Mortgage Rates Continue to Hold Near Record Lows
Posted 12-01-2009 at 08:36 AM by VictorBurek
With the close of the markets yesterday, the prices of mortgage backed securities reached another all time high. To remind readers, as the price of MBS moves higher lenders can offer lower mortgage rates. Despite the move higher in price, lenders appear to be reluctant to offer lower mortgage rates.
The economic data starts out this morning with a survey from the Institute for Supply Management that measures the strength of the manufacturing sector of our economy. The ISM Manufacturing Index is a survey of over 300 manufacturing firms that gives market participants a reading on how busy manufacturers will be in the months ahead. Readings above 50 indicate a growing sector while readings below 50 indicate contraction. Last month’s survey registered the highest reading since the summer of 2006 posting a 55.7 and expectations call for this month’s report to come in at 55.0. The release indicates that the manufacturing sector of our economy is still expanding but at a slower than expected pace with a reading of 53.6.
The final two reports for the day gives us a look into the housing sector. First is Construction Spending which measures the monthly change in the amount of money spent on new construction of residential and non-residential projects. An increasing trend would suggest positive economic momentum as companies would have to be fairly confident regarding the economy before they start to invest money on construction projects. In addition, more construction spending could lead to more construction jobs which gives the American consumer more money to spend into the economy. The U.S. Department of Commerce reports that construction spending for October(this report has a 2 month lag) came in unchanged beating estimates of a 0.5% decline. Offsetting this positive news is last month’s report being revised much worse from a increase of 0.8% to a decline of 1.6% in September.
The final report today comes from the National Association of Realtors with their Pending Home Sale Index. A pending home sale is one in which a contract has been placed on a home but the transaction is yet to close. With tougher underwriting guidelines, many more transactions fail to close but market participants still track this data for an indication of the demand for housing. This report is similar to the construction spending report as it also has a two month lag, so today’s data is for pending home sales for October. When someone buys a home there are many other items that they will also purchase such as flooring, furniture, etc… so an increasing trend in pending home sales would be a signal of positive economic growth. Since the bond market prefers slower economic growth which helps keep inflation contained, MBS generally benefit with a lower number while stocks benefit with a higher than expected number. The prior two months posted large gains mainly due to the government stimulus for first time home buyers. The NAR reports this morning that pending home sales were up more than expected posting a month over month increase of 3.7% for the ninth straight month of gains. Year over year, pending home sales are up by 31.8%!
Just after noon, Philadelphia Federal Reserve Bank President Charles Plosser will deliver a speech on the economic outlook to a seminar in New York. Anytime Fed officials speak, market participants pay close attention for any hint of future monetary policy and their outlook on the economy.
Early reports from fellow mortgage professionals indicates the par 30 year conventional rate mortgage remains in the 4.50% to 4.75% range for well qualified consumers. There are several lenders offering 4.375% for consumers with high FICOs and low loan to values. 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 associated with the loan including an estimated one point loan origination/discount/broker fee. If you are seeking a 15 year term, you should expect a par rate between 4.00% to 4.25% with similar costs.
Following the economic data, MBS are coming under some selling pressure; thus, I am going to continue to recommend locking loans over floating. At this point, we are seeing about the best rates in history and lenders continue to be reluctant to offer lower rates. I would like to hear from you on this topic. Do you feel that mortgage rates will move lower and if so why?
The economic data starts out this morning with a survey from the Institute for Supply Management that measures the strength of the manufacturing sector of our economy. The ISM Manufacturing Index is a survey of over 300 manufacturing firms that gives market participants a reading on how busy manufacturers will be in the months ahead. Readings above 50 indicate a growing sector while readings below 50 indicate contraction. Last month’s survey registered the highest reading since the summer of 2006 posting a 55.7 and expectations call for this month’s report to come in at 55.0. The release indicates that the manufacturing sector of our economy is still expanding but at a slower than expected pace with a reading of 53.6.
The final two reports for the day gives us a look into the housing sector. First is Construction Spending which measures the monthly change in the amount of money spent on new construction of residential and non-residential projects. An increasing trend would suggest positive economic momentum as companies would have to be fairly confident regarding the economy before they start to invest money on construction projects. In addition, more construction spending could lead to more construction jobs which gives the American consumer more money to spend into the economy. The U.S. Department of Commerce reports that construction spending for October(this report has a 2 month lag) came in unchanged beating estimates of a 0.5% decline. Offsetting this positive news is last month’s report being revised much worse from a increase of 0.8% to a decline of 1.6% in September.
The final report today comes from the National Association of Realtors with their Pending Home Sale Index. A pending home sale is one in which a contract has been placed on a home but the transaction is yet to close. With tougher underwriting guidelines, many more transactions fail to close but market participants still track this data for an indication of the demand for housing. This report is similar to the construction spending report as it also has a two month lag, so today’s data is for pending home sales for October. When someone buys a home there are many other items that they will also purchase such as flooring, furniture, etc… so an increasing trend in pending home sales would be a signal of positive economic growth. Since the bond market prefers slower economic growth which helps keep inflation contained, MBS generally benefit with a lower number while stocks benefit with a higher than expected number. The prior two months posted large gains mainly due to the government stimulus for first time home buyers. The NAR reports this morning that pending home sales were up more than expected posting a month over month increase of 3.7% for the ninth straight month of gains. Year over year, pending home sales are up by 31.8%!
Just after noon, Philadelphia Federal Reserve Bank President Charles Plosser will deliver a speech on the economic outlook to a seminar in New York. Anytime Fed officials speak, market participants pay close attention for any hint of future monetary policy and their outlook on the economy.
Early reports from fellow mortgage professionals indicates the par 30 year conventional rate mortgage remains in the 4.50% to 4.75% range for well qualified consumers. There are several lenders offering 4.375% for consumers with high FICOs and low loan to values. 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 associated with the loan including an estimated one point loan origination/discount/broker fee. If you are seeking a 15 year term, you should expect a par rate between 4.00% to 4.25% with similar costs.
Following the economic data, MBS are coming under some selling pressure; thus, I am going to continue to recommend locking loans over floating. At this point, we are seeing about the best rates in history and lenders continue to be reluctant to offer lower rates. I would like to hear from you on this topic. Do you feel that mortgage rates will move lower and if so why?
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