Consumer mortgage rates (Conventional-Conforming, Jumbo and FHA fixed mortgage rates) are starting off the month at stable levels as we move into a busy period of economic data. California homeowners and homebuyers have the opportunity this week to lock in a low mortgage rate at great terms. We’ll update our clients with the latest information to help them best achieve their goals. If you have any questions or would like a no-cost/no-obligation quote please do not hesitate to ask.
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Does anyone remember October 2018?
Bond yields were moving and so were mortgage rates. Concerns over a growing economy and increasing inflation pushed the 10y yield above 3.00% and 30 year fixed mortgage rates moved above 5.00% for a short period of time. A lot has changed since then as the economy was not as strong as people thought and inflation seemed to reverse course and stabilize as we moved in November and December. As a result mortgage rates dropped significantly despite the Fed raising in December 2018.
As we move into mid-October mortgage rates remain stable and well below the levels seen a year ago. Homeowners and homebuyers should not hesitate to lock in terms to take advantage of current market conditions.
At the end of last week mortgage rates moved higher on news the US and China have agreed to a new trade deal; specifically referred to Phase 1. As our readers know all year long we’ve mentioned that a trade deal with China could be the catalyst to push mortgage rates significantly higher. The good news for mortgage rates is that we are still well below levels seen this time last year.
Some additional good news for mortgage rates: China claims there is no official deal and there is still a lot of work to be done. Additional reports have said at best they have a general framework in which a limited deal could be reached before the end of the year.
As we move forward will have to keep an eye on additional developments as they become available.
Brexit will be front and center for bond markets and consumer mortgage rates this week. Most observes believe the UK will reach a Brexit deal and it will most likely happen this week. The good news for homeowners and homebuyers is that mortgage rates remain near their 2019 lows and well below the levels seen in October 2018. However that might not last.
A quick note to those that are waiting to lock in a mortgage rate at current levels:
If you are looking to obtain a mortgage for the purchase a home or if you’re looking to refinance a current mortgage; it’s important to evaluate the current market for mortgage rates and understand the risks associated with waiting to lock in at current levels. The risks for mortgage rates moving higher currently exceeds the potential mortgage rates might move slightly lower. The prudent choice to is be safe in risky environments and lock in your mortgage rates sooner rather than later.
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Mortgage Rates For October 2019:
As we move into October many homeowners and homebuyers are asking the same question; what will mortgage rates due in October? The simple answer is this – no one really knows. The good news is that the recent economic data suggest the economy is slowing down which is a positive for the Mortgage Backed Securities market and more specifically mortgage rates in California and throughout the country.
What are the risks that might push mortgage rates higher?
There are three main risks associated with pushing mortgage rates higher in October:
- The United States and China take meaningful steps to resolve the current trade war
- Economic data starts to improve
- The Fed becomes more hawkish
We’ll keep you posted so be sure to check back often.
Understanding PMI, MI and LPMI:
If you have less than 20% equity in your property or your purchasing a property with less than 20% down you either have a second mortgage, PMI or MI.
- Second mortgage: A second mortgage can either be a fixed rate mortgage or an adjustable rate mortgage (typically referred to as a Home Equity Line of Credit – HELOC). It’s called a “Second” mortgage because on title it’s in second position behind your first mortgage.
- PMI: Private Mortgage Insurance is when a homebuyer or homeowner has less than 20% down (or 20% equity) and an outside insurance company issues an insurance policy to help cover the risk of default. PMI is associated with non-government loans (Conventional only).
- MI: Mortgage Insurance is the same thing as PMI however it’s not issued by a company and it’s only for government loans (FHA).
- LPMI: Is Lender Paid Mortgage Insurance. This is when the lender takes on the payment of the PMI and in turn they increase your mortgage interest rate to help cover the cost.
PMI and MI are the two most popular options when someone has less than a 20% downpayment or less than 20% equity in their home.
Important Facts To Remember:
- PMI is not tied to a bond market and is not an interest rate. It’s an insurance policy and it’s based on risks associated with the loan and market place performance of similar type of loans (over time).
- Credit score, Debt-To-Income ratio, Loan-To-Value, Location, Number of borrowers all play a role in determining the level of PMI coverage.
- MI is standard and everyone who obtains a FHA pays the same level of MI.
- You can get rid of PMI without having to sell the home or refinance the loan.
- Generally speaking; you cannot get rid of MI or LPMI unless you refinance or sell the home.
Brexit and Mortgage Rates:
You may have seen in the headlines that a deal was reached between the UK and the EU and a vote was to take place (in the UK) this weekend for an orderly exit from the EU (commonly referred to as “Brexit”). Mortgage rates have moved higher this week as a result of the news and many homeowners and homebuyers are asking: What does Brexit have to do with US mortgage rates?!?
