The Veridian Blog

http://finance.yahoo.com/news/Mortgage-rates-hit-low-of-454-apf-434994172.html?x=0&sec=topStories&pos=1&asset=&ccode

Hi all -

Hopefully, this explains why our blogging has been spotty lately.  With the recent onslaught of applications, please understand that turn times have lengthened across the board and we appreciate your patience and understanding during these busy times.

Most lenders are managing rate lock expirations very well and closing in a timely manner so when we do lock a rate for you, we are very confident that the transaction will close as expected.

The best way to reach us right now is by email.  Please trust that while volume has opened the floodgates that our standard of service has not been compromised at all and we will continue to offer the same availability and sound advice that we have been offerring homeowners for decades. 

Sincerely,

Richard Wang

President / Broker

Veridian Mortgage

How many factors can you name, off the top of your head, and which are the most influential? 

The key to remember is that the mortgage rate market is like any other – it does not necessarily always make sense and is, more often than you’d like, irrational!  But over time, you will see some indicators that consistently move mortgage rates a particular direction.  The longer time frame that is analyzed, the more reliable the relationship.  I’ve categorized the factors into 4 main areas:

1. Inflation, Inflation, Inflation (it’s not about Location at all) – It’s all about INflation.  I’m going to etch that on my gravestone.  The most popular economic indicators are the Producer Price Index and the Consumer Price Index.  Extremely influential (a “9” on a 1-10 scale).

2. The health of the U.S. economy.  Generally, the worse the US economy, the lower mortgage rates will go as borrowing will be encouraged to help stimulate business.  Some classic indicators: Unemployment Rate, Productivity (output/worker), Consumer Confidence/Sentiment, Gross Domestic Product, Geopolitical Events, FOMC Meeting Minutes*, Retail Sales, New and Existing Home Sales.  Generally influential (7 out of 10, but also depends on which indicator).  More recently, bad news about the economy has really been a catalyst for lower mortgage rates.

3. Supply and Demand of Treasuries.  From a microeconomic standpoint, no matter what happens in the world or US Economy, if there is a high demand (foreign or domestic) for US Treasury Bonds, then mortgage rates will almost certainly fall.  It's an economic certainty.  Borrowing cheap from the government just lowers the cost for wholesale lenders.  Very influential (7 out of 10).

4. Supply and Demand of particular Mortgage Products.  From a super-microeconomic standpoint, no matter what happens in the world or US Economy, or the Bond Market, some lenders will simply price according to their own company’s supply and demand of some loan products.  While this used to be rare, the liquidity crisis is a glaring example of how these factors will sometimes conflict with the general market.  Three years ago, as the benchmark 10-year bond was plummeting downward, mortgage rates skyrocketed because Jumbo investors literally vanished overnight.  On the flip side, sometimes, lenders will price aggressively to simply promote a new product.  Either way, it is during these times that a good mortgage broker can really help!  Extremely influential (9 out of 10).

*Note that I did NOT list the actual Fed Funds rate that we often hear in the news.  This is not a true economic indicator as it is a tool that the Federal Reserve uses to tighten or loosen the money supply in America and in itself is based on many of the same factors listed above.

For a more in-depth explanation for any of the indicators listed above, please e-mail me.  I’d be happy to explain.

What an exciting week it was with what seemed like a new record low every day.  The downward momentum was absolutely unchallenged all week as poor economic reports, one after another, suggested that the recovery is grinding to a halt.  Mortgage rates fell the previous week due to poor home sales.  It was later learned that pending home sales for May plummeted 30.0% month-over-month in the worst decline in the nine years of available records.  Last week the trend continued with worse-than-expected Consumer confidence, Manufacturing, Jobless Claims and continually worsening equities.  The stock market dropped over 2% to a new nine-month low after market participants were hit with a flurry of disappointing reports.

Meanwhile, mortgage rates are sinking fast.  The benchmark 10-year Note dipped to 2.91% at one point and is rallying again today...