And today, as insane as this is, I’m going to pick a fight with him.  Okay, not really.  But he did post today on a mortgage “myth” that he takes apart point-by-point.  Specifically, the “myth” that mortgage rates take the stairs down and the elevator up, i.e. that rates rise much faster than they fall.  He argues that this is false.  And I think his argument is all wet.

To prove his point, he calls out bond rates from the last 12 months, and shows – convincingly and correctly – that bond rates have been much more likely to fall than to rise, and more likely to fall dramatically than to rise dramatically. Here are the data:

So, if we compare these groupings to the last year’s actual, daily price changes, and we see an interesting pattern emerge for rate shoppers.

1. Days of no change in rates : 65 days trending worse, 63 days trending better
2. Days of 0.125% change : 36 days of higher rates, 50 days of lower rates
3. Days of 0.250% change : 21 days of higher rates, 50 days of lower rates
4. Days of 0.375% change : 6 days of higher rates, 3 days of lower rates

In other words, mortgage rates [sic] were unchanged for nearly half of the last 12 months. For the other half, they overwhelmingly moved toward “improvement”.

Now, we should throw out 0.125% changes because they’re somewhat “ordinary”; it’s just one tick higher or lower in rates. Instead, let’s focus on big shifts in pricing which, in turn, lead to big shifts in rates.  That’s where we see the myth debunked, specifically.

On days with big rate changes — 1/4 percent or more — decreases in rates outnumber increases by a 2:1 margin. That’s a huge difference.

His data is unassailable.  So his argument appears sound.

Except for one little bait-and-switch that he probably didn’t notice himself (see the [sic]).  These data are for bond rates.  But Dan says “mortgage rates” in his analysis.  If they were the same thing, then the data would support his premise exactly.  But they aren’t.  Everyone knows they aren’t.  There is not and never has been anything like a one-to-one correlation between bond rates and mortgage rates.

Worse than that, I think Dan’s entire premise is flawed.  Here’s the premise of his analysis:

1. Changes of less than 25 basis points often lead to no change in mortgage rates
2. Changes of 25-37.5 basis points often lead to a 0.125% change in mortgage rates
3. Changes of 37.5-75 basis points often lead to a 0.250% change in mortgage rates
4. Changes of 75+ basis points often lead to a 0.375% change in mortgage rates

But this isn’t true, or at least, it’s only true in one direction – higher. There’s a reason that it’s proverbial among mortgage people that rates are sticky down, that they don’t drop nearly as fast as they rise. That is because there is a disconnect between bond movement and mortgage rate movement. When bonds move higher, rates should fall, and they do, but not very fast.  And when bonds move lower, rates should rise, and they do, but far out of proportion to the movement in bonds.

Dan has his data, and he points out that bonds have moved higher, taking rates down, far more often than they have moved lower, taking rates up, over the last year.  I don’t mean to be snide here, Dan, but duh.  Anyone can see that.  The bond market has been very robust this past year. Your data show exactly what we ought to see in a hot bond market.

But my data show how banks actually react to bond market movement, and what we see backs up the conventional wisdom and contradicts Dan’s argument.  To demonstrate this, I have the intraday reprices from three different mortgage lenders for the past six months.  And the story THOSE data tell is very different than the one the bond market tells.

To wit:

Intraday reprices for the better: All lenders – 29 (14, 11, and 4)

Intraday reprices for the worse: All lenders – 54 (20, 15, and 19)

There were, on top of this, five second reprices to the worse, making a total of 59, or more than two negative reprices for every one positive reprice.  Even if you throw out the most conservative lender, the total is still 39 to 25 in favor of reprices to the worse.  And yet, over this period, the FNMA 4.0 bond rose dramatically, from a low of 98.74 to a high of 104 at one point in mid-October (currently trading at 101.68).  How can this be, unless lender reaction really is skewed to raise rates instead of dropping them?  Dan’s data show that there are twice as many days of robust positive movement than negative movement in the bond market over the past year.  Taking that into account, what we see here is that lenders are four times as likely to raise rates than to drop them, when the market moves.

