Chicago Illinois Mortgage Rates Week in Review for the Week Ending 08/28/2010
30th August 2010
The biggest news this week on the housing front, was that existing home sales fell 27.2% in July. The 
June results were also downgraded, and now the inventory of unsold homes on the market is about a 12.5-month supply at the current rate of sales, up from an 8.9-month supply in June. A healthy real estate market usually has 6 months of supply or less. New home sales also fell 12.4% for the month, to a level not seen since 1968. If you add in all the distressed homes that aren’t on the market, yet, this adds to the softness. Part of this picture is skewed, though. Housing is a mess, but part of the reason that sales are down now is because many of the buyers who would have normally bought in the last few months, already bought earlier in the year in order to take advantage of the home buyers tax credit. The extra supply of homes on the market is putting more downward pressure on home prices. The good news in all this bad news is that there are buyers out there, sitting on the fence and waiting for the right house at the right price. These buyers are motivated by bargains. I expect to see a small pop upwards in sales over the next few months as some of the fence sitters take advantage of the lower prices and low mortgage rates.
In other news, orders for durable goods, items expected to last three or more years, rose 0.3% in July mostly a result of some big commercial aircraft orders. The Gross Domestic Product (GDP), the total output of goods and services produced in the economy, increased at an annual rate of 1.6% in the second quarter, lower than the 2.4% increase initially reported. The biggest market mover for the week wasn’t a report, though, but the reaction to a speech by Fed Chairman Ben Bernanke. In an economic summit at Jackson Hole Wyoming, Bernanke talked about the state of the economy and how the Fed is prepared to step in again if needed to add further liquidity to keep the avoid a double dip recession. News stories have come out over the last few weeks about how the Fed is divided about what to do, and when. Some Fed Governors want to hold back and are more concerned with long term consequences, while Bernanke is said to be more willing to act now. His comments were interpreted as a sign that the Fed is contemplating another round of quantitative easing, pumping more money into the system, possibly through buying more treasury bonds or mortgages. The finger is on the trigger, but nothing is likely to happen unless the economy takes another turn lower.
The effect of all this on mortgage rates this week is that mortgage rates are still near their best rates ever, but volatility is high and rates are as likely to worsen as go lower. Even as mortgage bonds have improved, mortgage rates haven’t. On days that mortgage backed securities have a good day, the wholesale lenders hold their rates or improve just a little. When mortgage bonds have a bad day, the wholesale lenders jump at the chance to raise rates (or more likely the pricing which determines the rates). Some of this is due to a normal cautious nervousness when rates are at previously uncharted highs. Part of this is because all the lenders pipelines are full, and they aren’t as hungry for new business when they are near capacity now. As some of the loans close, and more room is available, we may see some improvements, but for those waiting for the next leg lower in rates, it may be a long wait. There is a lot of activity this week, including the most watched indicator the employment report which will be released Friday morning.
Conventional loans up to $417,000
| 30 year fixed rate | 4.375% | 4.58% |
| 15 Year fixed Rate | 4.00% | 4.165% |
| 5-1 A.R.M. | 3.375% | 3.579% |
For Jumbo loans over $417,000
| 30 Year Fixed Rate* | 5.25% | %5.367% |
*(Another option is to break your Jumbo loan into 2 parts a conventional to the limit of $417,000 and a HELOC or fixed second mortgage for the rest. The blended rate is usually much better than a single loan would be.)
| 5-5 A.R.M. ** | 4.25% w/ 0 points | 4.34%** APR |
| 5-5 A.R.M. ** | 4.00% w/ 1 Point | 4.37% APR |
** 5-5 ARM is fixed for first 5 years, with 2/6 caps it can’t go more than 2% above the start rate for the next 5 years. 2% cap for next 5 years – so a blended rate over 10 years is no more than 1% over the start rate. Super Jumbos available.
FHA LOANS 3.5% down payment FHA Maximum varies by County
| FHA 30 year fixed | 4.25% with 1 Pt | 4.979% APR |
| FHA 30 year fixed | 4.375% with 0 Pts | 4.786% APR |
| FHA 5-1 ARM | 3.625% with 1Pt | 4.385% APR |
| FHA 5-1 ARM | 3.75% with 0 Pts | 4,159% APR |
FHA APR reflects 3.5% down payment and the effect of mortgage insurance on the loan. Call for information on no-cost FHA streamlined Refinances
FHA 203K Rehab Loans – Call for Quote
VA Veterans Administration 0 Down Loans
| VA 30 Year Fixed Rate | 4.375% with 1Pt Origination | 5.086% APR |
| VA 30 Year Fixed Rate | 4.50% with 0 Pts | 4.774% APR |
Call for information on no-cost VA Streamlined Refinances
These are just a few of the mortgage programs and mortgage rates available. Which option is best for you depends on your own specific goals and needs. If you have any questions or want to go over your situation in depth, let me know how I can help.
