Las Vegas Mortgage Rates Continue to Improve

For the fourth day in a row, Las Vegas mortgage rates continue to improve.  They are still close to their highest level in a few years but they are still low from a historical perspective and they are definitely lower than they have been on a few other recent occasions, including the end of last week.  Las Vegas mortgage rates are also low relative to what they will probably be over the next year as the tapering of the Quantitative Easing program #3 will begin soon and as that program winds down, there will be less support for bond prices (to the tune of about $45 billion per month when the program ends completely) which means higher rates as bond prices fall.

The message to prospective buyers should be two-fold:  1)  Buy now.  Home prices and rates aren't getting any lower.  Experts forecast prices to increase 10-12% over the next year and for rates to be about 1% higher over that same time period.  This means that a buyer won't be able to afford as much home and that the cost of a home he can afford would have been much cheaper in overall price and monthly payment now than a year from now.  2) If a buyer isn't going to buy now for some reason, that buyer should at least consider taking advantage of our Lock and Look program.  This program allows a buyer to lock in current rates for up to a year while they shop around for a home.  If by chance rates happen to be better than what they locked at, we can float down to current rates but if they go up as I expect they will, the buyer is protected on the rate side; too bad the only way they can lock in today's price is to buy TODAY.

Data will continue to be the driving force for Las Vegas mortgage rates and when the Fed finally decides to begin the tapering process.  This morning we had two data points that should have had a negative impact on rates:  Consumer confidence came in higher than expected and last month's number was adjusted higher as well.  Additionally the Richmond Manufacturing index did an about face from -11 last month to +14 this month.  Both of these should have sent the benchmark bond down in price which would mean higher interest rates.  However, the unrest in Syria and the debt ceiling issues of the US are providing good support for bond prices now.  Remember that bad news for the world means good news for interest rates as bonds are thought of as safe haven investments which means as investors move from stocks and other "riskier" investments to the safety of bonds, bond prices increase and the rate goes down.

Mortgage Bond Chart:

Bond prices have come off their highs because of the economic data from this morning but they are still currently up 18 basis points for the day as of this very minute.  My advice is to float with caution (and use me to handle your client's mortgage).  Watch rates and economic news closely because there are a number of things that could turn the market on a dime and you or your client could miss out on the recent gains.  Please feel free to share and comment.  Please also subscribe to my YouTube channel (www.YouTube.com/TheWunderliTeam) where I provide video updates every Monday and Friday along with bonus videos regarding new loan programs and guidelines as well as marketing strategies.  Make today great!

The Las Vegas Mortgage Market Minute

The Las Vegas Mortgage Market Minute is up on my YouTube channel:

In this video you will get advice on whether to lock or float and other information about the mortgage bond market.

I also introduce a new value-added thing we can do for our Realtor partners and their clients:  forward mortgage commitments which means we can lock loans for up to 1 year.  Since interest rates are trending up and will probably accelerate that trend due to the soon-to-be tapering of the quantitative easing program and its eventual end, being able to lock in an interest rate today is a great thing.

What makes this even better is that we can lock on TBDs (no property address needed) or you can use it to lock a loan that is waiting on a short sale approval from the seller's lender.  By being able to offer this, you are able to real in the buyer so that they won't even consider using another Realtor.  We can also "float" down if by some chance rates are better then what the client locked at.

For details, please call me at 702-812-1214.  Feel free to comment and share your thoughts.  Make today great.

Mortgage Rates - What Really Drives Them?

Mortgage rates are determined by a number of things.  From the most basic view, interest rates (or yield for those who are receiving a payment for their investment) are determined by the price of the underlying bond.  Rates move inversely to bond prices which means that as prices go up, rates go down and vice versa.

The question then becomes, what drives bond prices?  There are two things that drive the price of any investment:  1) technical analysis of the investment (mortgage bonds in this case) and 2) the fundamentals of the investment.  The technical analysis has to do with the outside factors that are influencing price movement.

Technical analysis of a specific mortgage bond is about a number of things including trends, moving averages, support and resistance levels, and the RSI - relative strength indicator, and support and resistance levels.  Investors look to see if they think the bond has sold off to much too quickly in which case they may start buying.  If many investors think there has been too much of a sell-off and start buying / investing in the bond, it drives the bond prices up.  Usually the institutional investors are the first ones to start buying and their big dollars start moving the market.  As little investors see the price moving up, they don't want to miss out on the opportunity so they jump in pushing the price up even further.  As the price increases, the RSI rises and ultimately gets to the overbought threshold - this threshold may change if the market makes a significant move and breaks strongly through the resistance levels.  At some point, the institutional investors are happy with their return and want to take the profits off the table; they don't always look for a big move since the dollar amount they are investing is so large that they can make a lot of money on small moves.  Below is a snapshot of the charts I look at to try to determine what rates are going to do.

