PRICING IMPROVES: The bond market finished this week 53 points up – improving pricing/costs on available loan products. 30 year fixed loans are available for a portion of a point at 4.875%.
ARMS BECOMING BETTER OPTION: 5/1 and 7/1 ARMs are becoming increasingly popular right now. The average difference in a rate between a 5/1 ARM and a 30 Year Fixed loan right now is 1.5%. This historically large difference (typically .5%) is causing more people to consider ARMs as they could be saving $20,000 in payments over a 5 year period of time. I have a CNN article on this trend at the bottom of this email.
BIG NEWS WITH FHA LOANS: FHA is about to become more expensive in costs and payment. FHA is increasing the mortgage insurance monthly and upfront required to do the loan. The price increase will raise payments (on a 200,000 loan) about 42 per month and over $500 per year.
The bond market ended last week 72 points down , which means rates should be worse. They are actually better today, partially due to a big rally in the bond market on Friday and Monday and partially to an overaction in pricing when the bond market went down 7 days straight. Make no mistake though , the long term view is that rates will continue to rise. You may see rates improve some weeks but it likely won’t counter the rate increase we see in other weeks. For example , 30 Year Fixed rates improved this week to 4.875% from 5.125%, but two weeks ago rates were at 4.75%. If you have a beneficial loan available to you now – don’t wait for it to get better – lock it.
The industry will be changing drastically come April 1st due to new federal regulations on loan officer compensation. I expect these new regulations to delay closings near the end of March , and into April due to confusion on how to implement the new rule. The new rule will also likely eliminate options for a consumer. A consumer will either be paying for
1.) ALL the loan officers compensation in up front closing costs or
2.) Be paying none of the loan officer compensation by taking a higher rate.
Basically , a consumer will have 2 options. Pay a lot of closing costs up front to get a better rate, or pay little to no closing costs and take a higher rate. There will be no middle ground – meaning less options for consumers on rates/costs.
The bond market went down every single day last week and ended the week 156 points lower than where it started. This is pushing rates up dramatically – 30 year fixed into the 5%’s. The ARM loans are still pricing great – in the 3%’s. The best loan I am seeing on the market right now is a 15 year fixed FHA loan at 4.25% with 0 closing costs. I can get that for most customers right now – great fixed rate with no costs.
The general trend we are seeing is that rates are rising and will continue to rise. The world no longer has a great appetite for US Treasury Bonds. The bonds sell off is pushing rates higher. What you will notice is that some weeks pricing will get marginally better, but when they get worse – they get worse by a lot. When they get better, costs may go down .25% – .375%.
We have been predicting this for some time – when the economy begins to improve – rates will rise , they have to. What we are seeing is better reports on jobs, home sales, corporate profits, etc. If this continues , rates will continue to go up.