Pressure Continues on Mortgage Rates to Rise
Posted 12-03-2009 at 08:37 AM by VictorBurek
Mortgage backed securities continued their move lower in price yesterday. The losses were not as severe as what happened on Tuesday but downward pressure continues as investors take profits. Reprices were not seen but the weakness is continuing this morning which will be reflected in lower rebate rate sheets from lenders.
The data started out this morning with the weekly jobless claims. This data totals the number of Americans that filed for first time unemployment benefits in the prior week. Included within this report is the continuing claims which totals the number of Americans that continue to file for benefits due to lack of finding a new job.
The U.S. Department of Labor reported that first time claims for the week ending November 28 fell for the fifth consecutive week by 5000 to 457,000 beating economists estimates of 480,000. This is the lowest level of claims since September of 2008. The continuing claims rose by 28,000 to 5.47million beating estimates of 5.49million. Slightly offsetting this positive data is the fact that this report was for the holiday shortened week of Thanksgiving. Additionally, the number of Americans receiving extended benefits under Federal programs, which are not counted in the initial or continuing claims data, surged 323,000 to 4.46million. The pace of layoffs and firings is definitely easing which could indicate a better than expected Employment situation report tomorrow, but it is still difficult to find a new job.
Next, the Labor Department also reported the revised Productivity and Costs report for the third quarter. Productivity, which measure how efficient our labor force is at producing our nation’s good and services, was revised lower from 9.5% to 8.1% falling below expectations. This shows that our labor force is not as productive as first reported which could indicate inflationary pressures down the road. Adding fuel to that fire is unit labor costs, which reflects the cost of producing each unit of output, was also revised worse from the first reported reading of -5.2% to -2.5% indicating the cost to produce goods did not decline by as much as first reported.
The final report of the day gives us a measure of the strength of the non manufacturing sector of our economy with the ISM Non Manufacturing index. This data is a survey of approximately 400 firms including agriculture, mining, construction, retail, etc… on their outlook for growth. Readings above 50 indicate expanding or improving conditions while readings below 50 indicate contraction. Last month’s survey came in at 50.6 and economists surveyed expected continued improving conditions with a 52.0 reading. The actual report indicated the non manufacturing sector of our economy has taken a turn for the worse with the index dropping to 48.7. Following the release of this worse than expected economic data, the stock market moved lower allowing some money to flow into MBS which moved them off the lows of the day.
At 11am eastern, the U.S. Department of Treasury will announce a new supply of government borrowing. They will announce the size of next week’s auction of 3 year notes, 7 year notes and 30 year bonds. The added supply of debt on the market will pressure treasury yields to rise to attract buyers. This also applies pressure on MBS to move higher in yield, lower in price.
Currently Federal Reserve Chairman Ben Bernanke is on Capitol Hill in front of the Senate Banking Committee for his reconfirmation hearing. Anytime he speaks, market participants pay attention for any hint at future monetary policy and his outlook on the economy. He is expected to take a beating from several Senators but his reconfirmation is more than likely.
Early reports from fellow mortgage professionals indicate rate sheet rebates to be worse this morning. The par 30 year conventional rate mortgage remains in the 4.625% to 4.875% range for well 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% and pay all closing costs including an estimated one point loan origination/discount/broker fee. If you are planning to access the equity in your home, you should expect either a higher interest rate or additional closing costs.
Tomorrow we get the most important economic report, the Employment Situation. If this data indicates fewer job losses than expected, mortgage rates could rise very quickly. If worse than expected we could see an improvement to rates; however, I am going to continue to advise locking. Lenders are reluctant to pass along lower mortgage rates than the 4.5% that we saw earlier this week. If you can lock today at 4.625%, why risk floating if lenders won’t offer rates below 4.5%? Not much to gain but there is a potential for a quick and large move higher with rates, so much to lose.
Anyone care to predict tomorrow’s nonfarm payrolls? Expectations are for a loss of 100,000 jobs and unemployment rate of 10.2%.