It’s actually even worse than that.  Lenders improved prices, in the 29 improvements, an average of .188 bps.  But the average deterioration was .262.  Not only are there significantly more deteriorations than improvements, when lenders move pricing, the moves to raise rates are far larger than the moves to lower them.  There were five days in the last six months that saw two negative reprices in the same trading day, but no days when there were multiple price improvements, this in a market where the bond rose over 600 bps in four months.

Bottom line, Dan, you have convincingly demonstrated that when bond demand is high, bonds rise.  I’m not sure this needed demonstrating, but there certainly isn’t any doubt about it after your analysis.  But you either forgot to establish the correlation between bond rates and mortgage rates, and how the movements correspond, or else the data support no such correlation.  My data are far less scientific than yours, but mine show very stiff circumstantial evidence that lenders behave exactly as the conventional wisdom says they do: they price higher faster, and more aggressively, and they drop rates reluctantly and as slowly as they can get away with.

All of which is unfortunate for rate shoppers.  Dan does conclude his post with some very sage advice: if you’re more upset with a 1/8 rise in rate than you’d be happy with a 1/8 drop – and most people are – you should be locking as fast as you can.  I’ll even extend that.  If you can live with the rate you have right now, take it, because there’s a 4x greater chance that you’ll get something worse than something better if you wait.

Welcome to RateWatch for Thursday, August 05, 2010.  Here’s what’s happening:

Employment again is the news of the day, with new claims up another 20,000 or so to 479,000.  Continuing claims were down, though, to 453,700.  That was not as far down as the markets were expecting, however, and that’s meant that bonds have stayed strong.

Not too strong, though.  There really is no upside here.  Unless we get a truly shocking number tomorrow from the unemployment people, showing unemployment at, say 10.5%, there just isn’t any confidence in the bond market to cause a buying wave.

What that means for rates: nothing.  We’re down 6bps, which might just as well be flat.  There is no upside without huge news, and no downside because what news there is is bad.  So we’re hanging out with rates in the 4.5% range.

Anything else?: yep.  Sure is.  The big news today comes out of Washington, surprise surprise, with the Senate passing a bill that changes FHA fees.  Up-front MI will move from the current 2.25% down to 1%, a positive change, but more than made up for by the increase in monthly MI from an annual .55% to .9%, and the FHA gets authority to go all the way to 1.5%.

Bottom line: on a $200,000 loan, you are paying right now $4500 in UFMIP and $91.66/mo in monthly MI.  When these changes take effect, you’ll be paying $2000 UFMIP but $150/mo in MI.  For more commentary on that, see the blog at thechrisjonesgroup.com.

I’m Chris Jones, aka Agent Zero.  That’s RateWatch for today.  Until next time, we’ll be watching the rates.

Welcome to RateWatch for Thursday July 29, I’m your host, Chris Jones, and here’s what’s happening:

Today’s market: The benchmark bond is up 12bps today.  We’re trading in a very narrow channel.  Economic news today was all about employment, as in, there isn’t much of it.  Unemployment benefits have been extended, so continuing claims were up, which did not surprise anyone.  New claims were down, but not very much.  The recovery continues to fail to do the one thing that would really get the economy moving again – create jobs.

What that means to you: rates are holding steady.  It’s generally acknowledged that banks would like to raise rates, but competition is making that very difficult.  Remember, they don’t make money unless they lend it out to people.  Rates are therefore critical to attracting business.  There’s no central rate-making authority in mortgages.  The banks take their cues from the bond market and from each other.  So today’s rates are in the 4.5% range on conventional and FHA, with 15-year rates in the 4% range.

At some point, obviously, this is going to change.  We’ll have a terrorist attack (which would be mixed for bonds) or we’ll have IBM invent cold fusion (which would be very, very bad for bonds), and the market will break out of this channel and start moving, almost certainly upward.  We are trading right now at the bottom of the historical range, as in, it’s never been this good.  Ever.  So it isn’t as if there is a lot farther down we can go.

How long will it last? That’s the billion-dollar question.  Here’s the answer: NO ONE KNOWS.  Only one thing is certain: rates in this range will go away.  Do not wait to talk to a professional.  You can call us.  That’s what we’re here for.

