Mortgage rates are suffering through another volatile week, causing problems for rate shoppers and home buyers.After falling Monday and Tuesday, mortgage rates surged Wednesday and Thursday.  The momentum higher appears to be carrying into the weekend, too.

There are several data-related reasons for the mortgage market’s spastic activity this week:

1. Unemployment claims fell
2. Leading Economic Indicators rose
3. Inflation readings are tame

But while each of the data points above fueled mortgage rate volatility, it’s not the data that’s making markets move the most.  It’s the psychological impact of the data.

See, data tells us about the past.  It measures and reports on what’s already happened.  Unfortunately for rate shoppers, mortgage markets are not made on data from the past – they’re made on the expectations of what will happen next.

Mortgage rates reflect Wall Street’s opinion of the future.

In reading the papers and watching the news, you’ll notice ongoing debate about the U.S. economy.  It’s unclear whether the recession is worsening or improving.

On one hand, data is weak and sub-optimal.  On the other hand, the data is not nearly as weak as it was 6 months ago and, in some cases, it’s strong. To some, this is a signal that a recovery is already underway.

Or, it may just be a blip.

We can’t be certain in which direction the economy is headed and the same can be said for mortgage rates.  Because sentiment is changing so often, though, it forces us to be on our toes.

The last few months have been marked by large mortgage rate swings across small windows of time.  A rate that’s offered in the morning, for example, is rarely available in the afternoon.  Therefore, do your rate shopping in a compressed period of time and be ready to lock your rate at a moment’s notice IF you are in a position to lock.

You can usually lock any time on a refinance, providing that underwriting is not running too far behind.  On purchases, it’s a bit trickier, as in most cases, to get the *very* best rate, you can’t lock until you have a property and any inspection issues on that property have been resolved with the seller.  There are some programs out there that allow you to lock in a rate while you are still searching for a property, but those programs are truly only for limited circumstances, as they are not best pricing.

When markets move, they tend to move quickly.

After being range-bound since the start of the year Housing Starts unexpectedly jumped in May, surprising analysts and Wall Street.

It’s the latest in a string of housing-related data that suggests a real estate recovery is already underway.

Housing Starts is an important statistic for a number of reasons, but to homebuyers and home sellers, its immediate impact is on home inventory.

Home values are based on supply and demand.  When the demand for homes exceeds the supply, values tend to rise. Conversely, when supply exceeds demand, values tend to fall.

When Housing Starts increase as they did in May, therefore, unless there’s a corresponding increase in demand, home prices get pressured downward.

Lately, that off-setting demand appears to be present.

With home affordability near record-high levels, mortgage rates well below historical averages, and the first-time homebuyer tax credit in place, Existing Home Sales are up 16 percent on a “raw numbers” basis versus last month and home supplies are lower versus last year.

Rising Housing Starts can a double-edged sword to a recovering economy.  It’s a strength signal that builders are more optimistic right now, but too much optimism can lead to a glut of unsold homes that pushes housing back to the brink.

So long as demand outpaces supply, however, inventories should reduce and values should move higher.

The mortgage market roller coaster continues.  Markets worsened badly in the early part of last week, before rallying into Friday’s close.Overall, mortgage rates were slightly higher for the week even though — briefly — they rose to levels not seen since November 2008.

Last week marks the third week in a row and the sixth out of the last seven that mortgage rates increased.

It’s not all bad news for mortgage rate shoppers, however.  The market’s surge higher appears to be slowing and its momentum may start to reverse.

See, mortgage rates don’t come from thin air.  They’re based on the price of mortgage-backed bonds and, over the last few weeks, it seems as if nobody on Wall Street wanted anything to do with them.  A massive sell-off that caused bond prices to plummet and mortgage rates to soar.

Freddie Mac says rates are up 3/4 percent in the last 3 weeks but loan officers will tell you that’s undercutting it.  Conforming mortgage rates are up more than 1 percent since Memorial Day.

The biggest reason for the sell-off was that markets feared a runaway inflation scenario.  The U.S. Treasury has assumed an unprecedented debt load this year and to repay it, markets expect the government to print more cash — an inflation-inducing scenario.

However, when a number of high-profile investors and a country said last week that their faith in the U.S. economy remains strong, markets viewed it as an endorsement of government-issued debt.  It served as Thursday and Friday’s rate-dropping catalyst.

This week, mortgage rates will move on three points:

1. Data, including key inflation and housing reports
2. Rhetoric, including 5 Federal Reserve member speeches
3. Momentum, including technical trading patterns

It’s unclear whether these factors will lead rates higher or lower, but one thing has been clear lately — when mortgage rates change, they change quickly.

Therefore, if you’re shopping for a rate and find one that fits your budget, consider locking in right away.  With rates changing every few hours, it’s likely that if you wait too long, the rate will be gone.

