Mortgage rates edge higher but remain within a narrow band

 

(Jason Reed/Reuters)

Mortgage rates wandered higher again this week after a brief slip but remain within a narrow band.
According to the latest data released Thursday by Freddie Mac, the 30-year fixed-rate average ticked up to 4.05 percent with an average 0.5 point. (Points are fees paid to a lender equal to 1 percent of the loan amount.) It was 4.02 percent a week ago and 3.57 percent a year ago. The 30-year average has hovered between 4.02 percent and 4.05 percent the past three weeks.
“Mixed economic reports over the last few weeks have anchored the 30-year mortgage rate around the 4 percent mark,” Sean Becketti, Freddie Mac chief economist, said in a statement.

[New rules on student loans may make it easier for many to qualify for mortgages]

The 15-year fixed-rate average rose to 3.29 percent with an average 0.5 point. It was 3.27 percent a week ago and 2.81 percent a year ago. The five-year adjustable rate average increased to 3.14 percent with an average 0.5 point. It was 3.13 percent a week ago and 2.78 percent a year ago.
With the yield on the 10-year Treasury climbing to 2.42 percent Tuesday, its highest point since March 30, home loan rates — which tend to follow the movement of long-term bonds — were slowing moving higher. Then came the unexpected firing of FBI Director James B. Comey. Because this type of news makes investors anxious and causes them to seek safety in bonds, the yield on the 10-year U.S. bond slid to 2.41 percent Wednesday.
The retreat in long-term bond yields came too late in the week to be factored into Freddie Mac’s survey. The government-backed mortgage-backer aggregates rates weekly from 125 lenders from across the country to come up with a national home loan rate average.

[As equity rises, many homeowners use refinancings to free up cash]

Experts are mixed on where mortgage rates are headed. Rates had fallen in 6 of the past 7 weeks. Bankrate.com, which puts out a weekly mortgage rate trend index, found that about half of the experts it surveyed say rates will go up and another half say they will remain relatively stable in the coming week. Less than 10 percent say they will fall. Greg McBride, chief financial analyst for Bankrate.com, is one who expects rates to rise.
“The job market is tightening, inflation is moving up, and the Fed is poised to raise rates in June — all of which is providing some lift to mortgage rates,” McBride said.
Meanwhile, mortgage applications picked up last week, according to the latest data from the Mortgage Bankers Association. The market composite index — a measure of total loan application volume — increased 2.4 percent. The refinance index rose 3 percent, while the purchase index grew 2 percent to its highest level since October 2015.
The refinance share of mortgage activity accounted for 41.9 percent of all applications.

Robert Bobby Darvish platinum Lending Solutions of Orange County

Yellen: Fed will raise interest rates, let economy "coast"

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  Right: Federal Reserve Chair Janet Yellen Left: moderator Susan M. Collins, Sanford Weill Dean of Public Policy at the University of Michigan Gerald R. Ford School of Public Policy.

  Tyler Scott / Michigan Radio

Federal Reserve Chair Janet Yellen said at a University of Michigan event today the Fed plans to gradually raise short-term interest rates.
Yellen said the change in monetary policy comes after years of holding short-terms interest rates at low levels.
“I think we have a healthy economy now ... but it’s been a long time coming,” Yellen said.
Yellen said the current unemployment rate of 4.5% is “even a little bit below” what Yellen and her other colleagues at the Fed would consider “full employment.” She said inflation is “reasonably close” to the Fed’s stated goal of two percent.
She said the economy's current moderate level of growth is due in large part to increased consumer spending, but that the health of the housing market has improved, as well as investment spending and the global economy.
“Looking forward I think the economy is going to continue to grow at a moderate pace,” Yellen said.
Yellen, who assumed office in 2014, comes to the end of her term as Fed chair next year. She said the new monetary policy of the Fed, including raising interest rates, is focused on maintaining current levels of economic growth.
After the global financial crisis of the mid-2000s, the Fed did practically everything it could from a monetary policy perspective to increase consumer spending, including holding the “overnight” interest at nearly zero percent for years, according to Yellen.
But in those years, lowering short-term interest wasn’t enough. The Fed also bought treasury and mortgage-backed securities to lower long-term interest rates, according to Yellen. In addition, the Fed practiced what Yellen called “forward guidance,” reassuring the financial markets that interest rates would remain low.
“Before, we had our foot pressed down on the gas pedal trying to give the economy all the ‘oomph’ we possibly could,” Yellen said. “Now, [we want to be] allowing the economy to coast and remain on an even keel.”
Yellen also said it is important to begin rising interest rates before the economy “overheats."
“We don’t want to be in a position where we have to raise rates rapidly, which could conceivably cause another recession,” Yellen said. “We want to be ahead of the curve and not behind it.”

