FHA Interest Rate Predictions: Watch Inflation

Filed under FHA Interest Rate by on March 19, 2010 at 7:47 am {no comments}

Homes are significantly more affordable today because of these low .  We’ve been hovering around 5% for quite some time.

When is the ?  If housing prices were to jump a whopping 5% in just a few months, it wouldn’t be as expensive as getting a 6% rate instead of a 5% rate.

Example:  If a home jumped from $100,000 to $105,000, the payment would go up somewhere around $25-30.  If the home priced stayed steady at $100,000, but rates jumped from 5% to 6%, the increase in payment would be more than double at just over $60 extra dollars per month.

The , not prices, have been driving this affordability.

So, when’s it going to end?

Watch .   are highly responsive to .

By definition, inflation is when a currency loses its value; when what used to cost $2.00 now costs $2.15. As consumers, we perceive inflation as goods becoming more expensive.  However, it’s not that goods are more expensive, per se. It’s that the dollars used to buy them are worth less.

This is a big deal to mortgage rates because mortgage bonds are denominated, bought, and sold in U.S. dollars.  As the dollar loses value to inflation, therefore, so does the value of every in existence. When bonds lose their value, investors don’t want them and bond prices fall.  Mortgage rates move opposite of bond prices.

Prices down, rates up.

In today’s market, the relationship between inflation and mortgage rates is helping home buyers. The Cost of Living made its smallest annual gain in 6 years last month and the Fed has repeatedly said that inflation will stay low for some time. The combination is driving investors to buy mortgage bonds which, in turn, is suppresses rates.

So long as it lasts, the cost of homeownership will remain relatively low. Combined with the expiring , these have never been lower.

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FHA Interest Rates & the FOMC Meeting

Filed under FOMC by on March 16, 2010 at 7:49 am {no comments}

The adjourns from their scheduled 1-day meeting today, its second of the year.

The FOMC has held the inside of a target range of .000-.250 percent since December 16, 2008, and the voting members of the Fed are anticipated to vote “no change” again today.

However, no change to the Fed Funds Rate doesn’t always mean no change in . This is simply because the Fed Funds Rate is a different interest rate from the rates home buyers get from a loan officer.

  • Fed Funds Rate : Short-term rate at which banks borrow from other banks
  • : Long-term rate of interest a homeowner pays on a mortgage .

FHA are a lot more responsive to what the Fed says as compared to what the Fed does.

After each FOMC meeting, Fed Chairman Ben Bernanke & Co issue a formal announcement to the markets. At roughly 400 words, the statement is a brief commentary around the strengths, weaknesses, and threats for the U.S. economy.

watches the statement with great interest and this is the reason interest rates tend to be volatile on the days of an FOMC adjournment. One mention of a word like “” and traders rush to dump their positions.

Inflation is the enemy of interest rates.

After the Fed’s last meeting in January, it told us that the economy had “weakened further”, led by steep declines both in housing and employment. Global demand was off, too. The negative tone of the Fed’s statement caused mortgage rates to fall to near an all-time low.

This month, expect a less gloomy message.

Since January, there has been a modest rebound in housing, employment appears more stable, and Retail Sales just posted huge gains. If the Fed alludes to improvement in any or all three, mortgage rates will more than likely reverse and zoom higher.

We can’t know very well what the Fed will say so if you’re floating a mortgage rate and wondering whether to lock, the safe approach would be to do it today prior to 2:15 PM ET.

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FHA Mortgage Rate Predictions | This Week | March 15, 2010

Filed under Weekly Review by on March 15, 2010 at 7:47 am {no comments}

The FHA interest rate lost ground last week for the first time in March.  It’s been a very good run for and they are currently lower than any of the experts were predicting.  The FHA loan rate is going to start the week at or below 5%.

Last week was very light on economic data.  This week is the exact opposite.

FHA Loan Rate Predictions | This Week

Expect .  Here is just the economic data on tap:

  • Monday : Industrial Production and Home Builder Index
  • Tuesday : Housing Starts and
  • Wednesday:
  • Thursday : Producer Price Index and Initial Jobless Claims
  • Friday : Consumer Price Index and Continuing Jobless Claims

Beyond that, we have the meeting on Tuesday.

