June 4th sale of mortgage backed securities pushed mortgage rates higher. A highly eventful week witnessed MBS coupon price move 200 basis points low early last week and conversely raising the thirty year fixed rate from 4.87 percent to 5.37 percent by weekend. The thirty year fixed rates were at a 4.62 percent before May 27th Black Wednesday.
To the market, this could very well mean the onset of recovery. Stock market is witnessing a positive change in the mood of investors who were investing in low risk assets like treasury debt are now attempting to invest in assets that yield higher returns.
Gloomy days seem to be ending unless one was expecting a mortgage rate of 5 percent.
The Fed stimulates a feeble economy by slackening its monetary policies, thereby lowering the mortgage rates which provide greater options to refinance and make homes available at lower prices.
Positive hopes of recovery in the market were further strengthened by the recent release of the employment situation study. The report gives an insight on the job cuts or job creation, salary assessment and rate of unemployment.
The report states that the job cuts were 345,000, significantly lesser than the 520,000 forecasted by the economists. The unemployment rate was higher at 9.4 percent as compared to the predicted 9.2%. Though this is a discouraging figure it is a less gloomy than what the market anticipated. Previous two months have also seen slightly encouraging figures with 652,000 job cuts in March compared to 699,000 predicted job cuts. The month of April witnessed similar figures with 504,000 job cuts compared to 539,000 predicted job cuts.
Post release, MBS went down by 100 basis points and futures at Dow shot up. The wage constituent of the report had a positive influence on MBS. Economists had predicted wages to increase by a .2 percent, although the reported figure was a .1 percent increase. This is a good indicator for salary based inflation as the greatest resistance to mortgage rates was inflation.
Rates on mortgages have soared since the past ten days, and this has led people to worry about housing reforms, recovery, less than 5 percent sub mortgage rates and availability of lower mortgage rates.
Analysts remarked that the par thirty year fixed mortgage rate is between 5.125 percent – 5.375 percent for the highly eligible customers. Mortgage rates which are not fixed are a better option for people who plan to keep a house for about seven years or less.
Five year arms, which carry a fixed interest rate as well as payment for five years and a floating rate post five years, have a rate of 4 percent as of today. Five year arms are a better option for house owners who plan to own the house for a short while. It is essential to know how the loan liquidizes gradually if one is considering ARM as a viable option.