Why We Could Get Negative Interest Rates Even Though The Fed Is Hiking

Federal Reserve Board Chairman Janet Yellen speaks during a briefing on March 15, 2017 in Washington, DC. / AFP PHOTO / Brendan Smialowski/Getty Images

At its March meeting, the Federal Reserve raised interest rates by 0.25%. In doing so, it hiked rates for only the third time since 2006. However, in a strange turn of events, the Fed’s move was perceived as a dovish one by the markets.
That’s because even with inflation at its highest level since 2012, the Fed said monetary policy will remain accommodative “for some time.” As has been the case in the past, the Fed is willing to let inflation consolidate above its 2% target before embarking on a more aggressive tightening path.
This willingness to let inflation “run hot” means even as nominal rates rise, real rates—that is, the nominal interest rate minus inflation—are headed into negative territory.
So what are the implications of negative real rates?
Negative Real Rates Drive Gold Higher
The consumer price index (CPI), the most widely used measure of inflation, averaged 2.67% for the first two months of the year. Even if inflation averaged only 2% for all of 2017—the Fed’s target—it would be a big problem for investors and savers alike.
Today, a one-year bank CD pays about 1.4%. Therefore, anyone who keeps their money in a bank is watching their purchasing power erode.
Of course, there are other options. You can put your money in U.S. Treasuries or dividend-paying stocks—both popular sources of fixed income.
However, with both the 10-year Treasury yield and the average dividend yield for a company on the S&P 500 hovering around 2.35%, that doesn’t leave much in the way of real gains if inflation is running at 2% per annum.
If inflation rises or bond yields fall, real interest rates will be pushed into the red… and that’s very bullish for gold.
Gold is known as the yellow metal with no yield, but simple math tells us no yield is better than a negative one. Because of this, gold has done well when real rates are in negative territory. In fact, real US interest rates are a major determinate of which direction the price of gold moves in.
A study from the National Bureau of Economic Research found that from 1997–2012, the correlation between real U.S. interest rates and the gold price was -0.82.
This means as real rates rise, the price of gold falls and vice versa. A -1.0 reading would be a perfect negative correlation, so this is a tight relationship.

The Fed’s hesitation to raise rates faster is contributing to another trend that is also bullish for gold.
A Falling Dollar Equals Higher Gold Prices
In the six weeks following the US election, the dollar skyrocketed 5.6%—a huge move for a currency.
However, since the beginning of the year, the greenback has given back most of its post-election gains. This is in part due to the Fed’s “dovishness” on interest rates.
The strong negative correlation between gold and the U.S. dollar is a major reason the yellow metal is up over 9% year to date.

Market Realist

In the March edition of Bank of America Merrill Lynch’s Global Fund Manager Survey, respondents thought the dollar was at its most overvalued level since 2006. As the chart shows, the survey has a good track record of determining when the dollar is overvalued.

Bank of America Merrill Lynch

Tying it all together, what do these trends mean for gold?
Gold Should Go Higher from Here
With arguably the two biggest drivers of the gold price trending in the yellow metal’s favor, gold is likely to go higher. Although the dollar could rise if Washington implements some structural reform, real rates aren’t headed higher anytime soon based on the Fed’s actions.
Bank of America Merrill Lynch said these two trends were part of the reason why it upgraded its forecast for gold to $1,400 per oz. by year-end. As the chart below shows, the market turned bullish on gold following the Fed’s December rate hike.
In closing, after nine years of doing its utmost to generate inflation, the Fed has finally succeeded. If past is prologue, as inflation rises over the coming months, gold will do very well.
If you’re considering getting some gold before it goes up, do your homework first.

