Events This Week:

GDP Stronger

Sentiment Rose

Jobless Claims Fell

Manufacturing Up

________________________________

Events Next Week:

Mon 5/4
Pending Sales
Construction

Tues 5/5
ISM Services

Thur 5/7
Productivity

Fri 5/8
Employment

Fed Stays Course and Mortgage Rates Rise

Mortgage rates moved lower ahead of Wednesday's Fed meeting, but they rose following the Fed announcement and ended the week a little higher.  Demand for the $101 billion in this week's Treasury auctions was average, and foreign investors purchased a healthy 29% to 33% of each auction. The stock market ended the week with little change. Nearly all of the movement in mortgage rates during the week was related to the Fed meeting.

In anticipation of the announcement of favorable new Fed actions,
mortgage rates moved lower early in the week. Some investors were
looking for the Fed to expand its purchases of Treasury securities,
which would be positive for mortgage rates. Those investors were
disappointed, however, as the Fed announced no new initiatives. The Fed made no change in rates, holding the fed funds rate close to zero.  According to the Fed, the economic outlook has "improved modestly" since the March 18 meeting. A lack of new Fed programs and confirmation of improved economic prospects pushed mortgage rates higher.

Overshadowed by the Fed meeting, an important report on first quarter Gross Domestic Product (GDP) presented data which supports the Fed's economic outlook. GDP fell -6.1%, which was significantly weaker than the consensus forecast. However, a breakdown of the GDP report reveals that the weak headline number for the first quarter may not be reflective of the current condition of the economy. GDP fell more than xpected mainly due to declines in inventories and business investment.  Consumer spending actually far exceeded expectations. If this trend continues, then businesses will have to begin to rebuild depleted inventories, lifting future economic activity.

May 1st Marks Huge Change In Appraisal Process

As detailed in previous weeks, today marks the start for each lender to adopt their own internal appraisal ordering process. This affects ALL lenders, no mater if the borrower goes to them directly, or through a broker. The bottom line is that no entity involved in the mortgage origination process can order an appraisal or direct which appraiser gets the order. What this means for the consumer is a longer, more expensive process, and no guaranty that the appraiser has local knowledge for the area the appraisal has been ordered for.  One other key change to the appraisal process will impact consumers immediately, payment. Most brokers in the past allowed customers to forego an upfront payment of the appraisal or take a deposit at the beginning of the loan process. As a benefit to their clients, brokers would often submit the appraisal bill to escrow to be paid at closing.  Those days are now over. Most lenders are now requiring the appraisal fee be paid at the time the appraisal is ordered. Lenders will allow the borrower to get their appraisal deposit and any upfront fees back at closing without triggering a “cash-out” transaction.

Values On Appraisals Keep Falling

New rules were put in place a couple of months ago regarding the age of comps used in appraisals. This, in combination with fewer and fewer sales over the past 12 months, has left appraisers trying to find reasonable comps for their valuations. The result is lower values on appraisals. One appraiser noted to me this week of a Pucnhbowl, Oahu property that was valued late last year for $740,000. In February the appraisal came in at $675,000. An appraisal on the same property today would show a $640,000 value.

With pressure on rates to rise, while appraisal values continue to fall, if you are considering refinancing, you should not wait.

Also Notable:

* April Consumer Confidence jumped to the highest level since
November
* The stock market posted its best percentage gain for April since
1938
* The mortgage cramdown bill did not pass in the Senate
* The Fed purchased $23 billion in agency MBS during the week
ending 4/29

DAILY RATES FROM HAWAII’S TOP LENDERS:

Above rates are the Monday-Friday daily base rates. Add-ons for low
credit scores, high LTV, cash-out, or investment properties are then added to that rate. Borrowers can also “buy down” these rates by paying additional points.

Average 30 yr fixed rate:

Last week:

+0.02%

This week:

+0.08%

Stocks (weekly):

Dow:

8,150

+50

NASDAQ:

1,700

+20

Week Ahead

The important Employment report will come out on Friday. As usual, this data on the number of jobs, the Unemployment Rate, and wage inflation will be the most highly anticipated economic data of the month. Early estimates are for a loss of about 620K jobs in April. Before the Employment Data, Pending Home Sales and Construction Spending will come out on Monday. Pending Home Sales is a leading indicator for the housing market. The ISM Services index will be released on Tuesday, while Productivity is scheduled for Thursday. There will be large Treasury auctions on Tuesday, Wednesday, and Thursday. The results of the government's stress tests for 19 large financial institutions will be released on Thursday.