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Mortgage Rates Improve For 6th Straight Day On Eurozone’s Italy Issue

By Dan Green

Mortgage rates are benefitting from Italy’s induction of a new Prime Minister; an update on today’s mortgage rates and a look at the 5-day trends; and, new home supply remains deep in seller’s market territory, pushing up prices of new construction homes.

Mortgage Rates Change On Italy Eurozone Threat

Italy leaving the Eurozone? U.S. mortgage rates react to the story. - Growella
Mortgage rates react to Italy-Eurozone threat

What a month it’s been for mortgage rate shoppers.

A run-up through May’s first two weeks lifted interest rates to their highest levels in seven years as home affordability tanked and purchasing power dropped.

Then, a switchback.

Concern that Italy will leave the Eurozone spawned a mortgage rate reversal and, today, after 6 straight days of improvement, interest rates are at multi-week bests for 30-year and 15-year fixed rate mortgages; and, for adjustable-rate mortgages, too.

Rates for FHA loans and VA loans are most improved, followed by USDA, conventional, then jumbo.

This week’s abrupt moves remind us: U.S. mortgage rates are global. They’re not “made up” by a lender and they’re susceptible to unpredictable moves.

It’s because of how mortgage rates are priced.

Most U.S. mortgage rates are based on the price of Wall Street-traded bonds called mortgage-backed securities (MBS).

The relationship between bond prices and interest rates is inverse. When MBS prices rise, interest rates drop. This is the key part in the Italy Leave The Eurozone – U.S. Mortgage Rate relationship.

Mortgage-backed securities are supported and backed by the United States government. They’re among the least risky asset classes in the world. So, when the new Italy’s new Prime Minister makes overtures that Italy may leave the Eurozone, investors get nervous and seek safety for their investments.

On Wall Street, this is called a flight-to-quality , or safe haven buying. And mortgage-back securities benefit as a “quality” investment.

Demand for the bonds jumps and prices go up, lowering mortgage rates for buyers of homes and homeowners looking to refinance a mortgage.

Whether Italy actually secedes from the Eurozone is irrelevant to investors right now. The threat is new, and traders are forced to react.

Expect the story to dominate summer trading, suppressing mortgage rates for several weeks or more.

Brexit aided low mortgage rates, and so did Greece’s threat to leave the Eurozone earlier this decade. Now, markets wrestle with Italy.

Mortgage rates are improved.

Today’s Mortgage Rates & Interest Rate Trends

Mortgage rates and the 5-day interest rate trend - Growella
Mortgage rates and the 5-day interest rate trend

Mortgage rates are down today on the threat that Italy will vote to leave the Eurozone, marking the sixth straight day of declining rates.

Overall, interest rates are lower as compared to earlier in the week. In some instances, by a lot.

The actual rate quote you get from a lender will depend on your credit score, your loan size, and the state in which you live.

How you pay your closing costs matters, too.

Full-fee loans with discount points due at closing grant access to lower mortgage rates than average. Mortgage rates with the zero-closing cost option result in slightly higher rates.

And don’t forget to talk to two or more lenders. It’s statistically proven that buyers save money when they shop with more than one mortgage lender.

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Builders Hold Negotiation Leverage Over Buyers

New Home Supply - Census Bureau - Growella
New home supply in seller’s market territory

It’s a seller’s market in new home construction.

New data shows New Home Sales down slightly from the month, and up 12 percent from a year ago.

The report from the U.S. Census Bureau shows steady, consistent growth in new construction sales and supports the recent uptick in confidence among U.S. homebuilders.

The bigger story, though, is the report’s Months Supply figures.

The New Homes Sales report for April 2018 shows a 5.4-month supply of new homes for sale which means that, at the current pace of sales, the entire stock of new construction homes would be sold before Halloween.

A six-month supply connotes a market in balance.

When home supply is beneath six months, sellers hold price and negotiation leverage over buyers; and, prices to rise. Not since August 2014 has new home supply crested the six-month benchmark.

There are now just 300,000 new homes for sale nationwide.

Written by Dan Green

Dan Green is a mortgage lending expert and the founder of Growella. Prior to Growella, Dan was a six-time, top-producing loan officer; and, ranked repeatedly among the top 1% of loan officers nationwide. Dan's home buying expertise has been in print and on TV with The Wall Street Journal, NPR, Forbes, CNBC, and others.

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