Robert Bobby Darvish Platinum Lending Solutions

Beware of mind games when shopping mortgage rates

(Photo: Getty Images/iStockphoto)

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Sometimes our brain gets in the way of a good decision. It’s called “cognitive bias,” and it happens when our mind tricks us into making irrational choices. We think something is true — and we just go with it.
Here’s how to keep your mind from messing with you when shopping for the best mortgage rate.

Raise the anchor

Maybe your ears perked up when you heard about 3.5% mortgage rates last summer. You started to think about buying a home or possibly refinancing. But now rates are closer to 4.5%.
In this case, the mind game at work is called “anchoring.” You just can’t get that 3.5% rate out of your head.

3 reasons why downsizing isn't just for empty-nesters

"Once you have that number in your mind, it's very hard for you to be flexible about proceeding with a financial decision," says Mary Gresham, a psychologist in Atlanta. “You might think, 'Well, I'll just wait until it goes back [down] to that.’"
But if rates keep moving higher, you might wish later that you had snagged that “high” 4.5% rate.

Don’t get hung up on framing

Another way our brain sometimes blocks our best interests is through “framing” — drawing varying conclusions from the same information when it’s presented differently.
"Percentages look small," says Dan Ariely, professor of psychology and behavioral economics at Duke University. "Imagine if instead, mortgages were framed not in terms of percentages but in terms of how much we're going to pay in interest over the life of the mortgage." This information is available to borrowers, but it's generally not how they comparison shop for a loan, Ariely says.

This company will double your down payment. What’s the catch?

The difference between a 4.75% and a 4.5% rate might not seem like big — but what if you considered total costs? You may be less willing to choose a product that charged $25,000 more in interest over the life of the loan and had $3,000 more in closing fees.

Slow and steady wins the rate

Avoiding irrational thinking requires knowing a bit about how your thought processes work.
"We have two brain systems that do our finances for us,” Gresham says. “One is what we call the fast, emotional system. And the other is the slow, rational system. Take your time and think it through. Don't make a quick decision about finances."

'A bad idea': More new mortgages are risky ones

As Ariely notes, "We decide on a mortgage too early without truly searching and without negotiating."
Consider the big picture and the big numbers. Shopping annual percentage rates (APRs) rather than just a lender’s published rates, and considering your total costs can help you choose the best mortgage.
And give your mind a little more time to work out the details.

Robert Bobby Darvish of Platinum Lending Solutions of Orange County

Mortgage rates move lower for Friday Feb 24 2017

Mortgage rates move lower for Friday

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Yuganov Konstantin/Shutterstock.com

Several key mortgage rates dropped today. The average rates on 30-year fixed and 15-year fixed mortgages both decreased. On the variable-mortgage side, the average rate on 5/1 adjustable-rate mortgages also fell.
Mortgage rates are in a constant state of flux, but, overall, they are very low by historical standards. If you're in the market for a mortgage, it may be a great time to lock in a rate. Just make sure you shop around first.
RATE SEARCH: Compare mortgage rates in your area now.

30-year fixed mortgages

The average rate you'll pay for a 30-year fixed mortgage is 3.97 percent, down 7 basis points
over the last week. A month ago, the average rate on a 30-year fixed mortgage was higher, at 4.09 percent.
At the current average rate, you'll pay a combined $475.69 per month in principal and interest for every $100,000 you borrow. That's a decline of $4.03 from last week.
You can use Bankrate's mortgage calculator to estimate your monthly payments and see how much you'll save by adding extra payments. It will also help you calculate how much interest you'll pay over the life of the loan.

15-year fixed mortgages

The average 15-year fixed-mortgage rate is 3.16 percent, down 2 basis points
over the last seven days.
Monthly payments on a 15-year fixed mortgage at that rate will cost around $698 per $100,000 borrowed. The bigger payment may be a little more difficult to find room for in your monthly budget than a 30-year mortgage payment would, but it comes with some big advantages: You'll come out several thousand dollars ahead over the life of the loan in total interest paid and build equity much more quickly.

5/1 ARMs

The average rate on a 5/1 ARM is 3.15 percent, falling 1 basis point from a week ago.
These types of loans are best for those who expect to sell or refinance before the first or second adjustment. Rates could be substantially higher when the loan first adjusts, and thereafter.
Monthly payments on a 5/1 ARM at 3.15 percent would cost about $430 for each $100,000 borrowed over the initial five years, but could increase by hundreds of dollars afterward, depending on the loan's terms.

