Mortgage Rates Come Under Pressure Again
Posted 12-15-2009 at 08:14 AM by VictorBurek
The prices of mortgage backed securities ended a losing streak on Friday; however, the downward pressure renewed again yesterday resulting in a lower close price with MBS. The losses were not substantial but they did continue up to the closing bell. There were a few reports of lenders repricing for the worse but it was not widespread.
Today begins day one of the Federal Open Market Committee’s two day meeting where our nation’s monetary policy is set. Nothing happens on day one, but following the conclusion of the meeting tomorrow we get the extremely important Fed statement.
The economic data picks up this morning with several data points. First out this morning is a report that gives market participants a reading on inflation. The Producer Price Index(PPI) measures prices at the producer level for capital and goods needed to produce consumer goods before they are passed along to consumer. If the price of materials producers have to buy to make goods are increasing they generally pass along the higher price to the end consumer resulting in inflation; however, in a troubled economy it is difficult to pass along the higher prices which sometimes forces producers to make a smaller profit and absorb the cost. Tomorrows Consumer Price Index(CPI) which measures inflation at the consumer level is of more importance but today’s PPI report is expected to post the first year over year increase since February.
With inflation data we get two measures, the overall and the core. The core reading strips out food and energy due to their volatility and is the favored measure of inflation for the Fed. The release indicated that wholesale prices rose more than expected last month led by higher energy costs. The overall reading indicated producer prices up 1.8% when only a 0.8% increase was expected and the core reading posted an increase of 0.5% vs 0.2% expected. Year over year we did get the first positive reading with the overall PPI up 2.7% while the core rate is up 1.2%. Despite the inflation unfriendly data, today’s report does not signal that inflation is here but does raise at least some concern. Oil prices have come down from last month which should be reflected in next month’s PPI data.
The Fed has stated numerous times that inflation is not an immediate concern and it will be interesting to read what they state about that in the Fed statement tomorrow. What is your opinion on inflation? Do you think this is the start of higher prices or a temporary blip on the radar?
Released at the same time was data on the strength of manufacturing around the New York region with the Empire State Manufacturing Survey. This survey of manufacturers lets market participants know whether manufacturing conditions are improving or contracting. Readings above 0 indicate expansion while readings below 0 indicate contraction. The stock market generally moves higher when manufacturing is improving while the bond market improves with lower readings. The report indicated that manufacturing unexpectedly declined by a staggering 21 points to 2.55 which is the worst reading since July. Economists were expecting the index to rise to 24.50 from 23.51 last month. Despite this much worse than expected report, MBS have been unable to move higher thanks in part to the inflation data. We get another reading on the strength of manufacturing Thursday with the Philly Fed Survey.
The final report today shows us how much factories, mines and utilities are producing. If production is increasing that signals that manufacturers expect higher sales in the future which should equate to higher corporate profits which benefits the stock market. The bond market generally improves with slower production. Economists had expected Industrial production to post a monthly increase of 0.6% following last month’s 0.1% increase. The report indicated that Industrial Production increased more than expected last month coming in at 0.8%. Not much reaction following the release of this data but MBS appear to be stabilizing but still down on the day.
Following the not friendly bond data on inflation and industrial production, mortgage rates are being pressured higher this morning. Early reports from fellow mortgage professionals indicate the par 30 year conventional rate mortgage has risen to the 4.875% to 5.125% range for well qualified consumers. There are still a few lenders offering 4.75%. 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. You may elect to pay less in fees but you will have to accept a higher interest rate. This is a good option for consumers who do not plan on keeping their home for a longer than three years.
With more inflation data tomorrow and the Fed statement which can offer many surprises, the safe call is to lock.
Today begins day one of the Federal Open Market Committee’s two day meeting where our nation’s monetary policy is set. Nothing happens on day one, but following the conclusion of the meeting tomorrow we get the extremely important Fed statement.
The economic data picks up this morning with several data points. First out this morning is a report that gives market participants a reading on inflation. The Producer Price Index(PPI) measures prices at the producer level for capital and goods needed to produce consumer goods before they are passed along to consumer. If the price of materials producers have to buy to make goods are increasing they generally pass along the higher price to the end consumer resulting in inflation; however, in a troubled economy it is difficult to pass along the higher prices which sometimes forces producers to make a smaller profit and absorb the cost. Tomorrows Consumer Price Index(CPI) which measures inflation at the consumer level is of more importance but today’s PPI report is expected to post the first year over year increase since February.
With inflation data we get two measures, the overall and the core. The core reading strips out food and energy due to their volatility and is the favored measure of inflation for the Fed. The release indicated that wholesale prices rose more than expected last month led by higher energy costs. The overall reading indicated producer prices up 1.8% when only a 0.8% increase was expected and the core reading posted an increase of 0.5% vs 0.2% expected. Year over year we did get the first positive reading with the overall PPI up 2.7% while the core rate is up 1.2%. Despite the inflation unfriendly data, today’s report does not signal that inflation is here but does raise at least some concern. Oil prices have come down from last month which should be reflected in next month’s PPI data.
The Fed has stated numerous times that inflation is not an immediate concern and it will be interesting to read what they state about that in the Fed statement tomorrow. What is your opinion on inflation? Do you think this is the start of higher prices or a temporary blip on the radar?
Released at the same time was data on the strength of manufacturing around the New York region with the Empire State Manufacturing Survey. This survey of manufacturers lets market participants know whether manufacturing conditions are improving or contracting. Readings above 0 indicate expansion while readings below 0 indicate contraction. The stock market generally moves higher when manufacturing is improving while the bond market improves with lower readings. The report indicated that manufacturing unexpectedly declined by a staggering 21 points to 2.55 which is the worst reading since July. Economists were expecting the index to rise to 24.50 from 23.51 last month. Despite this much worse than expected report, MBS have been unable to move higher thanks in part to the inflation data. We get another reading on the strength of manufacturing Thursday with the Philly Fed Survey.
The final report today shows us how much factories, mines and utilities are producing. If production is increasing that signals that manufacturers expect higher sales in the future which should equate to higher corporate profits which benefits the stock market. The bond market generally improves with slower production. Economists had expected Industrial production to post a monthly increase of 0.6% following last month’s 0.1% increase. The report indicated that Industrial Production increased more than expected last month coming in at 0.8%. Not much reaction following the release of this data but MBS appear to be stabilizing but still down on the day.
Following the not friendly bond data on inflation and industrial production, mortgage rates are being pressured higher this morning. Early reports from fellow mortgage professionals indicate the par 30 year conventional rate mortgage has risen to the 4.875% to 5.125% range for well qualified consumers. There are still a few lenders offering 4.75%. 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. You may elect to pay less in fees but you will have to accept a higher interest rate. This is a good option for consumers who do not plan on keeping their home for a longer than three years.
With more inflation data tomorrow and the Fed statement which can offer many surprises, the safe call is to lock.
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