May 26th Update!

Mortgage Rates Plummet


Just when everyone seems to be predicting that mortgage rates will rise, out of the blue they have dropped to the low point of the year! This remarkable development has occurred for the following three reasons:

1. Global economic concerns. The trouble in Europe continues to brew and threatens to spread as European countries are forced to reduce government spending. In addition, Chinese officials are now focused on tightening monetary policy to reduce inflation. Also, tensions between North Korea and South Korea continue to build. Investors have reacted to these crises by shifting money to relatively safer assets such as bonds and U.S. mortgage-backed securities (MBS) and this has had the effect of pushing mortgage rates lower.

2. Domestic economic uncertainty. In the U.S., it's not clear to what degree a newly proposed financial regulation bill will cause banks to reduce lending and lead to slower economic growth. In response to periods of uncertainty such as this, investors seek to reduce risk by moving to safer assets which, again, has led to lower rates.

3. Tame inflation. April Core CPI inflation fell to the lowest level in 44 years!! Low inflation always equates to low rates.


Mostly Positive Economic Data

On the housing front, recent news has been mostly positive. March Pending Home Sales increased 5.3% from February and were 21% higher than one year ago at this time. April Housing Starts increased above the consensus forecast to the highest level since October 2008. In addition, the May NAHB Homebuilder confidence index rose to the highest level since August 2007. Although the number of builder permits declined moderately, builders surveyed remained optimistic about sales over the next six months even as the home buyer tax credit expired.

More good news to report as retail sales rose for 7th straight month and oil prices fell to $65 per barrel reaching the lowest level since July 2009. The correlation between oil prices and mortgage rates is staggering!

On the jobs front, the weekly jobless claims unexpectedly jumped well above the consensus forecast and this figure will be closely watched over the next few weeks.

Flood Insurance Program Set to Expire

The National Flood Insurance Program is set to expire on May 31st. By law, a lender has to check to see if a property is in a flood zone before a mortgage can close. If the flood cert comes back negative (as most in Atlanta area do), there isn't an issue. However, if it comes back positive, the appropriate flood insurance coverage must be obtained prior to closing. If Congress does not address this issue and extend the program this week (they are not in session next week), the program will expire for the third time this year! This means that any loan closings scheduled that do not have the required flood insurance arranged by Friday will have to be delayed. Just what we need in this market! Congress has allowed this issue to linger for months and one existing proposal only would extend the program through Dec 31. Our elected officials need to figure this one out and quick or there are going to be some serious repercussions to anyone wanting to buy a house who needs flood insurance.


Rate Update

Mortgage rates have reached the lowest point since early December of 2009!

Looking Ahead

The last half of this week will be busy with New Home Sales and Durable Orders figures being released today. Also, a revised figure for first quarter Gross Domestic Product (GDP) will be released tomorrow and the Chicago PMI Manufacturing Index and Personal Income on Friday. Consumer Sentiment and Consumer Confidence round out the busy week.

All information above was provied by James A Williamson of Fairfield Mortgage