Markets Await Fed Statement
Posted 03-16-2010 at 07:50 AM by VictorBurek
Pretty boring day in the fixed income markets yesterday. Mortgage backed securities traded in an extremely tight range as market participants sit on the sidelines waiting for the Fed Statement due out later today. With the lack of any volatility, lenders left rate sheets unchanged on the day.
As we await the Fed Statement, we did get some other data this morning. First out was the Housing Starts and Building Permits report.
Housing Starts data estimates how much new residential real estate construction occurred in the previous month. New construction means digging has begun. Adding rooms or renovating old ones does not count, the builder must be constructing a new home (can be on old foundation if re-building). Although the report offers up single family housing, 2-4 unit housing, and 5 unit and above housing data...single family housing is by far the most important as it accounts for the majority of total home building.
Building Permits data provides an estimate on the number of homes planned on being built. The number of permits issued gauges how much construction activity we can expect to take place in the future. This data is a part of Conference Board's Index of Leading Economic Indicators.
Last month’s report on January Housing Starts indicated a 2.7% increase over December’s numbers to an annualized pace of 591,000 while Building Permits declined 4.9% to an annualized pace of 621,000. Today’s release indicated Housing Starts were better than expected at an annualized pace of 575,000. Economists surveyed prior to the report expected a read of 570,000. January’s numbers were revised higher from the first reported 591,000 to 611,000! Building Permits also came in better than expected at an annualized pace of 612,000 vs the 601,000 expected. The steep decline of 5.9% with housing starts is being blamed on the horrible winter weather around the country in February. With the Fed Statement waiting in the wings and since this report came in very close to expectations, there was no reaction from the markets.
We also got a reading on inflation with the release of Import/Export prices. This report is not as important as the next two reports on inflation which come tomorrow and Thursday with the release of the Producer Price Index and the Consumer Price index, respectively. Today’s report showed the prices of items we export fell 0.5% last month while the prices of items we import fell more than expected by 0.3%, its first month over month decline in 7 months. Economists expected only a 0.2% decline. This follows last month’s report which indicated export prices rose a revised 0.7% and import prices rose a revised 1.3%, fueled by the increase in the price of petroleum. We have another report validating the Fed’s position that inflation is not a concern today.
At 2:15eastern, the Federal Open Market Committee will release their statement following their Fed meeting. I expect today’s statement to be very similar to the last one. They will reiterate the need for low rates for an extended time and that inflation is not a concern today. The focus will be on the Fed’s exit strategy from the MBS purchase program and other programs put in place to get us out of the economic troubles we have experienced over the last couple years. Additionally, it is expected they will leave the Fed Fund rate unchanged at the current level of 0 to .25% but don’t be surprised if you hear an increase to the Discount rate.
With the markets waiting on the Fed Statement, reports from fellow mortgage professionals indicate lender rate sheets to be very similar to yesterday. 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.
Floating through today’s Fed Statement is a risky strategy. Unless we get a huge surprise like the extension of the MBS purchase program or cautionary words used to describe our economic recovery, there isn’t much to gain by floating. I do not feel we will get any surprises in today’s statement so there is nothing to gain by floating. The statement will either hold rates steady at current levels or pressure them higher. If you are within 30 days of closing and funding, I would strongly consider locking prior to the statement.
As we await the Fed Statement, we did get some other data this morning. First out was the Housing Starts and Building Permits report.
Housing Starts data estimates how much new residential real estate construction occurred in the previous month. New construction means digging has begun. Adding rooms or renovating old ones does not count, the builder must be constructing a new home (can be on old foundation if re-building). Although the report offers up single family housing, 2-4 unit housing, and 5 unit and above housing data...single family housing is by far the most important as it accounts for the majority of total home building.
Building Permits data provides an estimate on the number of homes planned on being built. The number of permits issued gauges how much construction activity we can expect to take place in the future. This data is a part of Conference Board's Index of Leading Economic Indicators.
Last month’s report on January Housing Starts indicated a 2.7% increase over December’s numbers to an annualized pace of 591,000 while Building Permits declined 4.9% to an annualized pace of 621,000. Today’s release indicated Housing Starts were better than expected at an annualized pace of 575,000. Economists surveyed prior to the report expected a read of 570,000. January’s numbers were revised higher from the first reported 591,000 to 611,000! Building Permits also came in better than expected at an annualized pace of 612,000 vs the 601,000 expected. The steep decline of 5.9% with housing starts is being blamed on the horrible winter weather around the country in February. With the Fed Statement waiting in the wings and since this report came in very close to expectations, there was no reaction from the markets.
We also got a reading on inflation with the release of Import/Export prices. This report is not as important as the next two reports on inflation which come tomorrow and Thursday with the release of the Producer Price Index and the Consumer Price index, respectively. Today’s report showed the prices of items we export fell 0.5% last month while the prices of items we import fell more than expected by 0.3%, its first month over month decline in 7 months. Economists expected only a 0.2% decline. This follows last month’s report which indicated export prices rose a revised 0.7% and import prices rose a revised 1.3%, fueled by the increase in the price of petroleum. We have another report validating the Fed’s position that inflation is not a concern today.
At 2:15eastern, the Federal Open Market Committee will release their statement following their Fed meeting. I expect today’s statement to be very similar to the last one. They will reiterate the need for low rates for an extended time and that inflation is not a concern today. The focus will be on the Fed’s exit strategy from the MBS purchase program and other programs put in place to get us out of the economic troubles we have experienced over the last couple years. Additionally, it is expected they will leave the Fed Fund rate unchanged at the current level of 0 to .25% but don’t be surprised if you hear an increase to the Discount rate.
With the markets waiting on the Fed Statement, reports from fellow mortgage professionals indicate lender rate sheets to be very similar to yesterday. 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.
Floating through today’s Fed Statement is a risky strategy. Unless we get a huge surprise like the extension of the MBS purchase program or cautionary words used to describe our economic recovery, there isn’t much to gain by floating. I do not feel we will get any surprises in today’s statement so there is nothing to gain by floating. The statement will either hold rates steady at current levels or pressure them higher. If you are within 30 days of closing and funding, I would strongly consider locking prior to the statement.
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