Strong Earnings Pressure Mortgage Rates Higher
Posted 10-14-2009 at 08:13 AM by VictorBurek
Yesterday, the prices of mortgage backed securities managed to regain some of the losses suffered at the end of last week. The price gains did not lead to any lenders repricing nor did they last for long but it did allow for better rates yesterday when compared to the prior day. After the closing bell, Intel reported better than expected earnings which started to pressure the fixed income market. That pressure has been compounded with the release of JP Morgan earnings this morning where they blew away expectations posting much larger than expected profits. These strong earnings reports are causing investors to sell their low yielding fixed income investments in favor of potentially higher yielding stocks.
We finally have some economic data hitting the wires today. First out is the weekly Mortgage Bankers’ Association Application Index which tracks the weekly change in the volume of mortgage applications at major lenders. An increasing trend is a positive economic indicator as the purchase of a new home leads to many other purchases. Additionally, more refinances should result in lower mortgage payments which gives consumers more money to spend into the economy. The report shows that purchase applications fell 5.0% and the refinance activity fell 0.1%. This is a little troubling as the first time home buyer tax credit is still in effect and mortgage rates dipped last week to the lowest levels in 5 months; however, last week’s report did show a large jump in applications.
The U.S. Department of Commerce released the monthly retail sales report. This data tracks the monthly change in total receipts at stores for both durable and nondurable goods. Since our economy is driven by consumer spending, the stock market likes to see increasing retail sales which should lead to higher corporate profits. The report indicates that retail sales fell less than expected and when excluding auto sales they posted a better than expected increase. Overall retail sales was expected to post a 2.1% decline but the actual decline was only 1.5% and when excluding auto sales, sales were up .5% when only a .3% increase was expected. Helping to boost retail sales was a 1.4% increase in furniture and home furnishings. With the increased home activity, it isn’t surprising to see this category post strong numbers. Despite this upbeat report, retail sales are still posting a year over year decline of 5.7% and when excluding auto sales a 4.9% decline. Apparently, even with unemployment approaching double digits, the American consumer is starting to spend money. This better than expected economic data is adding more pressure on MBS to move lower which potentially increases mortgage rates.
During my conversations with clients I ask many whether they are starting to spend money. How about you? Are you starting to spend money or are you still holding back and only buying necessities?
At 2pm eastern, the Federal Open Market Committee(FOMC) will release the minutes from their last meeting. Most of the information from these minutes are already known, but market participants will thoroughly review for any hint at future monetary policy and the fed’s outlook on economic growth. Additionally, the minutes will let investors know if any Fed member had voiced opposing views from the rest of the group. Since Fed members give multiple speeches where they freely express their opinions, we usually do not get any surprises with the release.
The data heats up tomorrow with the release of several key reports. First we get the weekly jobless claims which is expected to show similar claims as last week. We also get a read on inflation with the Consumer Price Index. This morning we did get a report on inflation with the release of Import/Export prices. The report showed that inflation is still of no concern and tomorrow’s CPI report is expected to confirm that as well. Lastly, we get a couple reads on the strength of business conditions with the release of the Empire State Manufacturing Survey and the Philly Fed Survey.
Early reports from fellow mortgage professionals are indicating that mortgage rates have moved higher to the 4.875% to 5.125% range for the best qualified consumers. To secure a par interest rate you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs including an estimated one point loan origination/discount/broker fee. If you are seeking a 15 year term you should expect a par rate in the 4.375% to 4.625% range with similar qualifications as the 30 year term. If you are planning to access home equity, you should expect a higher rate of .125% to .25% or additional closing costs.
We finally have some economic data hitting the wires today. First out is the weekly Mortgage Bankers’ Association Application Index which tracks the weekly change in the volume of mortgage applications at major lenders. An increasing trend is a positive economic indicator as the purchase of a new home leads to many other purchases. Additionally, more refinances should result in lower mortgage payments which gives consumers more money to spend into the economy. The report shows that purchase applications fell 5.0% and the refinance activity fell 0.1%. This is a little troubling as the first time home buyer tax credit is still in effect and mortgage rates dipped last week to the lowest levels in 5 months; however, last week’s report did show a large jump in applications.
The U.S. Department of Commerce released the monthly retail sales report. This data tracks the monthly change in total receipts at stores for both durable and nondurable goods. Since our economy is driven by consumer spending, the stock market likes to see increasing retail sales which should lead to higher corporate profits. The report indicates that retail sales fell less than expected and when excluding auto sales they posted a better than expected increase. Overall retail sales was expected to post a 2.1% decline but the actual decline was only 1.5% and when excluding auto sales, sales were up .5% when only a .3% increase was expected. Helping to boost retail sales was a 1.4% increase in furniture and home furnishings. With the increased home activity, it isn’t surprising to see this category post strong numbers. Despite this upbeat report, retail sales are still posting a year over year decline of 5.7% and when excluding auto sales a 4.9% decline. Apparently, even with unemployment approaching double digits, the American consumer is starting to spend money. This better than expected economic data is adding more pressure on MBS to move lower which potentially increases mortgage rates.
During my conversations with clients I ask many whether they are starting to spend money. How about you? Are you starting to spend money or are you still holding back and only buying necessities?
At 2pm eastern, the Federal Open Market Committee(FOMC) will release the minutes from their last meeting. Most of the information from these minutes are already known, but market participants will thoroughly review for any hint at future monetary policy and the fed’s outlook on economic growth. Additionally, the minutes will let investors know if any Fed member had voiced opposing views from the rest of the group. Since Fed members give multiple speeches where they freely express their opinions, we usually do not get any surprises with the release.
The data heats up tomorrow with the release of several key reports. First we get the weekly jobless claims which is expected to show similar claims as last week. We also get a read on inflation with the Consumer Price Index. This morning we did get a report on inflation with the release of Import/Export prices. The report showed that inflation is still of no concern and tomorrow’s CPI report is expected to confirm that as well. Lastly, we get a couple reads on the strength of business conditions with the release of the Empire State Manufacturing Survey and the Philly Fed Survey.
Early reports from fellow mortgage professionals are indicating that mortgage rates have moved higher to the 4.875% to 5.125% range for the best qualified consumers. To secure a par interest rate you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs including an estimated one point loan origination/discount/broker fee. If you are seeking a 15 year term you should expect a par rate in the 4.375% to 4.625% range with similar qualifications as the 30 year term. If you are planning to access home equity, you should expect a higher rate of .125% to .25% or additional closing costs.
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