We don’t expect changes to the , but the post-meeting press release is nearly always the start of a volatile afternoon.  Talk of economic strength will push up stocks and drive mortgage rates higher.  Talk of economic weakness will push stocks lower and typically pull loan rates a bit lower as well.  The issue is that there is a lot of room for rates to go up and not a lot of room for them to go lower.

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FHA Mortgage Rate Predictions | This Week | March 8, 2010

Filed under Weekly Review by on March 8, 2010 at 7:46 am {no comments}

The FHA interest rate improved again last week.

Light volume and steady gains all week.  Then the better-than-expected on Friday took back much of the week’s gains.

Rates were best Thursday afternoon, but it was still the second consecutive week in which the FHA interest rate fell.

FHA Loan Rate Predictions For This Week

More .

There are not many economic reports with just and Retail Sales due out.  A status quo for rates would be great.  Any change is significantly more likely to drive rates up than push them down.

The ticking clocks for this week are two-fold and completely outside of normal mortgage rate factors:

  • The end of the Fed’s support of the market
  • Potential resolution on the EU / Greece bailout discussions

We’ve had almost all of $1.25T supporting for the past year.  That’s ending.  The Fed has been a buyer of epic proportion.  Rates will go up if no one else has an appetite for that many mortgage bond investments.

We’ve had a huge influx of foreign money in the past few weeks.  It’s helped push the lower and stocks higher in the same week.  That’s not normal.  That’s because felt the US was safer than anywhere else.  If the Greece issue finds resolution, expect rates to jump.

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FHA Loan Rates & The Jobs Report

Filed under Jobs by on March 4, 2010 at 7:47 am {no comments}

have improved over the past few weeks, but tomorrow’s could send them much higher.

The official report is the “” report and it is one of the most widely watched economic indicators.  watches this report and it is usually a driver for some of the most volatile days of the year.

Tomorrow at 8:30 Eastern, we start what will likely be a volatile day.   Expectations are for a net job loss of around 30,000.  More might push the FHA loan rate a little lower, anything less could send rates much higher very fast.

Jobs drive the economic recovery.  Employed Americans spend more and default on mortgages less.  Positive readings on the job market draws money out of mortgage bonds and into stocks.  When that happens, go higher.

Mortgage rates hit the streets around 9:30 EST so expect tomorrow’s rate sheets to reflect the results of the jobs report.  Today’s rates are incredible and have the potential to jump much higher with only a slightly better than expected result.

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FHA Mortgage Rate Predictions for Week of March 1, 2010

Filed under Weekly Review by on March 1, 2010 at 7:46 am {no comments}

The FHA interest rate improved last week pushed rates to their lowest levels since early February.

The economic data was negative:

Rates didn’t go as low as they could have.  Fed Chairman Ben Bernanke’s semi-annual statements to Congress eased concerns that the monetary policy would get too tight, too quick.  Stocks responded well at the end of the week as Bernanke confirmed that the will stay low for an extended period of time and this took money out of the bond market.

This Week’s FHA

Friday’s report, the “,” will likely be the big driver.  The expectation is that 30,000 jobs were lost in February.  A higher number will drive rates lower.  A lower number will drive the FHA loan rate higher.

We also have data, notably the , and the Fed’s Beige book on tap.

The FHA look great today, but this week has some highly influential reports that could cause dramatic swings by the week’s end.

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This Week’s FHA Mortgage Rate Predictions

Filed under Weekly Review by on February 22, 2010 at 7:46 am {no comments}

Last week was brutal.  The FHA interest rate was under heavy selling pressure all week and lost ground for the second week in a row.   The primary causes were figures that came in higher than expected and then two pieces of news from the Federal Reserve.

It was the single worst sell-off in any week since late last year.

The Federal Reserve played two big parts in the rates jumping.  First, the January meeting minutes from the Fed meeting revealed a significantly more optimistic Fed than we saw in the brief press release that followed the meeting.  Second, and largely unexpected, the Fed raised the Discount Rate to 0.75%.   do okay in times of economic troubles.  These statements and ensuing actions by the Fed indicate that better times, and higher , are coming.

The , and the Prime Rate, should remain the same for the near future, but the Fed clearly drew a line in the sand:  The economy is healthy enough where the loose monetary policy is coming to an end.

