WeeklyBasis 4/23/10: Rate Lock Bias Next Week, Federal Homebuyer Tax Credit Expires Friday

Despite a volatile week, rates were net down .125%, bringing conventional conforming rates (on loans up to $417,000) within .1% of all-time record lows. Below is a recap of last week and rationale for a rate lock bias going into next week. And don’t forget that Friday is the last day homebuyers can be in contract to be eligible for the Federal homebuyer tax credit—those in California have a new state credit with different deadlines. More on both tax credits here.

Rate Factors Week of 4/19/10
The largest factor pushing rates down early and late last week was the ongoing debt crisis in Greece. As bond market investors have grown more skeptical about Greece’s ability to fund their debt obligations, they have sold out of Greece and other European bonds to buy mortgage and Treasury bonds. When mortgage bond prices rise on this buying, rates drop.

Three factors pushing rates up mid to late last week were: (1) business inflation measured by the Producer Price Index came in at 6% year-over-year through March, and despite the much tamer 0.9% ‘Core’ number which excludes oil and food costs, bond markets saw it as cause for concern, (2) Treasury announced $129b in new bond supply being auctioned next week and supply concerns caused mortgage bonds to sell off, pushing rates up, and (3) New Home Sales surged 27% in March, positive economic news which was also a sell off signal for bond markets.

5 Reasons For Rate Lock Bias Week of 4/26/10
Rate volatility will continue next week, and market outlook suggests rates could rise, so borrowers should be ready to lock rates at a moment’s notice. Below are top 5 reasons for a rate lock bias:

(1) The Greece situation is playing out this weekend as the country explores aid options with the IMF, European Central Bank, Russia, Brazil, and China. The latest Bloomberg report says Greece needs about $60b to help cover maturing debt over the next three years. If any aid package is looking more likely next week, that may hurt rates as investors move out of mortgage bonds.

(2) The Fed’s third rate policy meeting of 2010 is Tuesday-Wednesday with an announcement to follow. If rate policy announcement says anything even slightly different than their long-standing “inflation is likely to be subdued for some time” statement, rates could rise.

(3) The February 2010 Case Shiller existing home price report comes out Tuesday, and if it’s similar to January’s report showing year-over-year price declines of just -0.7% across 20 major U.S. metro areas, or if it tips over to become positive for the first time since January 2007, rates could rise.

(4) Treasury will auction $129b of new supply during the week as follows: $11b in 5yr TIPS Monday, $44b in 2yr notes Tuesday, $42b in 5yr notes Wednesday, $32b in 7yr notes Thursday. The direction of rates will depend on the reception of these auctions, but excessive supply hurts rates.

(5) Friday will be the first 1Q2010 GDP reading which will tell us whether the positive economic growth of the last two quarters will sustain itself, and to what extent. This estimate calls for +3.3%, and unless it’s significantly disappointing, markets will acknowledge this as a positive sign, and bonds would sell off, pushing rates higher.

CONFORMING RATES ($200,000 – $417,000) – 1 POINT
30 Year: 4.875% (4.99% APR)
FHA 30 Year: 4.875% (4.99% APR)
5/1 ARM: 3.25% (3.37% APR)

SUPER-CONFORMING RATES ($417,001 to $729,750 cap by county) – 0 POINT
30 Year: 5.25% (5.37% APR)
FHA 30 Year: 5.0% (5.14% APR)
5/1 ARM: 3.875% (3.99% APR)

JUMBO RATES ($729,751 – $2,00,000) – 1 POINT
30 Year: 5.75% (5.87% APR)
5/1 ARM: 4.625% (4.74% APR)

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