No Surprises From the FOMC Statement, Rates Holding Steady
Posted 03-17-2010 at 07:55 AM by VictorBurek
Yesterday’s FOMC statement offered no surprises to the markets. The Fed continues to state they intend to keep the Fed Fund rate at current levels for an “extended period” and they see no threat from inflation at present time. Following the release of the statement, the prices of mortgage backed securities moved higher resulting in most lenders repricing better lowering consumer borrowing costs. However, the price improvements were not enough to lower the par rate below 4.75%.
The economic data this morning started early with the release of the weekly Mortgage Bankers’ Associations Application Index. The MBA survey covers over 50 percent of all US residential mortgage loan applications taken by mortgage bankers, commercial banks, and thrifts. The data gives economists a look into consumer demand for mortgage loans. A rising trend of mortgage applications indicates an increase in home buying interest, a positive for the housing industry and economy as a whole. Furthermore, in a low mortgage rate environment, such a trend implies consumers are seeking out lower monthly payments which can result in increased disposable income and therefore more money to spend on discretionary items or to pay down other debt.
The prior two weeks reports indicated big gains in applications as home owners rushed to take advantage of current rates and home buyers hurried to beat the deadline for the tax credit. Today’s report, though, indicated a decline in both purchase and refinance activity. The purchase index declined 2.3% while the refinance index dropped 1.7% during the week of March 12.
The only other data to hit the news wires was the release of the Producer Price Index. PPI measures the changes in prices that manufacturers and wholesalers pay for goods during different stages of production. If businesses have to pay more for the materials they use to produce their widgets …they may be forced to pass along those additional costs to you…the consumer. Although inflation at the producer level does not always lead to higher prices paid by consumers, as producers are reluctant to pass along higher costs during bad economic times. As stated before, inflation is one of the largest enemies of low interest rates.
The release indicated that inflation at the producer level was much lower than expected. Month over month, overall prices paid by producers dropped 0.6% when only a 0.2% decline was expected. The more important core rate, which strips out and food and energy from the numbers, came in right on expectations with a month over month 0.1% increase. We have another report confirming that inflation is not a concern. Despite the much larger than expected decline in overall prices, the bond market made no noticeable move following the release. This was due to the core rate coming in right on expectations.
At 2pm eastern, Fed Chairman Ben Bernanke will be speaking before the Committee on Financial Services on “Banking Supervision”. Anytime Mr. Bernanke speaks market participants pay attention for any hint of future monetary policy and his economic outlook. His words can move the markets.
Reports from fellow mortgage professionals indicate lender rate sheets to be similar to late 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. If you are securing a government loan, par is also in the 4.75% to 5.00% range with higher costs but much lower credit score requirements.
This morning we are seeing very nice rate sheets from lenders. My advice would be to lock any loan closing and funding in the next 30 days. Same exception as last week… if you are one day away from a shorter lock term, than I would float and lock tomorrow to take advantage of the better pricing a shorter lock period offers.
If you are sitting on the fence hoping for lower rates, I would strongly encourage you to get moving now. Lenders continue to be reluctant to lower rates below 4.75%. Additionally, these low rates will not stay around forever.
The economic data this morning started early with the release of the weekly Mortgage Bankers’ Associations Application Index. The MBA survey covers over 50 percent of all US residential mortgage loan applications taken by mortgage bankers, commercial banks, and thrifts. The data gives economists a look into consumer demand for mortgage loans. A rising trend of mortgage applications indicates an increase in home buying interest, a positive for the housing industry and economy as a whole. Furthermore, in a low mortgage rate environment, such a trend implies consumers are seeking out lower monthly payments which can result in increased disposable income and therefore more money to spend on discretionary items or to pay down other debt.
The prior two weeks reports indicated big gains in applications as home owners rushed to take advantage of current rates and home buyers hurried to beat the deadline for the tax credit. Today’s report, though, indicated a decline in both purchase and refinance activity. The purchase index declined 2.3% while the refinance index dropped 1.7% during the week of March 12.
The only other data to hit the news wires was the release of the Producer Price Index. PPI measures the changes in prices that manufacturers and wholesalers pay for goods during different stages of production. If businesses have to pay more for the materials they use to produce their widgets …they may be forced to pass along those additional costs to you…the consumer. Although inflation at the producer level does not always lead to higher prices paid by consumers, as producers are reluctant to pass along higher costs during bad economic times. As stated before, inflation is one of the largest enemies of low interest rates.
The release indicated that inflation at the producer level was much lower than expected. Month over month, overall prices paid by producers dropped 0.6% when only a 0.2% decline was expected. The more important core rate, which strips out and food and energy from the numbers, came in right on expectations with a month over month 0.1% increase. We have another report confirming that inflation is not a concern. Despite the much larger than expected decline in overall prices, the bond market made no noticeable move following the release. This was due to the core rate coming in right on expectations.
At 2pm eastern, Fed Chairman Ben Bernanke will be speaking before the Committee on Financial Services on “Banking Supervision”. Anytime Mr. Bernanke speaks market participants pay attention for any hint of future monetary policy and his economic outlook. His words can move the markets.
Reports from fellow mortgage professionals indicate lender rate sheets to be similar to late 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. If you are securing a government loan, par is also in the 4.75% to 5.00% range with higher costs but much lower credit score requirements.
This morning we are seeing very nice rate sheets from lenders. My advice would be to lock any loan closing and funding in the next 30 days. Same exception as last week… if you are one day away from a shorter lock term, than I would float and lock tomorrow to take advantage of the better pricing a shorter lock period offers.
If you are sitting on the fence hoping for lower rates, I would strongly encourage you to get moving now. Lenders continue to be reluctant to lower rates below 4.75%. Additionally, these low rates will not stay around forever.
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