News for This Week’s Predictions

This is a big news week:

  • Tuesday : Case-Shiller Home Price Index,
  • Wednesday : New Home Sales
  • Thursday : FHFA Home Price Index, Initial Jobless Claims
  • Friday : Existing Home Sales, Personal Consumption Expenditures

Even after last week’s big sell-off, mortgage rates still have enough room to jump an extra .25% without very much work at all.

If you’ve been trying to perfectly time the bottom of mortgage rates, you missed it.   At this point, the best time to get an FHA mortgage is now, not later.  We still have a .5% increase to the UFMIP hitting in just 40-ish days.  No matter how you look at it, unless mortgage rates dip significantly, an FHA looks to be more expensive after April 5th.

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FHA Loan Rates Jump On Fed Minutes

Filed under FOMC Minutes by on February 18, 2010 at 7:46 am {no comments}

The FHA interest rate is now at its highest level of the year.

Yesterday’s release of the Federal Reserve Minutes from the January meeting sent higher.

The release is a very detailed follow-up document that expands greatly on what was stated in the brief post-meeting press release.  The Fed Minutes outline the debates and dissenting opinions which is a more thorough view than just the summary statements of the press release.  Yesterday, took a look at the debates and didn’t like what they were seeing.

Specifically, they reacted to:

  1. Confirmation that the purchase program will end March 31, 2010
  2. To tighten monetary policy, the Fed intends to raise the
  3. Consumer spending is improving

These are all great economic signs.  They are not good for mortgage rates.  The last part of the Fed’s comments is what really hurt the bond market:  “higher medium-term .”  hurts bonds which in turns hurts mortgage rates.

This growing Fed optimism is great except for two things:  the FHA interest rate is rising and so too will home prices.   Stronger economies push both of those figures higher.

If you are looking at a home purchase or refinance, it might be wise to push your time frame up.   Rates are likely to continue to rise after March 31st and will likely rise in these next 40 days as well.

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FHA Interest Rate Predictions – Feb. 16, 2010 Edition

Filed under Weekly Review by on February 16, 2010 at 7:47 am {no comments}

ticked higher last week, although they didn’t jump as much as they could have.   It was the first time in five weeks that rates ticked higher.

Mortgage bonds had rallied so much in the past few weeks that some natural profit-taking was to blame and the Greece issue appears to have some potential rescue efforts in the works.

This week’s predictions are back to basics:  domestic news.   The calendar is loaded starting on Wednesday.

We’ll see:

  1. Housing Starts and (Wednesday)
  2. The release of the last month’s (Wednesday)
  3. Business and consumer figures (Thursday and Friday)

Housing starts could be soft as weather was brutal across the country last month.  Keep an eye on permits.  Weather delays a start, but builder optimism is what triggers the permit.

The Minutes are significantly more involved than the simple press release after the meeting.  acts on what it thinks that the Fed is thinking.  That guessing game resumes when the minutes hit later this week.

Inflation could move on Thursday and Friday.  Bonds hate inflation and a hotter-than-expected reading could cause interest rates to jump.

If you know you are likely to need to lock an FHA mortgage this week, the odds favor locking before the landslide of data hits.  Rates have a little room to go lower and a lot of room to go higher.

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2010 FHA Mortgage Rate Predictions? Try Guesses.

Filed under Weekly Review by on February 8, 2010 at 7:46 am {no comments}

All bets are off.  There are some things that “always” increase rates.  Last week, we saw strong corporate earnings, housing appears stable, and the Federal Reserve continues their upbeat tone.

Those things all cause rates to go up.  Yet, the FHA interest rate dipped for a 4th consecutive week.

Why?  Because every other economy in the globe appears worse off than ours right now.  Bad news kept filtering in, starting with the UK banks the week prior, China tightened its money supply, and pick an EU country, it’s in trouble.

The FHA loan rate is strongly tied to where global investors wish to park their money.  For the past two weeks, the U.S. has seemed much safer than anywhere else.  When investors park their money here, our go down.

Looking forward to this week’s predictions, there is almost no economic data.  If deem the U.S. safer than elsewhere, FHA rates stay low.  If think someone else offers a risk/reward they like, the sound will be their money sucking out of the bond market and the consequence will be a significant jump in mortgage rates.

If you are currently considering whether to lock or float a laon, the trend continues to point towards higher rates down the road.

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