Mortgage Rates Hold Steady as More Data Hits
Posted 02-25-2010 at 07:41 AM by VictorBurek
Not much to recap from yesterday. Mortgage backed securities traded in a tight range all day despite some bond friendly data and a successful treasury auction. There were no surprise tape bombs from Ben Bernanke’s testimony before the House. He did reiterate that the Fed intends to keep rates low for an extended period and that inflation is not a concern.
All things yesterday were rather friendly for the MBS market but why didn’t we see a rally? First, the stock market rallied posting triple digits gains even though the economic data wasn’t positive. This was due to some technical trading and Ben Bernanke’s testimony, low rates are good for corporate profits. Secondly, we haven’t seen a shift in investor sentiment regarding our economic recovery which is keeping investors from driving the fixed income sector higher in price which would lead to lower mortgage rates. The belief is the worst is over and our economy is on pace for a slow and steady recovery. This is the main reason why I believe 4.75% is the lowest rate will shall see this year unless we get that shift in economic outlook.
The economic data started this morning with the weekly Jobless Claims from the Department of Labor. This report gives us three measures of the labor market:
- Initial Jobless Claims: totals the number of Americans who filed for first time unemployment benefits
- Continued Claims: totals the number of Americans who continue to file due to lack of finding a new job
- Extended Benefits: totals the number of Americans who have exhausted their traditional benefits and are now receiving emergency benefits
Higher unemployment claims is positive for low rates. The more people who are unemployed, the less consumer spending which isn’t good for corporate profits or the overall economy. Remember, our economy is driven by consumer spending and if you don’t have a job you will not be spending money.
Last week’s report came in much higher than expected with 473,000 first time filers. This was an increase of 31,000 from the prior week. This morning’s report indicated another worse than expected jobs report with more people than expected filing for benefits, indicating continued troubles for those seeking new jobs. Initial jobless claims increased by 22,000 to 496,000 in the week ending February 20. Continued claims rose 6000 to 4.62 million while the number of Americans receiving extended benefits declined by 318,000 to 5.5million.
Released at the same time was the Durable Goods Orders report. This release measures new orders at U.S. factories for products that are expected to last at least three years such as computers, appliances, electronics, etc… Basically, this report tells economists how busy factories will be in the months ahead as they rush to meet the new orders. The report indicated durable orders improving more than expected. New orders for January increased 3.0% when economists had only expected a 1.4% increase. Last month’s number was revised higher from the first reported 0.3% rise to a increase of 1.9%. When excluding transportation orders, the report came in much worse at a decline of -0.6%, expectations was for a 1% increase. However, offsetting that bad news was last month’s numbers revised better from 0.9% to an increase of 2.0%.
At 9am eastern, Federal Reserve Chairman Ben Bernanke continues his semiannual Monetary Policy Report to Congress before the Senate Committee on Banking, Housing and Urban Affairs. Yesterday’s address to the House Committee on Financial Services offered up no surprises and I expect that today.
Finally, at 1pm the Department of Treasury will conduct its final auction for the week offering $32billion of 7 year notes. The prior 2 year and 5 year auction saw above average demand which has helped mortgage rates hold steady near the lows of 2010.
Reports from fellow mortgage professionals indicate lender rate sheets to be improved from yesterday. The par 30 year conventional rate mortgage is in the 4.75% to 5.00% range for well qualified consumers. To qualify for 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. If you are seeking a 15 year term, you should expect par in the 4.25% to 4.50% range with similar costs but lower credit score requirements.
With the stock market moving lower this morning and another dismal jobs report, let’s see if floating can pay off. I am still not convinced lenders will offer rates below 4.75% but let’s see how the day plays out. If you do not want to take a risk on floating, than lock it up today as rates are back to the best levels we have seen this year. However, with the stock market posting triple digit losses I do find it very unlikely we see a selloff in the bond market which should at least hold mortgage rates steady making it fairly safe to float overnight.
All things yesterday were rather friendly for the MBS market but why didn’t we see a rally? First, the stock market rallied posting triple digits gains even though the economic data wasn’t positive. This was due to some technical trading and Ben Bernanke’s testimony, low rates are good for corporate profits. Secondly, we haven’t seen a shift in investor sentiment regarding our economic recovery which is keeping investors from driving the fixed income sector higher in price which would lead to lower mortgage rates. The belief is the worst is over and our economy is on pace for a slow and steady recovery. This is the main reason why I believe 4.75% is the lowest rate will shall see this year unless we get that shift in economic outlook.
The economic data started this morning with the weekly Jobless Claims from the Department of Labor. This report gives us three measures of the labor market:
- Initial Jobless Claims: totals the number of Americans who filed for first time unemployment benefits
- Continued Claims: totals the number of Americans who continue to file due to lack of finding a new job
- Extended Benefits: totals the number of Americans who have exhausted their traditional benefits and are now receiving emergency benefits
Higher unemployment claims is positive for low rates. The more people who are unemployed, the less consumer spending which isn’t good for corporate profits or the overall economy. Remember, our economy is driven by consumer spending and if you don’t have a job you will not be spending money.
Last week’s report came in much higher than expected with 473,000 first time filers. This was an increase of 31,000 from the prior week. This morning’s report indicated another worse than expected jobs report with more people than expected filing for benefits, indicating continued troubles for those seeking new jobs. Initial jobless claims increased by 22,000 to 496,000 in the week ending February 20. Continued claims rose 6000 to 4.62 million while the number of Americans receiving extended benefits declined by 318,000 to 5.5million.
Released at the same time was the Durable Goods Orders report. This release measures new orders at U.S. factories for products that are expected to last at least three years such as computers, appliances, electronics, etc… Basically, this report tells economists how busy factories will be in the months ahead as they rush to meet the new orders. The report indicated durable orders improving more than expected. New orders for January increased 3.0% when economists had only expected a 1.4% increase. Last month’s number was revised higher from the first reported 0.3% rise to a increase of 1.9%. When excluding transportation orders, the report came in much worse at a decline of -0.6%, expectations was for a 1% increase. However, offsetting that bad news was last month’s numbers revised better from 0.9% to an increase of 2.0%.
At 9am eastern, Federal Reserve Chairman Ben Bernanke continues his semiannual Monetary Policy Report to Congress before the Senate Committee on Banking, Housing and Urban Affairs. Yesterday’s address to the House Committee on Financial Services offered up no surprises and I expect that today.
Finally, at 1pm the Department of Treasury will conduct its final auction for the week offering $32billion of 7 year notes. The prior 2 year and 5 year auction saw above average demand which has helped mortgage rates hold steady near the lows of 2010.
Reports from fellow mortgage professionals indicate lender rate sheets to be improved from yesterday. The par 30 year conventional rate mortgage is in the 4.75% to 5.00% range for well qualified consumers. To qualify for 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. If you are seeking a 15 year term, you should expect par in the 4.25% to 4.50% range with similar costs but lower credit score requirements.
With the stock market moving lower this morning and another dismal jobs report, let’s see if floating can pay off. I am still not convinced lenders will offer rates below 4.75% but let’s see how the day plays out. If you do not want to take a risk on floating, than lock it up today as rates are back to the best levels we have seen this year. However, with the stock market posting triple digit losses I do find it very unlikely we see a selloff in the bond market which should at least hold mortgage rates steady making it fairly safe to float overnight.
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