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Friday, April 29, 2016

Mortgage Bond Market Analysis - Lot's of data and guessing

It's the last Friday of April and Jobs Week is next week.  Europe began our day with some strong data which was bad for bonds.  Thankfully, our data was mostly good for bonds and the FNMA benchmark bond is currently up 5 basis points (20 basis points off the morning low) because of it.  March Personal Income rose .4% vs. expectations of .3%.  This is good because the more people make the more people can spend and consumer spending is what drives our economy.  Not so fast - Personal Spending was only up .1% vs. expectations of .2% and the Core PCE (Personal Consumption Expenditures) YOY dropped from 1.7% to 1.6% - hence, people are saving more and spending less which is not good for the economy but it is good for personal finances.

The Employment Cost Index came in at .6% as expected.  The Chicago PMI came in at 50.4, much lower than the estimates of 53 but still above the critical 50 level which means it's still expanding.  You may recall it wasn't too long ago where this data point was in the low to mid 40s consistently.  Lastly, the final April Michigan Consumer Sentiment Index came in at 89 vs. estimates of 90.  You may also recall that just a few months ago this was around 95 or 96 and spending was low - I commented that the consumer sentiment index was quite high considering the fact that consumers weren't backing up their sentiment with the action of spending.  I wrote that perhaps they were confident because the employment outlook was improving but not confident enough to start spending - at any rate, if they aren't confident enough to be spending, the reading, in my eyes, was too high.  Today's reading is much more in line with consumer's spending actions and it will be interesting to see if spending picks up.  With the Core PCE where it is, this gives the Fed more reason to wait before the next rate increase which means there is more opportunity for people to go out and buy a home and get a great low rate on a mortgage.  Additionally, when people buy homes, they usually also buy new furniture, appliances, and stuff to fix up their home which means more income and jobs for the people who sell those things which means that they might be able to buy more stuff, including homes.  But I digress.  I would recommend floating for now but if you do float, make sure you keep your eye on my app - buyerZapp - so that you can act quickly if the market moves against you and I issue a warning to lock.

Waiting to buy a home means that the buyer will pay more money for the same home in price and in interest rate - as the economy recovers, rates trend up.  A $200,000 home today will cost $208,000 a year from today with 4% appreciation.  The loan amount for an FHA loan is now $7,720 higher than if the purchase price were $200,000.  The payment, assuming rates stay the same is $66.10 higher at the $200,720 loan amount than at the $193,000 loan amount based on the $200K purchase price.  If rates also go up 1% - which is very possible - the payment would then be $150.36 higher.  This means that some buyers may have to settle for a lesser home if the higher payment makes their debt ratio too high to qualify.  I'm happy to answer any questions you or a client may have and to provide scenarios and options.  Here is a link to my FREE mortgage report:  How to Avoid the Most Common and Costly Mistakes When Getting a Mortgage which contains lots of information regarding the process, fees, interest rates and locking, loan programs, financial strategies and more.  Check it out and feel free to share it as well.  Make it a great day and a better weekend.

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