Mortgage Applications Rise..What do Consumers Know?
Applications for U.S. home mortgages rose slightly last week after five consecutive weeks of declines, an industry group said on Wednesday.
The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, rose 1 percent in the week ended Dec. 6.
So, what do consumers know? Quite simply, consumers understand that higher mortgage rates are not a “blip” on the radar but a long term trend. While no one expects rates to dramatically shoot up, the market understands that gradually increasing mortgage rates are the “norm”.
That is due to two factors: First, the labor market and economy have been improving which has always lead to upward pressure on rates. Growth = higher rates.
Secondly, the Federal Reserve will begin to purchase less mortgage backed securities (MBS) issued by Fannie Mae, Freddie Mac and Ginnie Mae. The only question is: Will they begin to decrease their monthly purchases in December, January or February? While the timing of their “taper” is not know, what is known is that it is certainly coming and that means less artificial demand for MBS and that equals higher rates.
Savvy consumers understand that while rates have ticked up as of late, it is just the beginning of a longer term trend and therefore they are pulling the trigger on that home purchase or refinance.
What Happened to Rates Last Week:
Mortgage backed securities (MBS) lost -31 basis points (BPS) from last Friday’s close which caused 30 year fixed rates to move higher for the fourth consecutive week. We saw our best rateson Monday and our worst rates on Thursday morning.
All bonds including Treasuries and Mortgage Backed Securities were under pressure last week due to stronger than expected economic data and weaker than expected bond auctions. On the economic front we saw very tame inflation data in the form of the Producer Price Index (PPI) and Import Prices. This would normally be great for rates but they were overshadowed by real economic growth. And growth eventually leads to inflation.
Both Wholesale Inventories and Business Inventories were stronger than expected which had economists upgrade their 4th QTR GDP estimates. The headline Retail Sales data was double market expectations and also pressured bonds. This was reflected in weaker demand (as measured by the bid-to-cover ratio) for both our 10 year Treasury note and 30 year Treasury bond auctions which pressured mortgage rates upward.
|Date||Time (ET)||Economic Release||Actual||Market Expects||Prior|
|10-Dec||10:00 AM||Wholesale Inventories||–||0.30%||0.40%|
|10-Dec||10:00 AM||JOLTS – Job Openings||–||NA||3.913M|
|11-Dec||7:00 AM||MBA Mortgage Index||–||NA||-12.80%|
|11-Dec||7:00 AM||MBA Mortgage Purchase Index||–||NA||-12.80%|
|11-Dec||10:30 AM||Crude Inventories||–||NA||-5.585M|
|11-Dec||2:00 PM||Treasury Budget||–||NA||-$172.1B|
|12-Dec||8:30 AM||Initial Claims||–||315K||298K|
|12-Dec||8:30 AM||Continuing Claims||–||2750K||2744K|
|12-Dec||8:30 AM||Retail Sales||–||0.60%||0.40%|
|12-Dec||8:30 AM||Retail Sales ex-auto||–||0.30%||0.20%|
|12-Dec||8:30 AM||Export Prices ex-ag.||–||NA||-0.40%|
|12-Dec||8:30 AM||Import Prices ex-oil||–||NA||0.00%|
|12-Dec||10:00 AM||Business Inventories||–||0.30%||0.60%|
|12-Dec||10:30 AM||Natural Gas Inventories||–||NA||NA|
|13-Dec||8:30 AM||Core PPI||–||0.10%||0.20%|
I will be watching these reports closely for you and let you know if there are any big surprises:
It is virtually impossible for you to keep track of what is going on with the economy and other events that can impact the housing and mortgage markets. Just leave it to me, I monitor the live trading of Mortgage Backed Securities which are the only thing government and conventional mortgage rates are based upon.