Interest rates had been in an ugly trend from October until just a few weeks ago. We’d seen rates rise by nearly a full 1.00%.

With the spring buying market already heating up, home affordability had definitely taken a hit over the past 4-5 months. However, it probably still made sense to buy with the long-term mortgage rate projections just making today’s mortgage rates more attractive than those of the future.

That was until today’s mortgage rates decided to improve. I’m not a huge fan of the Freddie Mac PMMS report. It is woefully delayed, publishing Thursday rates that are tallied from Monday to Wednesday. This week’s conforming rates held at 4.88%. There isn’t a direct equivalent tool for tracking FHA interest rates, but they’ve been slightly lower.

What’s notable is what’s not in the report. Namely, the trading from Wednesday and Thursday. If you had a mortgage quote from Tuesday for a rate of x.xx% paying 1 point, the market has rallied by just over a full point in the past two days. That same rate quote of x.xx% and a point should now be x.xx% and no points.

Perfect timing for home buyers that are hitting the streets in the early part of spring.

Mortgage markets improved last week as Wall Street’s concerns about the Middle East trumped its fears of inflation. Conforming and FHA mortgage rates fell to a 3-week low.

Last week marked the second straight week in which mortgage rates fell, a streak that follows four straight weeks of climbing mortgage rates.

It’s been a bout of good fortune for rate shoppers and home buyers.

In addition, according to Freddie Mac’s weekly mortgage rate survey, the average spread between conforming 30-year fixed rate mortgages and 5-year ARMs has widened further.

The two benchmark products are now separated by 1.15%. It’s the largest interest rate gap in recent history; one that yields a monthly payment difference of $68 per $100,000 borrowed.

This week, it’s unclear in what direction mortgage rates will go.

On one side, there’s ongoing unease related to protests in Libya and its neighbors, and that’s driving safe haven buying. 

“Safe haven buying” describes when investors flee risky situations and put their money in the safest places possible. Mortgage bonds are one such place, so when safe haven buying is in effect, bond demand is high so bond yields (i.e. mortgage rates) fall.

On the other side, inflation is ramping up.

Recent economic data shows that the economy is expanding, and the Federal Reserve is maintaining its accommodative growth policies. Therefore, this week, the key economic event will be Friday’s jobs report. if job creation is high, expect inflation fear to re-ignite, and mortgage rates to rise.

Another risk factor for this week’s rate shoppers is that tensions begin to settle in the Middle East, or that Wall Street gets more comfortable with rising oil prices. If that happens, safe haven buying will subside and mortgage rates will resume rising.

There appears to be more reasons for mortgage rates to rise this week than for them to fall. Plan accordingly.

If you have not locked a mortgage rate yet, this week may represent your last chance to get a low one. Talk to your loan officer and make a plan.

Shopping multiple lenders for a “good mortgage rate” can sometimes save you 1/8 percent on your rate and/or a few hundred dollars in fees. However, when it comes to getting the best mortgage rate, you’re going to more than good research skills.

You’re going to need some luck.

Mortgage rates for people in Illinois or anywhere else, for that matter, are unpredictable, ever-changing, and rarely change as expected.

For example, when the Federal Reserve left the mortgage market March 31, 2010, analysts said that mortgage rates would rise by a half-percent or more. It was practically stated as fact on TV.  When April 1 came around, though, rates didn’t rise.

Instead, a volcano erupted and mortgage rates dropped on safe haven buying.

Then, a week later, as  the volcano ash cleared, mortgage rates were supposed to resume their rise. Only they didn’t. Instead, a debt crisis emerged in the Eurozone and mortgage rates dropped.

Since March 31, conforming mortgage rates are lower by roughly 0.125 percent, according to Freddie Mac’s weekly mortgage rate survey.  At today’s rates, the savings are roughly $20 per month per $200,000 borrowed — or $100 per month based on their original, post-March 31 forecast.

It brings us to one of the most important axioms in rate shopping: You can’t shop for good luck.

• On some days, rates go higher
• On some days, rates go lower
• On some days, rates stay the same

Occasionally, there are days when rates do all three.

As a home buyer or would-be refinancer, what rate you get depends on at what time of day you do your shopping.

You can’t predict what will happen next in mortgage markets — even just an hour from now. Therefore, the smartest move, sometimes, is just lock your rate now.  At least that way, you’ve got a guarantee.

Mortgage markets improved to their best levels of 2010 last week, aided by events half a world away and ongoing safe haven buying.  Greece’s debt problems continue to help mortgage rate shoppers in Oak Park and around the country.

Conventional mortgage rates dropped last week, ARMs falling more than fixed. FHA mortgage rates also improved.

Global concern for the Greece Situation are so strong that markets even shrugged off April’s blowout job report. On most other days, mortgage rates would soar on better-than-expected jobs data — especially coming out of a recession.

The Department of Labor’s April Non-Farm Payrolls reports:

• Payrolls have been net positive for 4 straight months
• Nearly 600,000 jobs have been created thus far in 2010
• Monthly job growth posted its biggest gain in 4 years in April

Additionally, more than 800,000 Americans re-entered the workforce in April in search of work.  As a result, the Unemployment Rate jumped by 0.2 percent — another positive sign (in a roundabout way).