As the institutional investors start selling off they drive the prices down (and the interest rates begin to rise again).  The smaller investors don't want to miss out on taking profits OR they get afraid that they are going to lose money as the price goes below what they bought it at so they sell as well driving the price down even further.

Fundamental analysis regarding bonds comes mostly from economic data (fundamental analysis of a company is about that company's numbers - gross revenues, profit, profit margin and such) as well as the experts' interpretation of the data.  The bond market as a whole is greatly influenced by what is going on in the general economy; a strong or improving economy usually encourages investors to shift money out of the safe-haven investment of bonds and into more risky, but the potentially higher returns of equities (stocks). The idea is that if the economy is doing well, companies like Apple and Amazon will do well which will drive the stock price higher.  When the economy is struggling, people will spend less which means lower profits for these companies and stock price deterioration because investors will sell off equities and move back into bonds - driving prices higher and interest rates lower.  At a point where interest rates are significantly low, there is no real attraction for investors to buy bonds so sometimes the money is parked in cash.  This is the cycle of investing.

Mortgage rates have been climbing for a couple of reasons:  1) Bernanke and the rest of his Fed cronies have been talking about tapering the Quantitative Easing program and ultimately ending it with a target of mid-2014, and 2) the economy is showing signs, albeit weak, of improvement.  As noted above, money begins to shift from bonds to stocks as investors begin to believe that the economy is gaining its footing.  I expect mortgage rates to trend up for a while because of improving economic data and because the upward price pressure on bonds due to the Fed's monthly purchase will be going away which will allow the bond prices to come down and necessarily push interest rates higher.

If you want the best opportunity to get the best interest rate, it is important to work with a loan officer who 1) understands what moves interest rates, and 2) has real-time access to the mortgage bond market so that they can see the trends and be ready to move at a moment's notice, sometimes before rates change even though the bond market has made a significant move.

Feel free to comment, ask questions and share this with your friends.

The mortgage bond market, mortgage interest rates and how to avoid mortgage insurance

What's happening in the mortgage bond market:
For the 3rd day in a row the mortgage bond market is down. It climbed 28 basis points from its low yesterday but still finished down 53 basis points or about a .125% increase in rate. One thing we saw was a reminder of the impact Europe has had on the mortgage bond market and the bond market in general. When Europe was reporting bad news, there was a flight to safety by investors to bonds in the US. Europe reported a PMI of 50.4 which shows the economy is expanding - this is the first such report in 18 months. Part of the sell-off in the bond market is due to this report. 

Initial jobless claims came in higher than expected which is good for rates - last month's was 336K, expected was 340K and actual was 343K. Durable goods orders (ex-transportation) also came in lower than expected at 0. The market is shrugging this news off and is currently down 29 basis points. The advice is to lock on any loan closing within 30 days if you are able. 

Why are conventional mortgage rates higher than FHA and VA?
One question that I get asked a lot is why are conventional rates higher than FHA and VA rates.  The answer is that FNMA / FHLMC have guarantee fees which were instituted a few years ago with all of the new legislation that we've seen.  These fees have increased a number of times since they were instituted and I've heard rumblings of another impending increase.  The guarantee fees are why the interest rates are typically about .375% - .5% higher for a conventional loan than for an FHA or VA loan.  On a case by case basis, conventional loans are much more credit score-driven than FHA or VA so a person with a credit score between 680 and 720 may see an even bigger disparity in rate relative to an FHA or VA loan than someone with a score over 720.

General mortgage recommendation:
If you served our country in the armed forces, you may qualify for a VA loan.  If you do, my recommendation is to use that to finance the purchase of your home.  With a VA loan, you don't need to put any money down - you do need money to pay for closing costs but this money can come from a gift.  As mentioned above, VA loans have interest rates close to what FHA rates are and better (in most cases) than rates on conventional loans.  The best thing about a VA loan is that it allows you to put nothing down and you still don't have to pay mortgage insurance.  Mortgage insurance can be a big part of a monthly mortgage payment so having a loan without it means you can qualify for a bigger loan / house or just have a smaller payment which means more cash for savings - we all need to put more money away for retirement.  

An FHA loan, for example has a mortgage insurance payment of $225 on a $200,000 loan and it doesn't offer an option without mortgage insurance.  Conventional loans typically have better mortgage insurance rates than FHA but it's very dependent on your credit score and the best rates (mortgage insurance and interest rates) require a score of 720 or higher.  Conventional loans do have two options that don't require mortgage insurance:  1) a down payment of 20% or more or 2) lender paid mortgage insurance in the form of a higher interest rate - typically about .375%. 

Please feel free to comment or contact me if I can help in any way:  702-812-1214 or jed.wunderli@noblehomeloans.com.