San Diego Mortgage Rates Report: December 2010

By
Mortgage and Lending with San Diego VA Home Loans/858-777-9751

If you've been following the November mortgage rates rollercoaster, you have to wonder how conventional mortgage rates almost dropped below 4%, then almost topped 4.5%, and are hovering in the middle of that range today.  What will December bring in the mortgage rates market?

Let's look at what happened:

1- Warning signs about the second round of Federal Reserve Quantitative Easing (QE2), flashed at the beginning of November.  Still, the mortgage bond traders like what they saw in initial rollout of the program:

The best conforming 30 year fixed mortgage rates have moved back down to a range between 3.875% and 4.25%. 3.75% is phantom but I've received more than a dozen emails from borrowers who locked in a 30 year fixed loan at 3.75% today. Read "phantom"as believing in the existence of 3.75% but not having scientific proof. 4.25% is widely quoted with no closing costs while 3.875% still carries an expensive closing cost price tag.

2- While pleased with the initial reaction, I sensed a crack in the foundation of the bond market, and issued a lock-in alert, after the first weekend of November:

Mama Grizzly and Mama Brady know something about inflation; they do the weekly grocery shopping.  When Mama Brady told me that our grocery budget had to be adjusted upwards, while I was remarking that our budgeted monthly fuel expenses had to be adjusted  as well, I started thinking that inflation might just be around the corner- that’s not good for mortgage rates.

3- As expected, the bond market fell apart, and mortgage rates jumped .375%.  Why then, did I reverse course, just ten days later, if I felt this pressure building?

Traders are calming down, and trusting the power of central banks’ and governments’ bailouts again.  A trader’s loyalty is about as reliable as a lap-dancer’s love but, for the near-term, bond traders think  QE2 just might drive bond prices higher.  They ain’t selling too much and they ain’t buying too much.  Expect them to watch what happens through next week, then pile on the bond train, hoping to make a quick buck.  That’s good for mortgage rates, in the short-term.

What now, for December, 2010 mortgage rates?

I think we could see rates move back to the pre-November levels.  If you have a closing after December 15, 2010, you might consider waiting to lock-in your interest rate.  Two things support this strategy:

  • QE2 buying, by the Fed, in absence of marklet moving economic statistics.
  • Flight-to-quality, amidst the economic uncertainlty surrounding the Irish bailout (and a possibly escalating collapse in Portugal).  That strain on the European Union, has investors looking at United States-backed securities, as safe.

Why caution is needed, and you must have a mortgage loan originator who obsessively follows mortgage rates:

  • The Fed's QE2 buying, might be seen as inflationary...again.  This would cause the bond bubble to prick and the escaping helium means higher mortgage rates.
  • Economic figures might show a more robust economy rather than a slightly positive one.  A key figure for me will be the Black Friday retail sales.  That figure is always puffed up (and later amended) but it could be a key indicator as to how strong this alleged recovery really is.

In summary, I have enough evidence to warrant a delayed lock-in strategy.  The rewards are a potentially .25% lower in mortgage rate but the risks are treachorous.  If you are thinking of refinancing, don't delay on the paperwork.  Make an application, give the lender your paperwork, and wait patiently to lock-in and order the appraisal.

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Rainmaker
156,820
John Cunningham
eXp Realty - Phoenix, AZ
Helping Phoenix Sellers and Buyers find each other

I think you're right. Rates are fantastic and betting that they will go lower will probably leave one wanting.

Dec 06, 2010 04:13 PM #1
Rainer
22,513
James Brennan
Brenson Realty, Inc. - Temecula, CA
Realtor, Real Estate, Home Value - Temecula

It is crazy right now.  I have two different clients lock rates 2 weeks apart and get .5% difference in their rate.  Rates seem to be all over the place.  Good luck in 2011

Dec 06, 2010 04:14 PM #2
Rainmaker
592,907
William J. Archambault, Jr.
The Real Estate Investment Institute - Houston, TX

Brian,

It's a conundrum!

We're taught to fly on instruments, logic over sensation, yet can we trust our instruments?

I agree with your analysis, nay I defer to a more involved source. Because, I have to question our traditional logic. I simply can't explain where we are at logicly!

With regard to home buyers I don't believe small differences in the rate should make a deference. If you can afford the home at 4.000%, but not at 4.500% you lied to yourself about 4.000%! When buying a home the rate needs to be reasonable as opposed to the best in history!

When Refinancing, when you already have your home at an affordable rateyou should get approved today! Yesterday would have been better! Then, you can afford to speculate, to wait for the potential incredible rate.

Home buyers should lock-in when rates are some where between affordable and comfortable, preferably the latter. There's a name for home buyers that speculate, that wait for the very best rate, tenants.

I apologize for adding emotion to logic! But, the consumer reacts emotionally and when we can't depend on our instruments so do allot of professionals!

If the European Union is in danger over the fiscal insanity, we must worry about ours! Such a thing could make you and my family in Michigan foreigners.

"In summary, I have enough evidence to warrant a delayed lock-in strategy. The rewards are a potentially .25% lower in mortgage rate but the risks are treacherous. If you are thinking of refinancing, don't delay on the paperwork."  Good advice.

"Make an application, give the lender your paperwork, and wait patiently to lock-in and order the appraisal."  Great advice!

Bill

 

Dec 07, 2010 04:20 AM #3
Ambassador
666,558
Paul McFadden
Paratex - Seattle, WA
Pest Control, Seattle, WA.

Brian: I agree with you. The longer term fundamentals of the economy will still support lower rates for the next several months. I think all us thought higher rates would be the norm by now. But, then again, who knew how deep the economic problems were worldwide? Thanks for the post!

Dec 07, 2010 08:08 AM #4
Rainmaker
140,298
David Krushinsky
Dk Home Loans, LLC - Peoria, AZ
AZ MB-0949619 MLO NMLS #202115

Brian, you and I talked about rates moving higher 6-8 months ago.  I think it just comes down to people not having anywhere better to invest their money.  Where are you going to put it?? 

Dec 07, 2010 08:39 AM #5
Rainer
75,537
Steve McCoole
Mortgage Alliance Group - San Diego, CA - NMLS#305667 - San Diego, CA

Total bloodbath in the Mortgage Backed Securities market today, the FNMA 3.5% coupon lost over 160bps.  While I hope you are correct in saying rates could move to pre-November levels there is a very high bearish sentiment in the bond market right now.

Dec 07, 2010 09:40 AM #6
Rainmaker
563,898
Chris Olsen
Olsen Ziegler Realty - Cleveland, OH
Broker Owner Cleveland Ohio Real Estate

Hi Brian -- I don't track this info too closely, I just look at the end result, so it's great to get a peak under the hood!

Dec 07, 2010 12:33 PM #7
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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

Brian... it's been a roller coaster that many of us haven't experienced in 16 months or so... and what sucks about this one, as you stated, no matter what the facts or expectations, they can change at any moment. Especially when the gov't can jump in and buy up Treasuries or MBS's so quickly. If they hadn't done this 1 1/2 yrs ago... rates would have been 7 1/2 to 8 1/2 + by now... at least that is how I had predicted it. In any case, some good info here...  ps.. I am going to be writing a post about Ben Bernanke and some of my thoughts and about a major pet peeve of mine come Monday... thanks and have a good rest of the weekend..

jeff belonger

Dec 11, 2010 12:09 PM #8
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Brian Brady

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