Will Data Push Mortgage Rates Higher?
Posted 12-11-2009 at 08:51 AM by VictorBurek
The prices of mortgage backed securities opened in the red and continued to move lower throughout the day yesterday. The lower open resulted in higher mortgage rates than we received on Wednesday. Following a pretty dismal treasury auction, mbs moved even lower; however, the cheap prices brought buyers in which by day’s end resulted in MBS closing where they opened. The late day turn around did allow a few lenders to reprice better passing along higher rebate.
The economic calendar picks up today with several data prints. First out this morning is the Retail Sales report which measures the monthly change in total receipts at retail stores that sell both durable and non durable goods. Since consumer spending accounts for two-thirds of GDP, market participants track this report to get a gauge on economic momentum. More spending by consumers would lead to higher corporate profits which is good for stocks, but could spark inflation which is negative for bonds. The fixed income market generally moves higher when retail sales are lower than expected while stocks tend to rally if higher than expected.
The report indicates that retail sales posted a much higher than expected gain increasing 1.3% in the overall spending and 1.2% when excluding auto sales making for the third increase in the prior four months. Expectations was for only a 0.9% overall increase and 0.5% when excluding auto sales. The sales increase was led by a 6% increase in gasoline prices followed by electronics and appliances which posted a 2.8% increase. Declines were seen in furniture and home furnishings as well as clothing. Year over year, overall retail sales are up 1.9% and when excluding auto sales are up 1.3%. Today’s report is a positive economic indicator but the question remains, can the consumer continue to spend with double digit unemployment?
Released at the same time was a report that gives market participants a reading on inflation with the Import/Export Price report. This data tracks the monthly change in the price of items our nation imports and exports. The release indicates that import prices rose more than expected by 1.7% while export prices also increased more than expected by 0.8%. When excluding oil and energy, import prices only posted a 0.4% rise. Prior reports have shown that inflation is not present, but today’s data does cause concern. Year over year, export prices are up 0.6% and import prices up 3.7%. Next week we get two readings on inflation with the release of the Producer Price Index and the Consumer Price Index.
The final report today comes from the University of Michigan’s Consumer Survey Center. They question 500 households each month on their personal financial conditions and attitudes about the overall economy. An optimistic consumer is much more likely to spend money while a pessimistic consumer is more likely to save. The prior two months showed consumers becoming less optimistic and expectations for this report called for a slight increase. The report indicated that Consumer Sentiment is much higher than expected coming in at 73.4 after last month’s 67.4 reading.
It is unanimous today with the economic data. All the reports on the headlines are much better than expected which is positive for stocks and negative for bonds. When you dig into the data it isn’t as positive as the headline but none the less, stocks are moving higher this morning and MBS have continued to move lower.
Early reports from fellow mortgage professionals indicate lender rate sheets offering less rebate. The par 30 year conventional rate mortgage remains in the 4.75% to 5.00% 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% 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 4.25% to 4.50% with similar closing costs.
Rates can go either direction from this point. Year end is fast approaching which should supply us some support from further price losses, but the data today was pretty economic positive. So my recommendation from yesterday continues today. If you are conservative, lock this morning and remove all risk. Rates are slightly worse than yesterday so you might have to pay additional fees to get same interest rate but mortgage rates still remain only a .25% or so away from the historic lows. If you are a risk taker, than continue floating at your own risk.
Qualifying for a mortgage is becoming more and more difficult. Lenders are tightening guidelines even further than what Fannie Mae and Freddie Mac will accept. Additionally, it appears that lenders are looking for any reason to deny a loan. Federal Reserve Governor Elizabeth Duke spoke about this in a conference in Chicago yesterday calling attention to over tightening mortgage underwriting standards which is prohibiting a housing recovery. In the speech she stated “Even taking into account the excesses of the bubble period, it appears that lenders have tightened underwriting terms so much that the lack of credit availability is at least partially an impediment to homeownership.” I would like to hear your opinion on this subject. What is your opinion of today’s underwriting?
I hope everyone has a great weekend.
The economic calendar picks up today with several data prints. First out this morning is the Retail Sales report which measures the monthly change in total receipts at retail stores that sell both durable and non durable goods. Since consumer spending accounts for two-thirds of GDP, market participants track this report to get a gauge on economic momentum. More spending by consumers would lead to higher corporate profits which is good for stocks, but could spark inflation which is negative for bonds. The fixed income market generally moves higher when retail sales are lower than expected while stocks tend to rally if higher than expected.
The report indicates that retail sales posted a much higher than expected gain increasing 1.3% in the overall spending and 1.2% when excluding auto sales making for the third increase in the prior four months. Expectations was for only a 0.9% overall increase and 0.5% when excluding auto sales. The sales increase was led by a 6% increase in gasoline prices followed by electronics and appliances which posted a 2.8% increase. Declines were seen in furniture and home furnishings as well as clothing. Year over year, overall retail sales are up 1.9% and when excluding auto sales are up 1.3%. Today’s report is a positive economic indicator but the question remains, can the consumer continue to spend with double digit unemployment?
Released at the same time was a report that gives market participants a reading on inflation with the Import/Export Price report. This data tracks the monthly change in the price of items our nation imports and exports. The release indicates that import prices rose more than expected by 1.7% while export prices also increased more than expected by 0.8%. When excluding oil and energy, import prices only posted a 0.4% rise. Prior reports have shown that inflation is not present, but today’s data does cause concern. Year over year, export prices are up 0.6% and import prices up 3.7%. Next week we get two readings on inflation with the release of the Producer Price Index and the Consumer Price Index.
The final report today comes from the University of Michigan’s Consumer Survey Center. They question 500 households each month on their personal financial conditions and attitudes about the overall economy. An optimistic consumer is much more likely to spend money while a pessimistic consumer is more likely to save. The prior two months showed consumers becoming less optimistic and expectations for this report called for a slight increase. The report indicated that Consumer Sentiment is much higher than expected coming in at 73.4 after last month’s 67.4 reading.
It is unanimous today with the economic data. All the reports on the headlines are much better than expected which is positive for stocks and negative for bonds. When you dig into the data it isn’t as positive as the headline but none the less, stocks are moving higher this morning and MBS have continued to move lower.
Early reports from fellow mortgage professionals indicate lender rate sheets offering less rebate. The par 30 year conventional rate mortgage remains in the 4.75% to 5.00% 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% 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 4.25% to 4.50% with similar closing costs.
Rates can go either direction from this point. Year end is fast approaching which should supply us some support from further price losses, but the data today was pretty economic positive. So my recommendation from yesterday continues today. If you are conservative, lock this morning and remove all risk. Rates are slightly worse than yesterday so you might have to pay additional fees to get same interest rate but mortgage rates still remain only a .25% or so away from the historic lows. If you are a risk taker, than continue floating at your own risk.
Qualifying for a mortgage is becoming more and more difficult. Lenders are tightening guidelines even further than what Fannie Mae and Freddie Mac will accept. Additionally, it appears that lenders are looking for any reason to deny a loan. Federal Reserve Governor Elizabeth Duke spoke about this in a conference in Chicago yesterday calling attention to over tightening mortgage underwriting standards which is prohibiting a housing recovery. In the speech she stated “Even taking into account the excesses of the bubble period, it appears that lenders have tightened underwriting terms so much that the lack of credit availability is at least partially an impediment to homeownership.” I would like to hear your opinion on this subject. What is your opinion of today’s underwriting?
I hope everyone has a great weekend.
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