For the third week in a row, mortgage markets improved early in the week, only to give back the gains before Friday’s close.
Jumbo mortgage rates ended last week exactly where they started. However, if you locked your jumbo mortgage rate Tuesday, you got a rate decidedly lower than someone who waited until Friday.
Last week, one of the biggest mortgage rate drivers was a series of surprisingly strong corporate earning reports, including those from financial firms Goldman Sachs and Citigroup.
The positive reports pushed the Dow Jones Industrial Average to its 6th consecutive weekly gain. This is the market’s longest winning streak in two years and its best 6-week rally since 1938, in percentage terms.
In part, the rally is boosting Consumer Sentiment, too. According to a survey, Americans are feeling better about the economy than at any time since last September’s meltdown.
But while stock market rallies and rising consumer sentiment can be good for our investment portfolios, they’re not always welcome when we’re shopping for mortgage rates. This is because the bond market is considered a “safe place” for money, an alternative for when stock markets are risky.
When market risk is reduced like, say, following 6 consecutive weeks of gains, the safe haven of bonds loses some of its importance to investors.
As a result, bonds start to sell-off so more cash is available to invest in equities. Bond prices suffer when this happens and, because mortgage rates are based on the price of mortgage bonds, mortgage rates suffer, too.
This week, there are a number of large corporations reporting first quarter earnings including banking behemoths Bank of America and US Bank, plus companies like IBM, AT&T and McDonald’s. Strong earnings may — again — lead mortgage rates higher.
If you’re among the thousands of Americans still waiting for mortgage rates to “bottom out”, consider that the bottom may have already been touched.
It’s tough to follow mortgage rates in real-time unless you have a Bloomberg, at least in the short-term, you can find some clues in the stock market. If stock markets are rising this week, it’s likely jumbo loan rates are, too. The biggest thing to remember as you await for the perfect time to refinance or purchase is lending continues to get more strict. FICO score requirements at many banks/investors have increased 40-60 points in the last two weeks. Some programs had 680 minimums now they are at 740. That is the middle score by the way. As credit quality gets worse across the country because of job losses and a million other factors expect things to get more strict and the fine comb treatment of each loan to be much higher. Meaning all your paperwork in your filing cabinet plus blood samples of everyone you know.
So what’s the state of the market? We have seen down payment/equity requirements increase about 5% in most states. Property values are in freefall in some states you wouldn’t expect to still be dropping so much. The market above 1m is especially tough in some states. We had a client enter a purchase contract on a new home in the bay area of CA that sold in 07 for 2.3m they bought it out of foreclosure from Bank of America for 1.4m. The best program available in the state requiries 20% down payment and stellar financials. It doesn’t matter if we have 5.50% 30Y Fixed jumbo money if the buyers or refinance folks don’t measure up to today’s tight credit requirements. No banker who still has a job wants to make a loan that has the slightest chance of problems as the Treasury coffers only have so much to bail us out.
If all this makes you sad then go do something charitable or stick your head in the sand for 3-5 years till this meltdown is over.
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