By John Sauro
That old Kenny Roger’s song says it best. “Know When to Walk Away and Know When to Run”
Mortgage Bonds seem to be trapped between support and resistance, as there were no gains today despite falling stock prices.
Mortgage rates, which move lower when Bond prices move higher, saw no change. The 4% coupon finished unchanged at 101.25. The yield on the 10-yr note hit a 2011 low of 2.87%. For those of you looking to time locking into a low interest rate, my advice is to lock in now. Rates can move higher a lot faster and a lot more than they can move lower.
Right now rates are near the bottom of their six month range. So, you may save an extra $29 in the monthly payment if you hold out for .125% better in rate, or it can cost you $149 more in the monthly payment if rates move up by .625% on a $400,000 loan.
Take a look at Feb 7th to Feb 8th on the chart below. In that one day the Bond lost 116 Basis Points. That correlates to an increase of .625% for the 30 year fixed rate mortgage, as mortgage rates move about .125% for every 22 basis point move in the Bond price.
And believe me; banks raise their rates faster than they lower them.
Gamblers look at the odds. Would you gamble $149 to make $29 on a game you don’t fully understand?
I watch this game all day, every day, I’m pretty good at it and I wouldn’t make that bet.
If you’re a gambler, know when to place your bet, but know when to walk out of the casino.
Lower Jumbo Loan Amounts
Fannie Mae and Freddie Mac, the private mortgage lending entities under government conservatorship, are set to reduce their maximum conforming loan limit from the current $729,750 to $625,500 on October 1st.
Some lenders have already reduced their loan limits to $625,000. So if you need a loan amount in excess of the new limit, I suggest you get moving ASAP.
Economic News
This weeks Fed meeting left the Fed Funds Rate unchanged and the Policy Statement was about the same.
Fed Chairman Bernanke acknowledged the slowing economy and revised their 2011 GDP lower to 2.9% from the earlier forecast of 3%. The Fed acknowledged “frustratingly slow” pace of job growth, stating the unemployment rate will average 9.6% to 8.9% in the 4th quarter of 2011…higher than the previously forecasted 8.4 to 8.7%.
Jobless Claims post a surprise gain, rising 9,000 to 429,000. Estimates called for a decline of 1,000.
Existing Home Sales continued its downward trend for the sixth month in a row in May as weather and financing problems weighed on the market, according to the National Association of Realtors. Sales of previously owned homes fell 3.8% to a seasonally adjusted annual rate of 4.81 million in May, the lowest since November.
New home sales fell 2% in May after a 6% increase in April.