Who is going to drop out of an origination process when his or her loan threatens to cost about $38 per month more than first anticipated? It’s a curious question, given that the composite of mortgages applied for dropped by a very significant 9.8%.

 But refinancings took the much more strenuous dive, declining by 12%. This is to be expected, since the aim of refinancers is almost always simply to arrange a loan with a lower interest rate than their existing loan has. But consider…the number of refinancings moves on a dime, depending on the slightest up or down for interest rates. When rates give any indication that they are rising, the number of applications for refinancings takes a quick drop. But it is rare that the number of applications for purchase money loans moves truly significantly because of a rise of, say, 20 basis points for mortgages.

 And, to the naked eye, purchase money loans actually remained in the channel they’ve occupied for several weeks—maybe up 4% one week, and down 4% the next. There is very little significance to such small moves.

 Ultimately, there isn’t that much to shout about here. The big news, it turns out, is that the credit markets are so ready to believe that interest rates are starting a serious rise (as they may be, indeed) that the financial news is full of the confident assertion that rates are rising for real now.

 To say it again: They may indeed be initiating a lasting rise that takes them a good deal higher. But they also may not. We don’t have any news here that is substantial enough to hang a theory on. Once again, it’s time to wait.

 We will watch to see if rates continue to rise a bit more quickly—to see if a trend is developing. We will also remain a bit concerned that the markets may take evidence of higher rates as reasons to run from real estate financing. Perhaps, in spite of the sound and fury, real estate will prove to remain one of the strongest plays there is in the investment world…and rising rates may awaken investors further to that possibility. Time, as always, will tell.

KEY INDICATORS
[5/28/13]

Gold (Comex)

  $1393.70/ounce [up]

 Crude Oil (Brent)

  $102.56/brl [down]

 U.S. Dollar to…

  Euro                    0.7733 [down]

  Japanese Yen    101.07 [down]

  Chinese Yuan     6.1211 [down]

  Canadian Dollar  1.0334 [up]

 6-mo Treasury Bill Yield   0.07%

10-yr Treasury Note Yield 2.01%

  6-mo down 1 bp

  10-yr up 6 bps

11th Dist Cost of Funds 0.967%

  [May]

 HSH average mortgage rates

  Index includes jumbo rates [5/24]

30-yr Fixed-rate Mortgage  3.81%

15-yr Fixed-rate Mortgage  3.04%

1-yr ARM  2.85% 

  30-yr up 5 bps

  15-yr up 6 bps

  1-yr ARM unchanged

 Freddie Mac weekly average rate

  3.59% [up 8 bps]

 Mortgage Bankers Association

Mortgage Applications Index

  For week ending 5/17

Overall

  Down 9.8%

    [Down 7.3% prior week]

Purchase money loans

  Down 3%

    [Down 4% prior week]

Refinancing loans

  Down 12%

    [Down 8% prior week]

 Jobless Claims 5/18

  340,000

  [prior week 363,000 (rev)]

  4-week moving average 339,500

  [up]

 Existing Home Sales Apr

  Up 0.6% – SFR sales up 1.2% –

  months’ supply rose from 4.7 to

  5.2 months’ worth of listings –

  median prices up 4.8%

 New Home Sales Apr

  Up 2.3% on limited inventory –

  median price up 8.3%

 Durable Goods Orders Apr

  Up 3.3% month-to-month – up

  2.4% y-to-y

 COMING INDICATORS

 Thursday May 30

  Gross Domestic Product (GDP)

  Pending Home Sales

 Friday May 31

  Personal income

  Consumer Sentiment

 Monday June 3

  ISM Manufacturing Index

  Construction Spending