Tighter mortgage guidelines since late-2008 are forcing home buyers to make bigger downpayments.  Anecdotally, the change has led to a surge in buyers taking gifts of cash from family members.If you’re among those accepting a cash gift from family, it’s important to know that you can’t just deposit the money in your bank account.

There is a proper way to accept a cash gift and it requires 3 distinct steps:

1. Complete and sign an acceptable gift letter
2. Document the gifter’s withdrawal of funds with teller receipts
3. Document the giftee’s deposit of funds with teller receipts

See, mortgage lenders pay close attention to gifts-for-downpayments.  For one, lenders have to make sure that downpayment cash is “clean” (i.e. not laundered).  And, secondly, they want the gift to really be a gift and not a loan-in-disguise.

This is why lenders will often require that a signed, dated letter accompany the home loan application.

As an example:

I am the [relationship to recipient] of [name of recipient] and this letter serves as evidence that I am gifting [name of recipient] [amount of gift] to be used for the purchase of the home at [complete address of property].

This is a gift — not a loan — and there is no expectation of repayment.

Signed,
[Signature of gifter]

To further appease lenders, gift recipients should make sure that gift funds are not commingled at the time of deposit.  If the gift is for $12,000, for example, the bank’s deposit slip should indicate that a $12,000 deposit was made — nothing more, nothing less.

Don’t add a random $50 check to the deposit, in other words.  If you have a separate deposit to make, make it as a subsequent transaction with its own receipt.

It’s also worth noting that gifting funds between family members can create both legal and tax liabilities.  If you’re unsure about how donating or receiving a gift may impact you, call or email us directly.  If we can’t help you with your questions, we can refer you to somebody that can.

Since Memorial Day, conforming mortgage rates have jumped by more than 1.125 percent, adding thousands of dollars to the annual cost of homeownership.To the casual observer, the moves may seem random.  There’s a reason this is happening, however.

It starts with inflation.

As an economic force, inflation erodes the value of the U.S. Dollar.  Left unchecked, it drives up the Cost of Living as each dollar “buys less” at the supermarket, gas station, or anywhere else.

But with respect to mortgage rates, inflation’s impact is more immediate.  Because inflation devalues the dollar over the long-term, it renders long-term mortgage bonds a less attractive investment for traders.

If bond investors are repaid in U.S. Dollars, after all, it would make the investment worth less if the dollar is in an inflationary freefall.

Therefore, in situations when inflation is likely to present, we find that traders often sell out of their mortgage bond positions which, in turn, drives down the bond prices.  Then, because bond yields move in the opposite direction of bond prices, rising rates are the inevitable result.

Lately, Wall Street is fearing inflation for a number of reasons:

1. Job losses are slowing, adding to consumer spending expectations
2. Gas prices have risen 41 days in a row
3. The federal government is increasing the money supply

These 3 factors — plus a few others — are all coming to a head around the same time and traders are getting defensive with their portfolios.  As a result, they’re selling their mortgage bond positions and it’s driving mortgage rates higher.

Rates may continue to trek toward 7 percent through July and August, or they may retreat toward 5 percent.  We can’t know for sure.  What we can know, though, is that volatility in rates should continue until the economic picture gets more clear. That could be next week, or next year.

For now, be ready to lock at a moment’s notice.  Mortgage rates are changing quickly.

The economy posted stronger-than-expected data last week, reigniting fears of inflation on Wall Street.The positive-slanted economic news caused conforming mortgage rates to rise by another 1/2 percent last week.

It marked the second week in a row of soaring mortgage rates and the fifth week out of six that rates have moved higher.

Conforming mortgage rates are now as high as they’ve been all year and rest at the levels of December 2008.

The biggest news of last week is likely to influence mortgage rates this week, too.

On Friday, we learned that 345,000 Americans lost their jobs in May.  And while that’s an awfully large number, it wasn’t nearly as bad as Wall Street had expected.  Furthermore, the Unemployment Rate spiked to over 9 percent.

Now, again, with respect to the Unemployment Rate, the number looks bad, but the data may be a positive.  This is because the Unemployment Rate measures Americans in the workforce versus the unemployed actively looking for jobs.

If the number of people trying to re-enter the workforce starts to surge, it’s basic math that Unemployment Rates will rise.  This is what some economists think happened last month and it served as the backdrop for Friday’s rate surge.

With fewer Americans expected to be out of work, consumer spending seems poised to rebound in the months ahead, pushing the economy out of recession sooner than expected.  If the sentiment holds this week, mortgage rates should rise even more.

Without much new data this week, markets are likely to trade on emotion — a difficult situation for rate shoppers.  Conforming mortgage rates have been extremely volatile since May and are changing every few hours.  If you see a rate you like, consider locking it.

