Demand for government-backed FHA loans spikes
Applications for government-backed loans went on a tear after the government insurer of home loans lowered annual insurance premiums by half a percentage point. The Federal Housing Administration accepts mortgages with down payments as low as 3.5 percent.
“Following several weeks of already elevated refinance activity due to falling interest rates, FHA refinance applications increased 76.5 percent,” said Lynn Fisher, MBA’s vice president of research and economics.
“Conventional refinance volume was up only 0.5 percent for the week. FHA purchase applications were also up 12.4 percent, despite a decrease in purchase applications in the rest of the market.”
Clearly the drop in insurance premiums, while a bit less than a $100 monthly savings for the average borrower, is bringing more people back to the mortgage table, be it to refinance or buy a home. The added incentive of falling mortgage interest rates is not hurting either.
Combined, the two are not just providing savings, but giving buyers more purchasing power.
What Happened to Rates Last Week:
Mortgage backed securities (MBS) lost -66 basis points (BPS) from last Friday’s close which caused 30 year fixed mortgage rates to move higher from the prior week. We had our best rates on Monday and our worst rates on Thursday. The week before last, MBS sold off -130 BPS. So, for the past two weeks, MBS have sold off a huge -199BPS.
The biggest domestic economic event of the week was Wednesday’s Retail Sales report and it was a mixed bag of data. The Headline January reading was much worse than expected (-0.8% vs est of -0.5%). And this is certainly positive for MBS pricing. However, keep in mind that the price at the pump is actually part of the Retail Sales calculation…so lower prices at the pump mean….lower overall Retail Sales. When you strip out Autos and gas…Retail Sales were actually much better than market expectations (+0.2% vs est of -0.4%). Plus, December was revised upward from -1.0% to -0.8%. This offset the headline data.
The bond market primarily focused on overseas events last week with Greece and Ukraine in the spotlight. On of the biggest factors in mortgage rates being so low is global fear and the flight to U.S. long bonds as a safety play. So, any reduction in global fear will take away some of that premium in our bonds. And last week we got a cease-fire deal between Ukraine and the Russian Separatists which reduced (temporarily) some risk premium in MBS and was one of the biggest factors in rates increasing last week. We also had Greece front and center in the world stage. While no new terms on their bailout was reached there was plenty of drama. But through it all, the sentiment among bond traders was skewed towards thinking that Greece would stay in the Eurozone and some sort of new deal would be eventually made which also removed a tiny bit of risk premium in bonds.
What to Watch Out For This Week:
|Date||Time (ET)||Economic Release||Actual||Market Expects||Prior|
|17-Feb||8:30 AM||Empire Manufacturing||–||9||9.9|
|17-Feb||10:00 AM||NAHB Housing Market Index||–||58||57|
|17-Feb||4:00 PM||Net Long-Term TIC Flows||–||NA||$33.5B|
|18-Feb||7:00 AM||MBA Mortgage Index||–||NA||-9.00%|
|18-Feb||8:30 AM||Housing Starts||–||1070K||1089K|
|18-Feb||8:30 AM||Building Permits||–||1065K||1032K|
|18-Feb||8:30 AM||Core PPI||–||0.10%||0.30%|
|18-Feb||9:15 AM||Industrial Production||–||0.40%||-0.10%|
|18-Feb||9:15 AM||Capacity Utilization||–||79.90%||79.70%|
|18-Feb||2:00 PM||FOMC Minutes||–||–||–|
|19-Feb||8:30 AM||Initial Claims||–||295K||304K|
|19-Feb||8:30 AM||Continuing Claims||–||2398K||2354K|
|19-Feb||10:00 AM||Philadelphia Fed||–||9.8||6.3|
|19-Feb||10:00 AM||Leading Indicators||–||0.30%||0.50%|
|19-Feb||10:30 AM||Natural Gas Inventories||–||NA||-160 bcf|
|19-Feb||11:00 AM||Crude Inventories||–||NA||4.868M|
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.The above are the major economic reports that will hit the market this week. They each have the ability to affect the pricing of Mortgage Backed Securities and therefore, interest rates for Government and Conventional mortgages. I will be watching these reports closely for you and let you know if there are any big surprises.