Where rates are headed

To see where Bankrate's panel of experts expect rates to go from here, check out our Rate Trend Index.
RATE SEARCH: Want to see where rates are right now? See local mortgage rates.

Average mortgage rates

Product	Rate	Change	Last week
30-year fixed	3.97%	0.07	4.04%
15-year fixed	3.16%	0.02	3.18%
30-year fixed jumbo	4.46%	0.16	4.30%
30-year fixed refinance	3.99%	0.09	4.08%

Last updated: February 24, 2017.

Methodology: The rates you see above are Bankrate.com Site Averages. These calculations are run after the close of the previous business day and include rates and/or yields we have collected that day for a specific banking product. Bankrate.com site averages tend to be volatile -- they help consumers see the movement of rates day to day. The institutions included in the "Bankrate.com Site Average" tables will be different from one day to the next, depending on which institutions' rates we gather on a particular day for presentation on the site.
To learn more about the different rate averages Bankrate publishes, see "Understanding Bankrate's Rate Averages."

Bobby Robert Darvish Platinum Lending Solutions Orange County

Mortgage Rates Were Up on Friday as the Jobs Report Showed the Signs of a "Trump Effect"

Mortgage rates were slightly higher on Friday. Meanwhile, the U.S. economy added 227,000 jobs in the month of January, beating expectations and providing evidence that the "Trump effect" on animal spirits has had an early economic impact.

The average 30-year mortgage rate rose four basis points, to 4.08%, on Friday, which equates to a $482.04 monthly payment per $100,000 borrowed (one basis point equals one-hundredth of a percentage point). A month ago, the equivalent payment was lower by $1.74.
The average 15-year mortgage rate rose one basis point, to 3.23%, equating to a $701.70 monthly payment per $100,000 borrowed. A month ago, the equivalent payment was the same.

Rate (national average)	Today	1 Month Ago
30-year fixed jumbo	4.48%	4.57%
30-year fixed	4.08%	4.05%
15-year fixed	3.23%	3.23%
30-year fixed refi	4.11%	4.09%
15-year fixed refi	3.25%	3.25%
5/1 ARM	3.26%	3.39%
5/1 ARM refi	3.33%	3.60%

5/1 ARM: ADJUSTABLE-RATE MORTGAGE WITH AN INITIAL FIXED FIVE-YEAR INTEREST RATE. DATA SOURCE: BLOOMBERG. RATES MAY INCLUDE POINTS.

Image source: Getty Images.

Mortgage rates are closely linked to the yield on the 10-year Treasury bond. That yield, in turn, reflects the bond market's expectations for future short-term interest rates over the bond's maturity. And short-term interest rates, well, they reflect the Fed's assessment of the economy and its prospects.

This brings us to the most highly anticipated macroeconomic data release: the Labor Department's monthly Employment Situation Report. This morning's report was no different, as economists and investors try to find their bearings during the first 100 days of the iconoclastic Trump administration.
The January report was broadly positive with 227,000 workers added to payrolls, surpassing the consensus forecast of 175,000. As the following graph shows, the figure for January (blue line) is above the trailing 12-month average of 195,000 (red line):

Image source: Federal Reserve Bank of St. Louis.

The unemployment rate ticked up by a tenth of a percentage point, to 4.8%, but the trend reflects an economy that's creating enough jobs to maintain the unemployment rate (green line) at 5% or below. (Note that the participation rate has remained pretty stable over this period.)
While their ardor appears to have cooled somewhat since the actual handover in power, stock and bond market investors took a very buoyant view of economic prospects under the new administration. The narrative was that a businessman in the highest office would act decisively to boost American businesses, and that was plainly enough to raise "animal spirits." Today's data suggests the "Trump effect" probably had a genuine economic impact, but investors need to "watch the downside," too.