That’s RateWatch for July 29, I’m your host, Chris Jones.  You can find us at thechrisjonesgroup.com or text us at 801-850-378.

Welcome to RateWatch for Thursday July 22, and here’s what’s happening:

Today’s market: The benchmark bond is down 15bps today.  We’re trading in a narrow channel.  It’s a huge day for economic news, with jobless claims coming out worse than expected – at least, worse than the experts expected – and existing home sales numbers showing the housing market still weak but not as weak as expected. All that bad economic news is bad for stocks and good for bonds.

What that means to you is worse mortgage rates, but not very much worse.  We’d need to be down 30-40 bps before banks would react with worse rates.  There’s a certain fatigue on the part of banks, who don’t really want to make loans in the low 4% range, so they’re not going lower on rates unless we have a huge move in the market.  That’s not happening.  Moves higher are very possible, however, so stay tuned.  To you all this means that rates are holding steady in the 4.5% range on most loans, down in the 4% range on 15-year terms.  Those rates are truly ridiculous, by the way.  At 4.5%, you can buy 20% more house than you can at 6% for the same payment.  An example:

6%, $200,000 loan, payment $1200/mo

4.5%, $240,000 loan, payment $1216/mo

So let’s all be grateful.

What’s in it for you? Money.  It’s going to take you 60-90 days to be able to complete a sale, so start the process right now.  For many of you it will take as much as six months.  Sound like a lot?  It isn’t.  And January is traditionally one of the cheapest times of the year to pull the trigger.  Do not wait to talk to a professional.  You can call us.  That’s what we’re here for.

That’s RateWatch for July 22, I’m your host, Chris Jones.  You can find us at thechrisjonesgroup.com or text us at 801-850-3781. ‘Til next time, we’ll be watching the rates.

Let’s get to it.

MARKET: the market is down a bit today, off about 25 basis points.  For those just joining us – hey there, Tyler, Corrine, and Taylor – what that means is that the bond we track, the FNMA 4.5% 30-year bond – is being sold off and its price is declining.  It also means that the yield on that bond is rising.  Since lenders hedge their lending by buying those bonds, when the yields on them rise, mortgage rates rise with them.  So today mortgage rates are increasing.  Not very much, but a little.  More than we’ve seen in a month.

ANALYSIS: Markets rise and markets fall.  The big news over the past few weeks has been the increasing probability that we’ll see a market slump over the last half of the year and into next year.  There is also a real fear that next year could be truly ugly.  With the Bush tax cuts sunsetting on January 1, businesses will be moving their cashflow into the latter half of this year to avoid the explosive tax increase.  Dividend taxes nearly triple, which will be terrible for pension funds, and every single tax bracket will see tax increases.

Anyone that thinks that won’t have a huge negative impact on economic growth is not a serious person.  There is a chance – really, a pretty good one – that Congress will do something about an extension for part of the cuts, especially those that will have the smallest economic, but largest political, impact.  As of this moment, however, it doesn’t seem a good time to invest in stocks.  Bonds, as a result, have been flourishing, driving interest rates to 4.5% and even lower on some programs.

ACTION: We may have hit the bottom of this trench in mortgage rates.  Those of you that have been thinking now might be a good time to buy, now might be a good time to buy.  For refinances, I’m willing to go out on a limb and say it’s now or never.

Until next time, we’ll keep up the RateWatch.

Cj

Analysis: Rates are sticky down, meaning that they stick on the way lower and don’t mirror market conditions exactly.  They are also slippery up, meaning that they rise faster than you would think when the market deteriorates.  I think that might explain the hysteria about interest rates, with everyone and their dog predicting a gigantic surge in rates when the Fed stopped buying mortgage-backed securities at the end of March.

Okay, not everyone.  As you know, faithful readers, I predicted that rates would not go higher, at least not by much.  And for once, I was right.  It just didn’t seem rational to me that with the global debt overhang we would have a massive flight out of mortgage-backed securities causing a huge rise in interest rates.  It has, in fact, not happened.  Rates remain in the range they have been for 18 months.