But again, Wall Street wasn’t watching jobs — Wall Street was watching Greece. And Greece was in riot.

This week, without much new data due on the economy, mortgage markets should continue to take cues from Greece, the IMF and the Eurozone.  If a bailout agreement can be reached that investors feel is effective, the safe haven buying that’s led rates lower will recede and mortgage rates should rise.

Conversely, if an agreement is reached that investors deem ineffective, or no agreement is reached at all, mortgage rates should drop.

Each week for the last four weeks, we’ve talked about Greece and its pending bailout and how it might impact rates because each week the bailout appears imminent.  Even this week, the market opens with the news that the IMF has approved a $40 billion lifeline to Greece.  Maybe this will be the news that finally turns the mortgage market around.

Mortgage rates are unnaturally low right now and should change direction quickly. The problem is nobody knows when that will happen so be careful when rate shopping and keep an eye on the market.

Mortgage rates may fall further, but when they turn higher, they’re going to turn quickly.

The Federal Reserve adjourns from a scheduled, 2-day meeting today.  It’s one of 8 scheduled Fed meetings for 2010.

Upon adjournment, Fed Chairman Ben Bernanke & Co. will release a formal statement to the market. In it, the Fed is expected to announce “no change” in the Fed Funds Rate.

The Fed Funds Rate is currently in a target range of 0.000-0.250 percent.

The Fed Funds Rate is an inter-bank lending rate. It’s also the basis for Prime Rate, a consumer interest rate on which credit card payments are based, among other consumer loans.  Prime Rate is equal to the Fed Funds Rate + 3 percent.  Credit card rates, therefore, will likely stay flat today, too.

Mortgage rates, however, should change.  Possibly by a lot.  The 30-year fixed mortgage does not correlate with the Fed Funds Rate (as shown in the chart at right).

The reason mortgage rates will change today is because, in its statement, the Federal Reserve will highlight vrious parts of the economy, identifying strengths, weaknesses and probable threats to growth.

These observations influence investors with a stake in bond markets and future returns and, with Wall Street on edge right now — unsure of whether recent economic growth is a longer-term trend or a short-lived blip –  mortgage rates could shoot higher or they could drop, depending on how traders interpret the Fed.

It’s a difficult time to be shopping mortgages in Illinois.

Further complicating matters is Greece’s recent debt downgrade to junk status. A small contagion fear is budding worldwide and, as a result, the flight-to-quality has picked up steam. Mortgage rates are down because of it but could reverse higher at any moment.

Therefore, if you’re actively shopping for a mortgage today, it may be prudent to lock your rate ahead of the Fed’s announcement and any major market reversal. Mortgage rates may fall today, but there’s very little room for them to fall.  This is, however, a lot of room for them to rise.

The Fed adjourns at 2:15 PM ET.  Call your loan officer to lock your rate.

Mortgage markets worsened last week in see-saw trading. By the time Friday’s market closed,  FHA loan rates had moved higher.

The biggest stories of last week were actually non-stories.

First, the ash cloud from Iceland’s Eyjafjallajökull volcano dissipated, allowing warehouses to move inventory, airlines to move people, and businesses to move product.  In addition, Greece moved closer to securing emergency funding that will help it stave off default.

When these two issues were threats earlier in the month, mortgage bonds rallied on safe haven buying, driving rates down. As the threats lessened over the course of last week, however, mortgage bonds sold off and mortgage rates rose.

By contrast, this week features lots of stories. Economic data will be at the forefront, as will the Federal Reserve which meets for one of its 8 scheduled meetings of the year.

• Monday : Greece is expected to announce an aid package
• Tuesday : Case-Shiller Index reports on home values from February
• Wednesday : Fed adjourns from its 2-day meeting
• Thursday : Initial Unemployment Claims are released
• Friday : GDP and consumer confidence numbers are released

Furthermore, Wall Street will have its eye on the Senate’s questioning of key Goldman Sachs employees in the wake of the SEC’s fraud charge.

In general, news that’s “good” for the U.S. economy will be bad for mortgage rates, and vice verse.  And with mortgage rates changing as quickly as they have been, rates could really rise in a hurry.

The best defense against rising mortgage rates is to execute a rate lock. If you’re nervous about rates moving higher, call your loan officer and execute your rate lock today.

The FHA loan rate approached its best levels since March on last week’s rally.

That marks two weeks in a row with considerable improvement and two weeks in a row where rates dropped due to “safe haven” buying.

Safe haven buying, which we’ve been covering a lot, is when investors sense market risk and move their money towards less risky investments.  Since Fannie Mae and Freddie Mac mortgage bonds are backed by the U.S. government, they are inherently less risky investments.

When uncertainty prevails in the markets, foreign or domestic, a outcome is that the FHA mortgage rate will dip lower.  Last week had uncertainty, both foreign and domestic.

Early in the week, virtually all air travel in and out of Europe was grounded as Iceland’s volcanoes spewed ash into the air.   Since plane engines don’t fare that well when covered in ash, it grounded planes.  Planes aren’t just for vacations.  Goods, especially perishables, are stuck in warehouses around the globe unable to reach a market.

