Mortgage Rates Extend Rally Ahead of Employment Data
Posted 01-06-2010 at 08:18 AM by VictorBurek
The fixed income sector extended price gains from Monday as investors saw a buying opportunity after the massive December sell off. The recent price gains have not been totally justified by economic data but more of a correction due to money coming back into the markets after the holidays. Further gains in the prices of mortgage backed securities will come from upcoming data, specifically the FOMC minutes released later today and the Employment Situation report due out first thing Friday morning. Most lenders did reprice for the better yesterday as the price gains held through close.
We had several pieces of economic data released this morning. First, the Mortgage Bankers’ Association released their applications index which tracks the weekly change in the amount of mortgage applications at major lenders. Increasing trend in applications would indicate higher home sales which is good for the overall economy and equities. Additionally, higher amounts of refinances could also lead to more consumer spending as home owners refinance into lower rates with lower payments freeing up cash flow, also good for stocks. Today’s data is for the prior two weeks as no data was released last week. The report showed purchase applications dropping 4.0% in the December 25 week and rebounding 3.6% in the January 4 week. The refinance activity plunged 30.5% two weeks ago and fell 1.6% last week. It is not surprising to see large declines in applications during the Christmas week as most people have other concerns during the holidays.
Next we got the ADP jobs report. This data is the unofficial preview of Friday’s Non-Farm Payrolls and is released on the Wednesday prior to the government’s official report. Historically, the ADP report has varied greatly from the official report but its accuracy has been improving. The biggest difference between the two jobs reports is the ADP numbers do not take into account government hiring, only the private sector.
The report indicated that U.S. companies cut 84,000 jobs last month slightly worse than economists expectations of only 75,000 job losses. This is the smallest drop in jobs since March 2008! Offsetting the worse than expected numbers was last month’s report was revised from a first reported loss of 169,000 to only a loss of 145,000. Friday’s much more important Employment Situation report is expected to show 0 jobs lost and the unemployment rate holding steady at 10.0%.
The final data print of the day is the ISM Non-Manufacturing Index. This report is a survey of 400 firms including agriculture, mining, construction, wholesale and retail trade on how they view the strength of their business. Readings above 50 indicate expanding or improving conditions while readings below 50 indicate contraction. November’s report showed weakening conditions falling from above 50 in October to 48.7. The released indicated that non-manufacturing business conditions are improving ever so slightly with a reading of 50.1, slightly worse than economists expectations of 50.5. Following the release of this data, MBS have come under some pressure but are holding near unchanged levels from yesterday’s close.
At 2pm eastern, the Federal Open Market Committee will release the minutes from its last meeting which was held December 15-16. Much of the information is already known; however, market participants will scour the minutes for any hint at future monetary policy and the Fed’s outlook for the economy.
Reports from fellow mortgage professionals indicate lender rate sheets to be improved from yesterday. The par 30 year conventional rate mortgage remains in the 4.875% to 5.125% 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 4.375% to 4.625% range with similar costs.
Lender rate sheets are considerably better today than what we had in late December. If you have been floating a rate, you might want to take advantage of these recent improvements and lock in. Rates can move a little lower but there is much more room above for rates to go higher. If you have been a reader of the blog, you are probably aware that rates rise much faster than they ever improve. If you feel daring and you also feel Friday’s jobs numbers will be worse than expected and you can afford to be wrong, floating can pay off but that is highly risky.
We had several pieces of economic data released this morning. First, the Mortgage Bankers’ Association released their applications index which tracks the weekly change in the amount of mortgage applications at major lenders. Increasing trend in applications would indicate higher home sales which is good for the overall economy and equities. Additionally, higher amounts of refinances could also lead to more consumer spending as home owners refinance into lower rates with lower payments freeing up cash flow, also good for stocks. Today’s data is for the prior two weeks as no data was released last week. The report showed purchase applications dropping 4.0% in the December 25 week and rebounding 3.6% in the January 4 week. The refinance activity plunged 30.5% two weeks ago and fell 1.6% last week. It is not surprising to see large declines in applications during the Christmas week as most people have other concerns during the holidays.
Next we got the ADP jobs report. This data is the unofficial preview of Friday’s Non-Farm Payrolls and is released on the Wednesday prior to the government’s official report. Historically, the ADP report has varied greatly from the official report but its accuracy has been improving. The biggest difference between the two jobs reports is the ADP numbers do not take into account government hiring, only the private sector.
The report indicated that U.S. companies cut 84,000 jobs last month slightly worse than economists expectations of only 75,000 job losses. This is the smallest drop in jobs since March 2008! Offsetting the worse than expected numbers was last month’s report was revised from a first reported loss of 169,000 to only a loss of 145,000. Friday’s much more important Employment Situation report is expected to show 0 jobs lost and the unemployment rate holding steady at 10.0%.
The final data print of the day is the ISM Non-Manufacturing Index. This report is a survey of 400 firms including agriculture, mining, construction, wholesale and retail trade on how they view the strength of their business. Readings above 50 indicate expanding or improving conditions while readings below 50 indicate contraction. November’s report showed weakening conditions falling from above 50 in October to 48.7. The released indicated that non-manufacturing business conditions are improving ever so slightly with a reading of 50.1, slightly worse than economists expectations of 50.5. Following the release of this data, MBS have come under some pressure but are holding near unchanged levels from yesterday’s close.
At 2pm eastern, the Federal Open Market Committee will release the minutes from its last meeting which was held December 15-16. Much of the information is already known; however, market participants will scour the minutes for any hint at future monetary policy and the Fed’s outlook for the economy.
Reports from fellow mortgage professionals indicate lender rate sheets to be improved from yesterday. The par 30 year conventional rate mortgage remains in the 4.875% to 5.125% 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 4.375% to 4.625% range with similar costs.
Lender rate sheets are considerably better today than what we had in late December. If you have been floating a rate, you might want to take advantage of these recent improvements and lock in. Rates can move a little lower but there is much more room above for rates to go higher. If you have been a reader of the blog, you are probably aware that rates rise much faster than they ever improve. If you feel daring and you also feel Friday’s jobs numbers will be worse than expected and you can afford to be wrong, floating can pay off but that is highly risky.
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MBS have moved lower, if you were going to lock today better get moving.Posted 01-06-2010 at 09:18 AM by VictorBurek