By: Robert Bobby Darvish of Platinum Lending Solutions of Orange County

How a one-two, Trump-Yellen punch may move interest rates

Jayne Kamin-Oncea | Getty Images

Interest rates could try recent highs on the potent combination of a hawkish Janet Yellen and the pro-growth talk that is likely to come from Donald Trump in the next couple days.
Trump will be sworn in as 45th U.S. president on Friday, and the markets are looking for him to play up his pledges to push forward tax breaks and infrastructure spending early in his administration. He may also take actions in his first days that reduce regulation and define his commitment to the promises he's made voters. That could be seen as a near-term negative for Treasury prices and would send yields higher.
Already, bond yields were on the rise Thursday, lifted by surprising remarks from Fed Chair Yellen on Wednesday afternoon and economic reports Thursday morning showing decades-low jobless claims, an 11.3 percent jump in housing starts and a two-year high in mid-Atlantic manufacturing activity. Also a factor was the Wednesday report of a jump in headline consumer price index inflation to a more than two-year high of 2.1 percent year over year in December.

"I don't think we're going to see a huge surge in optimism again. We're not going to get another leg off of it, but I also don't think we're going to go back to where we were in October." -Tom Simons, money market economist, Jefferies

In her comments, Yellen said she expects a few rate hikes this year and that the fed funds target rate could get to 3 percent by 2019 — all in line with the Fed's forecasts. But it was Yellen's seemingly confident embrace of those targets that got the market's attention. Markets had been skeptical of the Fed forecast, and many economists had expected just two rate increases this year, not the three in the central bank's projection.
"She certainly gave the market a big push. Just looking at March probabilities, they went from an 18 percent chance (of a rate hike) to 25," said Aaron Kohli, rate strategist at BMO. "The market went from pricing slightly less than two hikes to slightly more than two hikes in 2017." He said expectations in the fed funds futures for a June rate rise went to 93 percent from 85 percent after Yellen spoke.
The 10-year Treasury yield also snapped to 2.43 percent after Yellen spoke and was as high as 2.48 percent Thursday, its highest level since Jan. 3. The two-year yield rose as well, but the curve flattened, meaning the gap between two-year yields and 10-year yields narrowed. The two-year was as high as 1.25 percent Thursday.
Yellen was scheduled to speak again and take questions Thursday evening at 8 p.m. ET at a Stanford University event. The Fed next meets Feb. 1 and while it is not expected to take action, the gathering could result in some more hawkish talk.
Kohli said the next target for the 10-year would be 2.52 percent, and then 2.60 percent.

"After the weekend and Monday, it's going to be very interesting. What happens when we get to brass tacks will be interesting for sure." -Tom Simons, money market economist, Jefferies

The bond market has been consolidating for the past several weeks after the 10-year reached a postelection high of 2.64 percent on Dec. 15. That is the level that could be tested in the near future, strategists say.
"There's a short base that will get even bolder if rates get to that level," Kohli said, adding short bets could add to the growing position sending rates higher. "I think it's very possible you get that kind of spike up. What I would suggest is as soon as that happens you might go the other way."
Money market economist Tom Simons at investment banking firm Jefferies said he doesn't see a big move in yields, but the bias should be toward higher yields, and lower prices. "I don't think we're going to see a huge surge in optimism again. We're not going to get another leg off of it, but I also don't think we're going to go back to where we were in October," he said.
"Next week we'll have two-, five- and seven-year auctions, a little bit of supply, and a light data week, so the focus is going to be on Trump, and for the most part, the first stuff that comes out of the gate is probably going to be (bond) market negative and it will be risk positive," he said.
Simons said he thought the rally in Treasurys, which drove the 10-year yield toward 2.30 percent earlier this week, was overdone.

Look beyond bonds for income: Expert   22 Hours Ago | 01:39

In the last several weeks, yields fell as investors became disillusioned with the "Trump trade" and the prospects for quick adoption of the president-elect's pro-growth agenda.
Trump did talk up expectations for a tax program or stimulus when he met with the press last week, and that absence raised flags about what he will get done early in his administration. Trump's focus on repealing Obamacare and his comments on tariffs both were concerns for the market, since the issue of altering America's health-care system is seen as a quagmire, while tariffs could spark a trade war.
"After the weekend and Monday, it's going to be very interesting. What happens when we get to brass tacks will be interesting for sure," said Simons.
Kohli said he expects Trump to focus on infrastructure spending and tax cuts. He could make a bigger splash in markets if he announces fiscal spending that can be put to work right away. Tax reform and cuts are also important, but Kohli said that's likely months away.
Strategists expect Trump to push forward quickly on initiatives in his first weeks, and markets will be disappointed if he doesn't. "If he squanders it, that's his downside," said Kohli.

Robert Bobby Darvish Platinum Lending Solutions