Domestically, we had “a little bit” of news as well.  Friday, the SEC announced fraud charges against Goldman Sachs.  This sent Wall Street into a tailspin on Friday and the move from stocks to bonds pushed rates lower again.

This Week’s FHA Interest Rate Predictions

We have a very light economic calendar this week and the news doesn’t look to be the biggest element moving rates.  On tap for Thursday we have:

1. Initial Jobless Claims : Important vis-a-vis broader employment figures. A strong number could push rates up.
2. Existing Home Sales : Housing remains a key part of the economy. Strong sales are expected because of the tax credit.
3. Producer Price Index : A “Cost of Living” index of business. A weak reading is expected because inflation is low.

The bigger risk to the FHA loan rate this week is a reversal of this trend of safe haven buying.  It is what has pushed rates down over the past 10-day rally.  When it reverses, so too will mortgage rates.

If you’re evaluating a lock or float decision, rates have significantly more room to go higher rather than lower.

The Fed wrapped up its $1.25T mortgage bond purchase program at the end of March and FHA loan rates had an absolutely miserable week to end March.

Last week, the trend reversed and mortgage bonds made up two-thirds of the prior week’s losses.  Both conventional and FHA interest rates clawed back in a rather surprising rate rally.

There wasn’t much economic data, but Greece stepped in and filled the news.  If you haven’t been following this story, it’s worth it.  The Greek Parliament makes the US Congress seem not as childish.

Faced with a mountain of debt and a series of awful policy decisions, Greece has been spending much of their time complaining about how the rest of the EU is nagging them.

Yeah, that will happen when you lie about your budget and sell your sovereign debt throughout the Eurozone.  The uncertainty overseas brought investor money into the US pushing the FHA mortgage rates lower in spite of a flood of reports that revealed a US economy that continues to get stronger.

FHA Interest Rate Predictions – This Week

Loaded domestic calendar + continued Greek mess = Volatility.

Wednesday to Friday includes Consumer Price Index, Retail Sales, Consumer Confidence and Housing Starts.

Continued economic strength should mean higher rates.   Resolution in Greece should mean higher rates.

If both occur at the same time, watch out.  Rates have a lot of room to jump higher and not much room to move lower.

This week, locking in before Wednesday may be your safest, near-term rate locking strategy.

FHA loan rates took one on the chin again last week.  That’s two in a row and last week was bad each trading session, although there weren’t many surprises.

Hot economic data, a holiday-shortened week, and the end of the $1.25T Federal Reserve purchase program all contributed.

The FHA interest rate hit its highest levels since late-December.

Jobs move economies.  They also move mortgage rates.  Last week, the economy saw some very positive news related to jobs and mortgage rates lost a bit:

1. “Temporary Employment” — a leading jobs indicator — is up 313,000 in the last 6 months
2. The average work-week and factory overtime both rose in March — a sign that hiring should increase soon

FHA Loan Rate Predictions – This Week

This could be another crazy week.

First, the Fed is in an emergency meeting today to review the Discount Rate policy.  The market is on edge waiting for results.

Second, we’re in a really odd spot and technical trading patterns could take over mortgage rate direction for a few days and the influence on the FHA loan rate could be staggering.

Unlike fundamental trading in which markets move on data and projections, technical trading is how markets move based on patterns over time. The two methods co-exist on Wall Street but, occasionally, technical forces can be pronounced, leading markets to lurch up or down.  This week may be one of those times.

Mortgage pricing is far below its 200-day moving average, resting slightly north of a key support level. If pricing worsens this week and bonds fall below the support level, mortgage rates could easily tack on quarter-percents or more per day until the market refinds its balance.

Overall, it’s a week you don’t want your rate to be floating.   Sure, rates could improve, but there’s a lot more room for them to worsen.

Mortgage markets tanked last week and the FHA interest rate saw its highest levels in a month.  Wednesday was the bad day and saw the worst sell-off in over six months.

The major concerns are tied to the current mess in the EU and worries of how our federal debt will impact rates.  The best time to lock a conventional or FHA mortgage rate last week was Tuesday morning.

Predictions for FHA Mortgage Rates This Week

This week, markets should remain volatile. There’s a large set of economic data due for release, plus trading volume will thin as the week goes on because markets are closed Friday for Good Friday.

Coincidentally, Friday is also the day that the March jobs report is released.  Growth is forecasted for this report, a net gain of 187,000 in March.  This is a large number as compared to last month’s net loss of 36,000 job. However, analysts are already dismissing March’s numbers as skewed by both the bad storms of February, and the temporary hiring of Census workers.

In most months, major job growth would be bad for mortgage rates.  This month, that won’t be the case. It will take a figure north of 200,000 to cause rates to rise and the higher the actual number, the more that rates will respond.

Also this week, on Wednesday, the Federal Reserve’s $1.25 trillion program to support mortgage markets sunsets. Fed insiders estimate that the program dropped rates 1 percent since its inception in 2008. It’s reasonable that FHA mortgage rates will rise after its end.