Peter Thompson 630-479-6424
Illinois Mortgage Rates First time home buyer loans
Chicago Mortgage Company
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report, came in worse than expected, and that trumps all the other news. On the good side, the ISM manufacturing index came in higher than expected showing that manufacturing activity has expanded in each of the last 12 months. The personal savings rater also increased for last month. On the negative side pending home sales came in low (not a real surprise since the summer is usually slow in the housing market and many borrowers moved up their buying to take advantage of the tax credit earlier in the year), and consumer confidence dipped again. But the number that really mattered was the employment report. On the surface this showed a loss of 131,000 jobs, in July, though after discounting the 143,000 temporary census jobs lost, the more accurate number was a gain of 12,000 jobs. But even this gain is small. In a normal economy it takes about 120-150,000 new jobs each month just to keep up with the new job seekers (think of all the recent graduates looking for a job). So the growth now is still putting us further behind. The real worry here is that job growth is decelerating. After the economic melt down nearly 2 years ago, job losses were in the high hundreds of thousands each month. After unprecedented action by the Fed, and the huge stimulus package passed at the beginning of the Obama presidency, the losses stabilized and and we had a period of improvement. But in a normal business cycle the growth should be accelerating. When the economy first tanks, the Fed loosens the money supply and government increases their spending in order to prime the pump. By this point private industry should be feeling more confidence and hiring new workers. But commercial lending is still off, and the private sector is still treading water.
recovery is going to be a long, slow grind. As a result, the stock market is faltering and as money rushes into the safer haven of bonds, mortgage rates are at their best levels ever. Consumer confidence readings are down, inflation is nearly non-existent, and the Fed meeting minutes from last month show that the they expect slower growth going forward. The reality is that we are going to have to deal with high unemployment and a tough housing market for quite some time. This is all bad news for the economy in general, but it is a big enticement for those who can take advantage of the lowest mortgage rates since they’ve been keeping track of mortgage rates (there were lower rates years ago, but they weren’t for 30 year fixed rate loans). The question now is whether these low rates are just a blip before they head higher, or if rates will hold at these levels or drop even lower. Last year a lot of people lost out on the lowest rates at the time (the 4.75% range) because they were waiting for rates to drop to 4.5%. The good thing is that there is a solution to this problem. We can often do refinances with no closing costs, so if rates do go lower, you aren’t out any money. Also, if rates drop by a lot while we are processing the loan, we will do our best to renegotiate for a better interest rate. One thing we know about the market is that it is always volatile, and rarely does what is expected. If you own a home and have a rate of 5.00% or higher, it makes sense to at least consider refinancing. 
Without much news, the mortgage bond market was most influenced by the direction in the stock market (when there is optimism in stocks, bonds sell off, and visa versa). The stock market has been selling off over the last few weeks as concern mounts that the recovery is stalling out, and major problems are still brewing in Europe. Last week the stock market bounced higher after touching a level of resistance. The question this week is if the rally in stocks has any legs. We are now getting into earnings season, and over the next few weeks all the major companies will release their earnings for the 2nd quarter. Earnings over the last year have come in better than expected, largely as a result of cost cutting. If they are able to extend this streak and some big name companies come in better than expected, this could push stocks higher and as money flows into stocks, bonds suffer which could mean mortgage rates may move higher. Mortgage rates are off their best rates now, and volatility is the norm. But mortgages are still trading in the same range. The big picture is still uncertain, and mortgage bonds are likely to rally at the first hint of bad news (bad news is good news for low mortgage rates). We are still in a historically low range for mortgage rates. If you are thinking about doing a refinance, I would gather up my paperwork and get it into your mortgage loan officer now, and wait for the right time to pull the trigger.
workers. The silver lining to the report was that the private sector added almost 100,000 new jobs, and the unemployment rate fell from 9.7% down to 9.5%. Upon closer review the silver lining looks more grayish. The reason for the drop in the unemployment rate is that more people have grown discouraged and stopped looking for jobs, so they are now no longer counted. The gain in private sector jobs is good news, but no nearly where we should be in this stage of a recovery if there is any hope that the economy will start to reignite. Because of new workers coming into the job market (think of all the college graduates that just finished school) the market needs to add 125-150,000 new jobs each month just to stay even. Also, the gains from the two previous months were revised downward. All this is bad news for the economy, and though this is usually a reason why mortgage bonds would rally and mortgage rates would continue their downward trend, but right before a holiday with low volume and a long weekend ahead, traders got defensive and sold off to lock in some gains. We will see what happens when they get back to work on Tuesday for a real test.
data is still mixed, but it looks like the recovery is losing steam, and the fear is that the economy may dip back into a new recession, or continue a long slow slog of bumping along the bottom, without a real upturn into growth. Existing home sales fell 2.2% in May. The inventory of unsold homes on the market is sitting at an 8.3-month supply at the current sales pace, slightly better than the 8.4-month supply in April. New home sales fell 32.7% – the slowest sales pace since they began keeping records back in 1963. New home sales have fallen 78% from their peak in July 2005. Durable goods orders fell 1.1% in May after increasing a revised 3% in April. Initial claims for unemployment benefits fell by 19,000 to 457,000 for the week, showing that employment is still a major concern. One of the big market movers last week was the Fed meeting report. The Fed changed their wording slightly to a more bearish stance, which means the odds of a rate increase coming now shift even further into the future. The net result of this activity is that rates are as low as they have ever been. Not everyone can qualify, but if you do, this could be the right time to pull the trigger on a mortgage refinance or home purchase. Locking in these low rates now means big savings over time.