US mortgage rates originate from the Mortgage Backed Securities market. The MBS market are made up of bonds which are influenced by the US Treasury bond market and others such as European bond markets.
Bond investors view a Brexit deal as a positive for European economies but also the US economy as well. Positive economic news usually results in government bond market selling and then that generally spills over to Mortgage Backed Securities selling off and thus mortgage rates move higher.
Are there times when bonds sell-off and mortgage rates stay the same? Sometimes that does happen especially if the sell-off in bonds is minimal and/or mortgage rates were slow to improve after an improving bond market.
Important Economic Data:
Here we cover the daily economic events that might impact mortgage rates. After the report comes out we’ll update the post with that information and comment on if there is a potential impact on on the Mortgage Backed Securities market and consumer mortgage rates.
October 28th – 31st:
- CaseSchiller: Last months report showed a 2.0% increase and market expectations are for a 2.1% increase.
- Consumer Confidence: The market is expecting the reading to come in at 128.0 after last months reading of 125.1. The actual reading came in at 125.9.
- Mortgage Market Index: The report came in at 519.2 after the 515.9 reading last week. The refinance component came in at 2066.0 after last week’s reading of 2076.9. The Purchase component came in at 247.2 after last week’s reading of 241.7.
- ADP Employment Report: The reading came in at 125,000 jobs created after last months reading of 135,000 jobs created. Analyst and investors were expecting the report to show 120,000 jobs created.
- Advanced Q3 GDP: Estimates are for a reading of 1.6% after the 2.00% that was reported for Q2. The reading came in at 1.90% and post report the bond market.
- Core PCE: The reading came in at 1.7% after last months reading of 1.85.
- Chicago PMI: The market is expecting a reading of 48.0 after last months reading of 47.1. A reading below 50 shows contraction. The reading came in at 43.2; a huge disappointment for the economy and post report the 10y yield moved to 1.70%
Friday – October 25th:
- Consumer Inflation Expectations: Last months reading was 2.5% for the 1y and 2.25% for the 5y. The 1y reading for October came in at 2.5% and the 5y reading for October came in at 2.3%.
- Consumer Sentiment: Market expectations were for a reading of 96.0 and the reading was 95.5.
Thursday – October 24th:
- Durable Goods: Market expectations were for a reading of -0.8% after last months 0.2% reading. The report showed a decline of -1.1%.
- Jobless Claims: Last weeks reading came in at 214,000 claims filed and this week the reading came in at 212,00 claims filed.
- Markit Manufacturing PMI: Current market expectations are for a reading of 50.7 after last months reading of 51.1. The reading came in a bit stronger than expected (51.5).
- New Home Sales: The market is anticipating the report to show 701,000 units (annual rate) after last months reading of 713,000.
Wednesday – October 23rd:
- Mortgage Market Index: There was a significant decline in mortgage applications in the most recent survey. The Mortgage Market Index fell from 585.5 to 515.9. The Purchase component declines from 2506 to 241.7 and the Refinance component declined from 2505.8 to 2076.9. The national average 30 year fixed rate increased from 3.92% to 4.02% (at JBMC, Inc. we are offering mortgage rates below the national average).
- Monthly Home Prices: Year over year monthly home prices increased at an annual rate of 4.60%; down from last months report of an annual increase rate of 5.00%. The month over month increase was 0.2%; down from last months increase of 0.4%.
Tuesday – October 22nd:
- Existing Home Sales: Last month’s reading came in at a 5,490,000 (annual rate) and the market is expecting a reading of 5,450,000 reading this month. This report typically has no impact on mortgage rates.
Thursday – October 17th:
- Weekly Jobless Claims: Jobless claims remained steady at 214,000 claims compared to last months 215,000 claims.
- Industrial Production: Industrial production declined in the most recent report; -0.4% compared to last months reading of -0.1%.
- Philly Fed Business Index: The most important economic report on Thursday came in below expectations. The market was expecting a reading of 8.0 and it came in at 5.6 after last months reading of 12.0.
Wednesday – October 16th:
- Mortgage Market Index: Applications for a mortgage increased in the latest weekly survey. The Refinance component increased from 2418.1 last week to 2505.8 this week. The Purchase component decreased from 252.2 to 250.6. The overall index increased from 574.5 to 585.5.
- Retail Sales: A big miss with the retail sales report. The market was expecting a reading of 0.3% increase however the report showed a -0.3% decrease in Retail Sales after last months reading of 0.4%.
- Building Permits and Housing Starts: Building permits declined 2.7% after increasing 8.2% last month. Housing starts declined 9.4% last month after increasing 12.3% the previous month.