Wait around too long, and it’ll be gone.

Suze Orman recently appeared on The Today Show and gave 5 minutes of practical money management advice.  Not everyone’s a fan of Ms. Orman, but this is an interview worth watching.

The segment’s theme is “What should you do first?“, pitting real-life financial scenarios against each other, including:

• Pay off credit card debt, or save for an emergency?
• Pay off student loan debt, or pay off credit card debt?
• Save for retirement, or save for a child’s college tuition?

The advice is practical and relevant to most homeowners’ lives and, although financial tips are never one-size-fits-all, there’s some real gems in the segment.

Watch the entire interview at The NBC Today Show website.

Mortgage rates soared again Monday, tacking on a half-percent in a day for the second time in under a week.Each half-percent adds $62 to a $200,000 home loan’s monthly payment, or $744 per year.

For home buyers recently under contract, it’s a gut-wrenching time to be shopping for a home loan.  Morning mortgage rates have been typically gone by early-afternoon and — in some cases — lenders have changed rates five times in one-day span.

The reasons for surge in rates are varied, but each is related to the idea that the economic recession may be nearing its end.

• Consumer optimism is as high as it’s been all year
• Consumer spending is falling at a slower pace than in months prior
• China’s factories reported an expansion in business

Each of these points bodes well for the economy and pushes Wall Street investors towards more risky investments.  As a result, “safe” investments get sold — including mortgage-backed bonds, the basis for conforming mortgage rates.

For as long as the future of the economy remains in question, expect mortgage rates to remain volatile.  We won’t get half-point rate swings or five pricings in a day every day, but both are becoming more common.

Be careful when shopping for a mortgage — the rate you’re quoted may not last long.

Mortgage markets took a beating last week, sending conforming mortgage rates soaring Wednesday afternoon.  Despite a modest recovery Thursday and Friday, though, mortgage rates still moved higher on the week overall.It was the fourth time in 5 weeks that mortgage rates worsened.

By far, the biggest news of last week was Wednesday’s mortgage market meltdown.

Beginning shortly after 1:00 PM ET, and in the span of about 90 minutes, the 30-year fixed mortgage rate soared.  The action was so swift that a number of mortgage lenders shut down their Lock Desks, unwilling to accept new business.

There was no “news”-like reason for the action, by the way — just a general feeling on Wall Street that the U.S. government’s massive debt load may lead to inflation sometime in the future.   As inflationary fears rise, mortgage rates often rise with them and this is what we witnessed happened Wednesday.

Markets regained their cool Thursday and Friday, but could only erase half of Wednesday’s surge.

This week, look for data to determine whether mortgage rates rise or fall.  Monday and Friday will be the biggest days.

On Monday, in addition to releasing consumer spending data from May, the government publishes the Federal Reserve’s preferred inflation gauge.  If either number comes in hotter-than-expected, mortgage rates should rise.

Similarly, if Friday’s employment data is better-than-expected, rates should rise, too.  More working Americans means more consumer spending and spending makes up two-thirds of the economy.

Markets expect that another 550,000 workers lost their jobs last month, raising the 12-month total to 5.65 million.

Between Monday and Friday, a number of Federal Reserve members will be speaking publicly, including Fed Chairman Ben Bernanke.  Each speaker’s statements, of course, can influence mortgage rates as well.

Overall, markets remain volatile and mortgage rates are jumpy.  If you find a rate that fits your budget and with which you can be comfortable, consider locking it in before the news gives the rate reason to change.

Conforming mortgage rates rose by 0.625 percent Wednesday.  Yes, you read it right.  Zero-point-six-two-five percent.The surprise surge in pricing started shortly after 1:00 P.M. ET, then continued all the way until the market’s closing.  It was the sharpest one-day surge in mortgage rates in recent history. Perhaps ever.

For mortgage rate shoppers swept up in the surge, monthly payments are now higher by $29 per $100,000 borrowed.

That’s a significant shift.

For as rare as Wednesday’s events were, though, middle-of-the-day, 0.625 percent rate changes don’t just happen.  Yesterday, the action was the result of a confluence of factors, including:

• Rising oil prices and gas prices
• Optimistic predictions about the end of the recession
• Concerns over the U.S. total debt load
• Fears of inflation

In addition, momentum trading played a role.

As markets worsened, selling begat more selling, amplifying Wall Street’s total losses.  As mortgage bond prices fell, mortgage rates went up.  By a lot.

Mortgage markets are notoriously fickle and yesterday’s events proved it.  Days like Wednesday are precisely why insiders recommend shopping for mortgage rates in a compressed timeframe.  The faster you finish, the lower the risk of losing low interest rates to new market conditions.