If you are planning to secure a mortgage using a FHA loan, get prepared for tougher qualifying guidelines. They are planning to raise the minimum credit score, reduce seller concessions and increase premiums and downpayments. Details have not been released yet, but once they are I will bring them to you.
The data started out this morning with the weekly jobless claims. This data totals the number of Americans that filed for first time unemployment benefits in the prior week. Included within this report is the continuing claims which totals the number of Americans that continue to file for benefits due to lack of finding a new job.
The U.S. Department of Labor reported that first time claims for the week ending November 28 fell for the fifth consecutive week by 5000 to 457,000 beating economists estimates of 480,000. This is the lowest level of claims since September of 2008. The continuing claims rose by 28,000 to 5.47million beating estimates of 5.49million. Slightly offsetting this positive data is the fact that this report was for the holiday shortened week of Thanksgiving. Additionally, the number of Americans receiving extended benefits under Federal programs, which are not counted in the initial or continuing claims data, surged 323,000 to 4.46million. The pace of layoffs and firings is definitely easing which could indicate a better than expected Employment situation report tomorrow, but it is still difficult to find a new job.
Next, the Labor Department also reported the revised Productivity and Costs report for the third quarter. Productivity, which measure how efficient our labor force is at producing our nation’s good and services, was revised lower from 9.5% to 8.1% falling below expectations. This shows that our labor force is not as productive as first reported which could indicate inflationary pressures down the road. Adding fuel to that fire is unit labor costs, which reflects the cost of producing each unit of output, was also revised worse from the first reported reading of -5.2% to -2.5% indicating the cost to produce goods did not decline by as much as first reported.
The final report of the day gives us a measure of the strength of the non manufacturing sector of our economy with the ISM Non Manufacturing index. This data is a survey of approximately 400 firms including agriculture, mining, construction, retail, etc… on their outlook for growth. Readings above 50 indicate expanding or improving conditions while readings below 50 indicate contraction. Last month’s survey came in at 50.6 and economists surveyed expected continued improving conditions with a 52.0 reading. The actual report indicated the non manufacturing sector of our economy has taken a turn for the worse with the index dropping to 48.7. Following the release of this worse than expected economic data, the stock market moved lower allowing some money to flow into MBS which moved them off the lows of the day.
At 11am eastern, the U.S. Department of Treasury will announce a new supply of government borrowing. They will announce the size of next week’s auction of 3 year notes, 7 year notes and 30 year bonds. The added supply of debt on the market will pressure treasury yields to rise to attract buyers. This also applies pressure on MBS to move higher in yield, lower in price.
Currently Federal Reserve Chairman Ben Bernanke is on Capitol Hill in front of the Senate Banking Committee for his reconfirmation hearing. Anytime he speaks, market participants pay attention for any hint at future monetary policy and his outlook on the economy. He is expected to take a beating from several Senators but his reconfirmation is more than likely.
Early reports from fellow mortgage professionals indicate rate sheet rebates to be worse this morning. The par 30 year conventional rate mortgage remains in the 4.625% to 4.875% range for well 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% and pay all closing costs including an estimated one point loan origination/discount/broker fee. If you are planning to access the equity in your home, you should expect either a higher interest rate or additional closing costs.
Tomorrow we get the most important economic report, the Employment Situation. If this data indicates fewer job losses than expected, mortgage rates could rise very quickly. If worse than expected we could see an improvement to rates; however, I am going to continue to advise locking. Lenders are reluctant to pass along lower mortgage rates than the 4.5% that we saw earlier this week. If you can lock today at 4.625%, why risk floating if lenders won’t offer rates below 4.5%? Not much to gain but there is a potential for a quick and large move higher with rates, so much to lose.
Anyone care to predict tomorrow’s nonfarm payrolls? Expectations are for a loss of 100,000 jobs and unemployment rate of 10.2%.
If you are planning to secure a mortgage using a FHA loan, get prepared for tougher qualifying guidelines. They are planning to raise the minimum credit score, reduce seller concessions and increase premiums and downpayments. Details have not been released yet, but once they are I will bring them to you.
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