Tuesday – October 15th:
- NY Fed Manufacturing: Market expectations for the New York Fed Manufacturing report were for a 1.00% increase after last months 2.00% increase. The reading came in at a 4.00% increase.
Friday – October 11th:
- Import and Export Prices: Expectations were for a 0.0% increase in Import Prices and the report showed a 0.2% increase. As for Export Prices; the market anticipated a 0.0% report however it showed a decline of -0.2%.
- 1y and 5y Inflation Expectations: The 1y Inflation report came in at 2.5% (last month it was 2.8%) and the 5y Inflation report came in at 2.2% (last month it was 2.4%).
Thursday – October 10th:
- Core CPI: This is one of the most important economic reports for bond markets and mortgage rates. Expectations were for a reading of 2.4% and that is what the report delivered. Last month the report showed a 2.4% increase as well. The month/month report showed a 0.0% increase after last months 0.2% increase.
Wednesday – October 9th:
- Mortgage Market Index: The Mortgage Market Index came in at 574.5 after last weeks reading of 553.8. The Refinance component came in at 2418.1 after last weeks 2202.6 reading. The Purchase component came in at 252.2 after last weeks reading of 263.8 and the average 30y fixed rate (according to the report) is 3.90% (after last weeks reading of 3.99%).
- Wholesale Inventories and Sales: The market is expecting Wholesale Inventories to come in at 0.4% (last month it was 0.4%) and Wholesale Sales expectations are for a 0.2% increase after last months reading of 0.3%. The report is released at 10am (EST).
- FOMC Minutes: The FOMC Minutes will be released today (2:00pm EST). If there is any significant market reaction I’ll update the post.
Tuesday – October 8th:
- Core Producer Prices: Last months reading came in at 2.3% and that what the market was expecting heading into this months reading. The reading came in at a 2.0% increase and the month/month came in at a negative -0.3% (last months reading was a positive 0.2%). This report is a positive for mortgage rates however it’s not as important as Thursday’s Core CPI report.
Friday – October 4th:
- Employment Report: Last month the jobs report came in at 130,000 jobs created for the month of August and market expectations for the September report are for 145,000 jobs created. Earnings are expected to come in at a 0.3% increase after last months 0.4% increase. The report showed 136,000 jobs created and 0.0% increase in wages.
Thursday – October 3rd:
- Weekly Unemployment Claims: Market expectations were for 215,000 claims and the the weekly report came in at 219,000 claims.
- ISM Non-Manufacturing PMI: Last month the reading came in at 56.4 and the market is expecting a reading of 55.0. The reading came in at 52.6 and post reading the bond market rallied pushing the 10y yield down below 1.55%.
Wednesday – October 2nd:
- ADP National Employment Report For September: The Market was expecting the report to show 140,000 jobs created after last months reading of 195,000 jobs created. However the report showed 135,000 jobs created and revised the 195,000 to 157,000 jobs created.
- Mortgage Market Index: The Mortgage Market Index came in at 553.8 which is higher than last weeks report of 512.2. The refinance component increased from 1928.0 to 2202.6 and the purchase component increased from 261.4 to 263.8. The national average 30y fixed rate was 3.99% – higher than what most borrowers can obtain at JB Mortgage Capital, Inc.!
Tuesday – October 1st:
- ISM Manufacturing PMI Report: Market expectations were for a reading of 50.1 after last months 49.1 reading however the reading came in at 47.8 – the worst reading since the “Great Recession”. While this is a big negative for the economy it does help keep bond yields low and consumer mortgage rates. What is also important is that this is the second month in a row in which the reading was below 50. A reading below 50 shows contraction. Post report the 10y yield moved from 1.76% to 1.65% – a massive one day move. The moves in the Mortgage Backed Securities market were not as impressive: the FNMA 3.5 coupon moved from 102.45 to 102.66 and was struggling to stay at that level.
- Construction Spending: The report showed a 0.1% increase after last months report which also showed a 0.1% increase. The market was expecting a 0.4% increase.
Mortgage Backed Securities & Treasury Snapshot:
October 1st – October 11th:
Mortgage Backed Security FNMA 3.0 started the week out at 101.33, and the FNMA 3.5 coupon started at 102.47. The 10y Treasury yield started the week out at the 1.70% level. Mortgage Backed Security FNMA 3.0 finished around 101.22, and the FNMA 3.5 coupon finished around 102.38. The 10y Treasury yield finished around 1.71% level.
October 14th – 31st:
Mortgage Backed Security FNMA 3.0 started the week at 101.34, and the FNMA 3.5 coupon started the week at 102.50. The 10y Treasury yield started at the 1.68% level. Mortgage Backed Security FNMA 3.0 ended the month around 101.41, and the FNMA 3.5 coupon ended the month around 102.55. The 10y Treasury yield ended the month around the 1.73% level.