Financial advice? Just ask Arlington

Last week saw interest rates remain very stable, not really improving too much even though we did see some MBS (Mortgage Backed Securities) market improvements. Why does this happen? Well, many reasons can contribute, including supply and demand (lenders have a very strong supply right now and don't need to pass market improvements on to consumers to capture more business), as well as secondary pricing desks hedging against rapid market deterioration. What's does all this mean in English? Simply that the rates remain flat.

Now that we are seeing a new trend in MBS performance, and technical signs point to short term interest rate stability, we can advise to float and see if we may experience some improvement. Be careful though, there is a lot of economic data being released this week that will cause daily volatility. So, let's recap: mortgage interest rates will probably end the week where they began them, meaning that rates are pretty stable. However, during the day, we may see volatility which means that rebate or loan pricing may be affected even though interest rates themselves remain unchanged.

So for this week, any consumers who are less than 7 days out from closing may want to just lock in the great rates we see. Anyone more than that should watch the market with their mortgage loan originator and see if they may find even more improvement on the horizon.

BOTTOM LINE: 

The weekly MBA (Mortgage Bankers Association) mortgage applications released at 7:00 am this morning. Mortgage applications increased 4.8% from one week earlier. The Refinance Index increased 5% from the previous week and is at its highest level since mid-January of 2013. The seasonally adjusted Purchase Index increased 4% from one week earlier is at its highest level since May of 2010 and the adjusted Conventional Purchase Index increased 3% to the highest level since October 2009. The unadjusted Purchase Index increased 5% compared with the previous week and was 20% higher than the same week one year ago. The refinance share of mortgage activity was unchanged at 75% of total applications from the previous week. The adjustable-rate mortgage (ARM) share of activity was unchanged at 5% of total applications. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) decreased to 3.67% from 3.68% for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) decreased to 3.77% from 3.79% for 80% loans.

Improvements in rate will come grudgingly, but if the stock market recovery we've been waiting for finally happens, we may improve by about .125%.

Fed chief Bernanke is on the calendar to speak at a community development conference in Washington. Always important when the Fed head talks, these days even more so with the question about the ending of the QE (Quantitative Easing) hanging out there in the wind. There is no direct reason he will have anything to say, but in the Q&A anything is likely to come up, markets are not concerned with it though. The data this morning is constructive toward the view that the Fed will continue its easing policy for longer than some may have thought yesterday. The economy is clearly not expanding as rapidly as most thought at the beginning of this year. Unless there is a marked reversal in the speed of growth the Fed will not stop now after three years of support with easy monetary policy.

Recently released data on employment and now confirmed weakness in retail sales should be lessening the bullish outlook for growth. March saw just 88,000 new jobs as businesses face uncertainty over the sequester cuts in spending and the realization that health care costs will increase as Obama Care begins to be implemented. Whether there is anything these days that will set a decline in equity markets is questionable; so far nothing has fazed investors as stock prices continue to climb. Corporate profits are holding well for the most part, driving the market higher and higher in one of the strongest and long-running stock market rally in years. Businesses are getting more from present employees and refrain from hiring; the result is consumers are still being pressured and reluctant to increase spending. What will it take to set off a strong correctional rally in the equity market? So far with the Fed continuing to force investors into stocks, and the global view that the US is the best place to invest are countering the reality that consumers are not spending much and employment not improving much.

For any additional information, or questions regarding other subject matter, contact Sean O’Sullivan at Arlington Financial. Phone: 914-793-1122, email: Info@ArlingtonFinancial.com