August, 2009 mortgage rates started out on an upward trajectory. Last week, a VA home loan rate was 5.0% with a 1% origination fee. Today, that 5.0 % VA home loan rate would cost a full point more. Each "point" equals 1% of the loan amount. Essentially, it would cost a veteran borrower $4,000 more to get that 5.0% rate today than it did last Friday.
I think volatility is going to be present throughout August with mortgage rates trending lower in the middle to end of the month. I expect that mortgage rates will respond to economic data, which isn't that great. We've had a great run in the stock market; the Dow Jones Industrial Average is up 15% in the past 30 days. That bull run is due to overoptimisim about an economic recovery. Money that flowed into stocks flowed away from mortgage-backed securities and that's bad for mortgage rates.
Still, the mortgage rate spike hasn't been that bad. Mortgage rates have vascillated between 5.0% and 5.5% these past 30 days. There hasn't been a clear trend upwards and I think that's because the economy isn't on a sure path to recovery. Unemployment numbers are still ticking up. Retailing companies are experiencing a paradigm shift towards discounters (Wal-Mart and Target) and away from brand stores ( Gap, Abercromie and Fitch). That's not a silver lining in the cloud.
Oil prices don't seem to be rising and that's symptomatic of a weak economy. Rising oil supplies suggest that demand for oil is dropping.
Housing is LOOKING healthy because of the first-time homebuyers activity. The low end of the market has stablized as prices, combined with low mortgage rates, make renting more expensive than home ownership. This is exactly what we said would happen ten months ago. A low-end recovery does not a broad-based housing recovery make. The mid-priced homes are weak and we expect the next round of forcelosures to be in the $400,000 to $1,000,000 market in Southern California. The Federal Reserve Bank is still a major buyer of mortgage-backed securities and that is holding rates below the 5.5% mark.
What's all of this mean to the August mortgage shopper? If you're buying a home, and closing in the first part of the month, you should have been locked at 5.0-5.25% already. If you're floating, lock the rate in today. If you're closing towards the end of August, there is a substantial opportunity for rates to dip to 5.0% in the next three weeks. I wouldn't rush to lock-in until you get close to that mark.
Yet again, I'm changing my long-term bias- floating instead of locking. Earlier this year, I felt that there was reward in holding out for sub-5% rates. Back in June, I felt there was substantial risk in that strategy and changed my long-term bias towards locking. I felt inflation could accelerate towards the end of the year. I was wrong. Neither the economic recovery not commodities-push inflation have gained ground. I think it's safe to expect that mortgage rates will stay under 6.0% for the next 12-18 months now.