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Despite a rate uptick today after a better than expected February jobs report, rates are holding to their sub-5% levels reached last week. To be specific: the market closed today at 4.75% on a 30yr fixed for a single family home with at least 20% equity, a loan of $417k or less, points of 1%, and a borrower credit score of 740 or greater. Headlines can be misleading since rates vary based on property type, borrower profile, loan amount, and fees.

Also be aware that most press reports on rates are based on Freddie Mac’s weekly average nationwide rate survey which is published Thursdays. The report is for the rates on loans with parameters noted above, and headlines rarely mention average points for the average rates highlighted. So if you’re reading press reports, read long enough to see what the average points are. And you can also go to the source. more…

Extreme rate volatility discussed in this WeeklyBasis report two weeks ago still holds. Rates traded up and down about .375% this week on fears about business inflation and Fed rate hikes. Today’s tame consumer inflation contributed to rates dropping again, and rates end the week roughly .25% above all time record lows. But this record low rate window looks to be closing. Rates could rise by about 0.5% by summer for three reasons:

(1) The Fed will end it’s $1.25t mortgage bond buying program March 31 (they’re 95.8% into their MBS buying budget as of today), and then we’ll likely see profit taking on mortgage bonds as private investors sell, which pushes prices down and yields—or rates—up. The San Francisco Chronicle published a very good consumer-friendly story on this topic Monday, and my quote in that story explains other factors affecting rates after March 31. more…

For the past three weeks, rates have closed market trading days within .25% of record lows. But the intraday rate swings have been dramatic as mortgage bond traders sort through economic data releases.

Case in point: how rate markets reacted to today’s Jobs Report. Stocks rallied and mortgage bonds (that rates are tied to) sold off on the initial reaction to unemployment decreasing from 10% in December to 9.7% in January. But the report also said that actual January job losses of -20k were greater than the 15k new jobs estimates called for, and December’s previously reported -85k job losses was revised up to -150k. Markets seemed to realize this as the trading day continued because stocks went negative and bonds rallied.

All told, mortgage bonds traded in a 68 basis point range today, which caused rates to trade in a .25% to .375% range as lenders issued new rate sheets throughout the day (Sidebar: can we still say “rate sheets” in this online era). more…

Rate & Market Update
Rates dropped for the second week in a row bringing rates close to all time record lows set April and November 2009. The official report on rates isn’t relevant for consumers because it’s published by Freddie Mac a week late (so this week’s rates will be published January 28), but markets are certainly cooperating with home financers even as the Fed starts to wind down their rate support.

The Fed bought $12b net of mortgage bonds this week which is 52% less than their weekly buys through most of 2009. The reason they’re buying fewer mortgage bonds weekly is that they’re at 92% of their $1.25t mortgage bond buying budget laid out last year to help housing. When the Fed (or any other private investor) bids up mortgage bond prices with buying, bond yields (or rates) drop. This program is set to expire March 31 and the Fed has just under $100b left in it’s budget, so this means $10-12b per week in purchases is all markets can expect. more…

Rate Update & Market Preview
Rates are down about .125% from last week as mortgage bonds rallied on weak retail sales, benign consumer inflation, and well-received Treasury auctions. The extent of the bond rally would suggest lower rates, but lenders are holding the line on pricing to see if the rally holds next week. When mortgage bond prices rise on a rally, yields (or rates) drop and vice versa.

Stock and bond markets are closed Monday January 18 in observance of the Martin Luther King holiday. The Senate will resume talks Tuesday on the nomination of Fed chairman Ben Bernanke to a second four-year term. On Wednesday, markets will see if business inflation numbers confirm what consumer inflation numbers told us this week, and also voting FOMC member and New York Fed head William Dudley will be making a public speech on the economy. more…

Since sending the WeeklyBasis 2010 Rate Outlook this Monday (as opposed to normal Friday delivery), rates are still holding. See below for current levels as of the end of mortgage bond trading today.

Now onto the critical alert for the week: Homebuyers intending to use FHA loans to finance condo purchases should be advised that FHA condo “Spot Approvals” are going away February 1. A Spot Approval is when a lender can approve and fund a loan on a specific unit in any condo building provided the building meets certain conditions (building is 4 units or greater, 90% of units sold, 51% owner-occupied, no more than 20% commercial space, healthy condo budget, etc.). more…

WeeklyBasis is normally published Fridays, but this Monday report is an exception so I can do an outlook on this first business day of 2010. To summarize, my outlook is for waning Fed support to push rates to about 1% higher, and choppy economic recovery marked by modest GDP growth and minimal employment improvement. Rationale for these positions is below.

Please note that conforming rates are assumed when discussing rates because these are the broadest proxies for how all rate tiers behave. Current conforming, super conforming and jumbo rates are also included at the bottom along with loan amounts designated by each of these categories. more…

Rate/Market Update
Rates initially rose this week on a stronger-than-expected business inflation report Tuesday, but recovered after the Fed reiterated that they expect weak economic conditions to help keep rates lower for the near term. Rates end this week about the same as last week.

But it should be noted that Bernanke’s Fed is highly market oriented. Their post-meeting statements, like the one they issued Wednesday after their final 2009 policy meeting, don’t indicate this explicitly but the minutes of those meetings do. The minutes are very specific about how market oriented they are, and recent minutes describe how the Fed will look to raise rates by selling mortgage bonds and/or hiking overnight rates when they see more sustained economic improvement and/or inflationary pressure. Their first of eight 2010 meetings is January 26-27 more…

Rates were up slightly this week but still holding close to pre-Thanksgiving record lows despite mortgage bond markets getting worse. Bonds have been selling off (which causes rates to rise) on generally good news that started with last Friday’s much better than expected jobs report showing unemployment improving … to 10% from 10.2% but an improvement nevertheless, and the first since January 2008.

Other positive market news included Bank of America repaying their $45b TARP obligation in full, Citigroup looking to raise $20b through equity issuance to chip away at their $45b TARP debt, and the best retail sales number (+1.3% for November) since August—retail sales have now improved three of the last four months. The main technical factor adversely affecting mortgage bonds was long-dated Treasury auctions this week that weren’t so well received and hurt the whole bond complex. more…

After touching the lowest levels on official record before Thanksgiving (see link), rates are now about .1% higher than that. Rates change daily as mortgage bonds trade. Rates held lows coming into this week due to scares about Dubai’s ability to service their debt, and as that subsided, we end the week with the best jobs report since the recession began in December 2007: only 11,000 private sector jobs were lost in November and unemployment decreased from 10.2% to 10%. Still a staggering unemployment rate, but a move down is significant, as is the decrease in job losses. Of course bond markets sell off on positive economic news like this, and when that happens, yields (or rates) rise.

The biggest scheduled news next week is November Retail Sales on Friday which will capture Black Friday figures and confirm whether initial holiday shopping reports are high or low. The initial National Retail Federation report showed that more people spent less to kick off holiday season: 195m shoppers visited stores and websites vs. 172m last year, but average spending dropped to $343.31 per person from $372.57 last year. Total spending reached an estimated $41.2 billion. This key measure of consumer strength carries a lot of weight with investors this time of year, so stock and bond/rate markets will surely swing on this data. more…