THIS WEEK'S MORTGAGE RATES!!!

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Weekly Mortgage News

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Today's Mortgage Rates

15 Year Fixed

3.330 %* APR

30 Year Fixed

4.147 %* APR

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Market Commentary


Decelerating Price Appreciation Leads to More Sales

Existing home sales picked up pace in September, rising 2.4% to 5.17 million units on an annualized rate. This was unexpectedly good news, because the consensus estimate was for 5.0 million units.

We shouldn't be terribly surprised that existing home sales are rising. We've been mentioning for months that decelerating price appreciation would likely lead to more sales. That appears to be occurring. The median price for a new home was $209,700 in September, which is a 5.6% year-over-year gain. But over 2014, the year-over-year gain has gradually diminished.

It's also worth noting that the fundamentals of the existing home market continue to improve. All-cash sales, which are reflective of distressed and investor transactions, were 24% of all transactions in September, a significant decrease from the 33% of transactions a year ago.

Unfortunately, mortgage financing of home sales has yet to gain traction. The rate on the 30-year fixed-rate loan is regularly quoted below 4% in many markets, but the Mortgage Bankers Association (MBA) weekly survey shows its purchase index actually decreased 5% last week. To be sure, refinances benefited from the steep drop in lending rates that has occurred this month, but we would really like to see a pick up in purchase activity.

Whether sub-4% on the 30-year loan is a passing fad is difficult to say, but it's looking more like that might be the case. The yield on the 10-year U.S. Treasury note has moved higher in recent weeks, and could move higher still. The 10-year note influences many long-term lending rates, including long-term mortgage rates.

Earlier this month, rates trended lower on rising global risk: ISIS, Ebola, Russia and Ukraine, Hong Kong protests, slowing European economic growth, and more. When risk perception rises, investors flee riskier assets, such as stocks, for haven assets like highly rated notes and bonds (U.S. Treasury notes and bonds top the list).

But risk perception appears to be fading: Stocks have rebounded during the same time yields have been rising. This suggests that investors are becoming less risk averse. When risk aversion abates, you can expect yields and interest rates to rise.

Predicting the direction of mortgage rates can be a frustrating endeavor. Our best guess is that if another bombshell isn't dropped on the world stage, rates will be more inclined to move higher than lower in coming months. We say that because of the strength in the economy and the job growth we've seen this year.

Economic Calendar

Economic
Event

Release
Date and Time

Consensus
Estimate

 Analysis

Pending Home Sales Index (September)

Mon., Oct 27, 10:00 am, ET

0.2% (Increase)

Important. The outlook for sales remains stubbornly flat, due mainly to a dearth of first-time buyers.

S&P/Case-Shiller Home Price Index (August)

Tues., Oct. 28, 9:00 am, ET

6.0% (Increase)

Important. The rate of year-over-year price appreciation will continue to slow.

Mortgage Applications

Wed., Oct. 29, 7:00 am, ET

None

Important. Refinance activity has picked up, but purchase activity remains muted.

Federal Reserve FOMC Meeting

Wed., Oct. 29, 2:00 am, ET

None

Important. The Fed will offer more insight into quantitative easing and interest rate policy.

Gross Domestic Product (3rd quarter 2014)

Thurs., Oct. 30, 8:30 am, ET

3.1% (Annualized Growth)

Important. The current rate of growth suggests interest rates are unlikely to move meaningfully lower.

Are Things Getting too Lax These Days?

A recent Reuters article shows that some people think mortgage lending is becoming a little too lax. A new rule was recently passed by the Securities and Exchange Commission (SEC) that requires banks to keep at least 5% of the risk on their books when a loan is securitized. Also in the rule are definitions of “qualified loans.” Here, a couple SEC commissioners protested, believing the definitions are too lax on underwriting standards, and, therefore, are risky.

Many of us in the mortgage market would politely challenge the assertion that things are too lax. If anything, they are likely too rules based, where there isn't enough of an opportunity to apply intelligent qualitative inputs.

For example, we recently learned that of all people former Federal Reserve Chairman Ben Bernanke was unable to refinance his home (valued at $814,000).

This seems absurd, but it's true. This is a person who earns hundreds of thousands of dollars per speech and has recently signed a book deal that is likely valued at over $1 million. Bernanke is likely earning more today than when he bought his house in 2004 when he was Fed chairman.

Bernanke's problem is that he recently stepped down from the Fed after an 11-year run. Bernanke went from salaried compensation to something more akin to consulting and commissioned-based compensation. He's earning more money, but in a day were lending has become more rules based, he appears a greater credit risk.

The problem – with all forms of lending – isn't about being too lax or too rigid; it's about being insufficiently flexible. Underwriting standards have rightfully become more accommodating since 2009, but our hope is that more flexibility will be infused into the process going forward.

 

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Kara Morris

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Office: 630-466-5016
Email: kmorris@castlebank.com

NMLS ID#: 852775

36 E. Galena Boulevard
Sugar Grove, IL 60554

Learn more about Kara Morris

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*Rate as of Monday, October 27, 2014. Approval and terms subject to credit qualifications, loan amount and property value. Rates will vary by term. Some limitations apply. See a Castle Bank Mortgage Loan Officer for details.

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Castle Bank Home Mortgage Division

A Division of First National Bank of Omaha

Monica Mancano

Monica Mancano

REALTOR®, SRES®, MRP, AHWD
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