Additionally, there isn’t going to be any significant fallout – not for the next few months – from the expiration of the tax credit for homebuyers.  The market will adjust.  There was an extra $8k built into pricing on homes, which will now slowly vanish, and lower prices will start pulling the same buyers back into the market.  Not all of them, of course, because many of them were getting an $8000 “gift” from mom and dad that they were going to pay back from their government largesse, and that is gone.  But there will be other incentives.  The market wants to move.  Real estate wants to move.  And it will.

Action: if you’re in the market, stay there.  We’re about to see the best prices for houses and the best rates we’ve seen in many years.  Get with us, get into the PerfectHome program, and we guarantee when you find the house you want to buy, you’ll be able to buy it.  That’s right.  We guarantee it.

Cj

Analysis: Good employment data – we actually have seen some hiring in this report – makes it look more and more likely that the bottom of the recession has come and perhaps gone.  Couple that with looming $3 trillion deficits, and that means that bonds are doomed.  This time, there’s no Fed backstopping things.

So, it turns out that I was wrong, and that the end of the Fed purchases of mortgage-backed securities IS going to have a hugely negative impact on interest rates, as the conventional wisdom said it would.

Action: The only thing to do is to move as quickly as possible.  If you are considering a real-estate transaction (the government goosing of the housing market comes to an end on April 30, FYI), move now.  Nobody can lock your rate without an address, so get a contract in place as soon as you can.

Despite my small joke in the headline, I do know that there’s nothing in the housing markets that is anything like as important as the real events being commemorated this weekend, beginning today with Good Friday and culminating with Easter on Sunday morning.  I recall singing at many Easter sunrise services as a teenager, and the power of the commemoration of the Resurrection is with me as I write this.  RateWatch is about how important the market is, but all things considered, nothing that happens in the market is very important at all.  Take some time this weekend to appreciate how insignificant all this really is compared to the things that really matter.  I know I will.

Cj

801-850-3781

Analysis: A piac nem tud melyik iranyba menni, ugyhogy semmisem tortenik.  If I write the same thing I’ve been writing for the past month, it gets old, even for me, so I wrote it in Hungarian this time.  Prizes for the first person to email me the sentence above in English.

There’s nothing going on, people.  Or, at least, nothing that is big enough to make the markets move.  Breathlessly we wait for the Fed to stop buying mortgage-backed securities, and loud are the forecasts of rate-based doom, and yet…nothing.  Still, nothing.

Clarification: There is a lot of confusion about the homebuyer tax credits, so let me herewith set the record straight.  YOU DO NOT HAVE TO CLOSE ON YOUR PURCHASE BY APRIL 30.  The house merely has to be under contract by April 30.  It can then close any time before JUNE 30.  “Under contract” means there is an agreement, signed by both the seller and the buyer, outlining the sale price and the terms of the sale.  As long as you have that in place by April 30, you still qualify for the tax credit, and that is either the first-time homebuyer credit or the long-time homeowner credit, either one.

Cj

Analysis: We talked about this last time (and here as well, in greater depth), there just isn’t any good reason to believe that much is going to change here.  I got some push-back on my contention that politics is driving the market at the moment, but I’m sticking to my guns here.  Even if Obama is indifferent to a second term (and I’m not convinced that he is, all protestations to the contrary), the driver on this stuff is Congress, more than the President.  The retirement of Evan Bayh of Indiana is a black, black sail for the Democrats.  Having spent 25 years in the political arena, I’m quite sure that most of the sitting Congressmen want to keep their jobs, and that usually means tossing bread to the plebs as they go to the polls.  That argues against fiscal restraint and higher interest rates.  I’m just saying.

NEXT year, well, that’s a different story.  And please let me emphasize, I’m no prophet.  I’m just telling you what I think, and freely acknowledge that I’m often wrong.  But I’m never slow on the trigger, so right or wrong, you’ll have the benefit of someone watching what’s happening in the markets while you do the real work out there.

Action: The tax credit expires on April 30 if you do not have a home under contract.  Call your Realtor and get cracking.  The FOMC stops buying mortgage-backed securities in 42 days.  That’s going to have SOME impact on rates, and it isn’t likely to be good (although, as argued, I don’t think it will be very big).  Move expeditiously.  That is all.

Cj