Mortgage rates moved higher through the shortened Christmas week despite mixed economic data and the Fed’s continued commitment to keep rates low. Existing Home Sales rose 7.4% in November to the highest level in nearly three years. Sales were up 44% from one year ago, the biggest increase on record. First time buyers accounted for 51% of sales last month. On the other hand, New Home Sales unexpectedly plummeted 11.3% last month, representing the lowest sales volume since April. The final revision to 3rd quarter Gross Domestic Product showed the economy grew at a much slower pace that initially thought, increasing 2.2% instead of the 2.8% reported last month. Unfazed by the negative GDP news, Consumer Sentiment rose to the highest level since September on a slightly improved employment outlook. Also contributing to consumers’ holiday cheer was Personal Incomes experiencing the biggest gain in six months, and Consumer Spending rising for a second consecutive month. Currently, the 30-Year Fixed sits at 4.875% (5.054% APR) and the 15-Year Fixed is at 4.250% (4.557% APR). We have another short holiday week that will include the S&P/Case-Shiller Home Price Index and Consumer Confidence.
Mortgage rates have increased 0.500% in the past couple weeks primarily due to investor perception and the normal supply and demand of the markets. Early last week, we saw the Treasury yield curve widen to a record as investors believe the economic recovery will lead to higher inflation and hurt demand for government debt. We saw signs of this waning demand in the last auctions as indirect bids were much weaker than earlier in the year. The difference between the 2- and 10-year Treasury note yields increased to 281.4 basis points, from 145 basis points at the beginning of the year. Some investors point to normal weak year-end trading activity, and that rates will fall back down after the New Year when the “A” team of traders is back in action. Others, however, are concerned the economic recovery is for real, and rates naturally need to rise from the historic lows to keep inflation in check. On Christmas Eve, the US Treasury agreed to provide Fannie Mae and Freddie Mac with as much capital as they need over the next three years in an effort to reassure the investors that bought their debt. Opponents believe this is a blank check for Fannie and Freddie with no definite end, and the move puts additional upward pressure on inflation which will lead to higher rates. Supporters believe this simple gives stability to mortgage-backed securities investors.
Look for 30-Year Fixed rates to fluctuate between 4.500% and 5.000% through the 1st quarter of 2010. If you’re thinking about refinancing, get your applications completed right away as rates are bouncing on the bottom and will not improve beyond the historic lows we’ve already seen.
Central Coast Lending, Inc.