Inflation Data Pushes Rates Higher
All I can say about yesterday is it was a bad day for rate watchers. Mortgage rates were pressured higher following higher than expected inflation data on the producer level. As the day progressed, the downward pressure continued resulting in mortgage backed securities moving lower by a half a point. Selling lead to more selling which lead to more selling. All lenders did reprice for the worse with some repricing multiple times.
Following a couple action packed days of economic data, today brings us only one report. The Department of Labor released the Consumer Price index which measures the price change of a fixed basket of goods and services purchased by consumers. Since this report measures inflation on the consumer level, it is highly impactful on the markets. Yesterday’s PPI report showed higher inflation on the producer level but quite often the higher costs of producing goods and services are not passed along to the end consumer, especially in bad economic times. This is why consumer prices are much more important to watch than producer prices. Economists surveyed expect overall consumer prices to post a monthly increase of 0.3% while the core rate which strips out food and energy from the reading is expected to post a 0.1% increase.
The release indicated….inflation is not present at the consumer level. Overall consumer prices edged higher by only 0.2% while the core rate posted a -0.1% decline, both beating economists’ expectations. The month over month decline in the core rate was the first decline since December 1982! We have another report that continues to show inflation to be of very little concern today which should allow the Fed to maintain the current Fed fund rate for the time being.
By the way, the Fed raised rates late yesterday. Well, they raised the Discount rate which is the interest rate charged to commercial banks on loans they receive from their regional Federal Reserve Bank. This is not the more widely known Fed fund rate which is the interest rate banks charge each other for overnight loans and the rate that is used to set the prime rate. The prime rate is the fed fund rate plus 3% which places it at 3.25% today. If you have a HELOC, it will most likely be tied to the prime rate. The raising of the discount rate is basically a non event to mortgage rate watchers.
Reports from fellow mortgage professionals indicate higher rates this morning. The par 30 year conventional rate mortgage is in the 5.00% to 5.25% range for well qualified consumers. To secure a par 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.
The last few days could be the beginning of higher interest rates as I have been saying for quite some time. Hopefully, you have followed my advice and your loan is locked. I am hopeful of slight recovery bounce especially after the friendly inflation data this morning. In addition, MBS have lost so much ground over the last few days they seem ripe for some bargain buying which should prevent further losses. I still favor locking over floating but if you haven’t locked yet, I think the risk of floating over the weekend might be justified. But remember, the overall trend is for higher interest rates and we might not see a recovery bounce over the weekend. Unless a tape bomb develops or the stock market has a big day, I feel further price losses with MBS are unlikely today.
Have a great weekend.
Following a couple action packed days of economic data, today brings us only one report. The Department of Labor released the Consumer Price index which measures the price change of a fixed basket of goods and services purchased by consumers. Since this report measures inflation on the consumer level, it is highly impactful on the markets. Yesterday’s PPI report showed higher inflation on the producer level but quite often the higher costs of producing goods and services are not passed along to the end consumer, especially in bad economic times. This is why consumer prices are much more important to watch than producer prices. Economists surveyed expect overall consumer prices to post a monthly increase of 0.3% while the core rate which strips out food and energy from the reading is expected to post a 0.1% increase.
The release indicated….inflation is not present at the consumer level. Overall consumer prices edged higher by only 0.2% while the core rate posted a -0.1% decline, both beating economists’ expectations. The month over month decline in the core rate was the first decline since December 1982! We have another report that continues to show inflation to be of very little concern today which should allow the Fed to maintain the current Fed fund rate for the time being.
By the way, the Fed raised rates late yesterday. Well, they raised the Discount rate which is the interest rate charged to commercial banks on loans they receive from their regional Federal Reserve Bank. This is not the more widely known Fed fund rate which is the interest rate banks charge each other for overnight loans and the rate that is used to set the prime rate. The prime rate is the fed fund rate plus 3% which places it at 3.25% today. If you have a HELOC, it will most likely be tied to the prime rate. The raising of the discount rate is basically a non event to mortgage rate watchers.
Reports from fellow mortgage professionals indicate higher rates this morning. The par 30 year conventional rate mortgage is in the 5.00% to 5.25% range for well qualified consumers. To secure a par 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.
The last few days could be the beginning of higher interest rates as I have been saying for quite some time. Hopefully, you have followed my advice and your loan is locked. I am hopeful of slight recovery bounce especially after the friendly inflation data this morning. In addition, MBS have lost so much ground over the last few days they seem ripe for some bargain buying which should prevent further losses. I still favor locking over floating but if you haven’t locked yet, I think the risk of floating over the weekend might be justified. But remember, the overall trend is for higher interest rates and we might not see a recovery bounce over the weekend. Unless a tape bomb develops or the stock market has a big day, I feel further price losses with MBS are unlikely today.
Have a great weekend.
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