Mortgage Rates Holding At Best Levels, Locking
Posted 03-18-2010 at 08:24 AM by VictorBurek
The economic data released yesterday was favorable for the fixed income markets but were lower tier reports that were unable to push mortgage rates lower. Mortgage backed securities moved sideways most of the day closing just a mere tick above where they opened. Some lenders that issued weaker rate sheets early in the morning, did reprice better but most lenders left rate sheets unchanged on the day.
The economic calendar is packed today.
The Bureau of Labor Statistics released the Consumer Price Index this morning. This index measures the price change of a fixed basket of goods and services purchased by consumers, also known as inflation, the enemy of interest rates. Yesterday’s Producer Price Index report showed no inflation on the wholesale level. When judging inflation, we tend to consider consumer prices to be much more important than producer price levels. During periods of bad economic times, producers find it difficult to pass along higher prices to the end consumer which makes tracking consumer inflation reports much more important.
Today’s release also shows inflation to be in check. Overall consumer prices were unchanged month over month beating expectations of a 0.1% increase in prices. The more important core rate, which strips out food and energy from the reading, came in right on expectations with a month over month increase of 0.1%. Year over year, overall consumer prices are up a modest 2.2% with core prices up only 1.3%. With inflation not a worry, the Fed should be able to maintain the current accommodative monetary policy for an “extended period” as they have stated in their FOMC Statement.
Released at the same time was the weekly jobless claims. This report provides three measures on the health of the labor market:
1. Initial Jobless Claims: totals the number of Americans who filed for first time unemployment benefits
2. Continued Claims: totals the number of Americans who continue to file for benefits due to an inability to find a new job
3. Extended Benefits: totals the number of Americans who have exhausted their traditional benefits and are now receiving emergency benefits
Since our economy is driven by consumer spending, economists track employment data to get a sense of future economic momentum. Higher jobless claims leads to less consumer spending which is bad for the overall economy but generally helps mortgage rates move lower. The prior two week’s reports came in right on expectations. Today’s release indicated 457,000 Americans filed for Initial Jobless Claims, slightly more than the 455,000 that was expected. This is a decline of 5000 from the prior week. Continued claims rose by 12,000 to 4.58million while the number of Americans receiving emergency Extended Benefits increased 352,800 to 6.04million. That is a record high!!!
The next report of the day came from the Conference Board: Leading Indicators. This is a composite index of 10 economic indicators that are expected to provide a forward looking indication of economic activity. If the month over month change is positive, it indicates the economy is improving. Most of the components of this report have already been released so this doesn’t give us much new information. Economists were expecting an increase of 0.1% following last month’s 0.3% increase, and that is what we got.
The final report of the day gives us a measure of the strength of manufacturing in the Philadelphia region. When this report shows a reading above 0 it indicates improving conditions while readings below 0 indicate contraction. Recent readings have shown continued improving conditions with last month’s report coming in higher than expected at 17.0. Today’s release indicated a reading of 18.9 slightly higher than the 18.0 that was expected. We have another report indicating an improving economy despite very high unemployment.
Also of note today was the announcement from the Department of Treasury of the size of next week’s offering of U.S. debt. When our government doesn’t have the money to pay for spending, they borrow money by issuing Treasuries. The added supply of debt on the market can pressure both treasury and mortgage yields higher. Market participants expected today’s announced sized of 2 year, 5 year and 7 year notes to match the last offering totaling $118billion. The announcement came in as expected with $44billion of 2 year notes coming to market next Tuesday, $42billion of 5 year notes being offered on Wednesday and $32billion of 7 year notes coming on Thursday.
Reports from fellow mortgage professionals indicate lender rate sheets to be 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 of 80% or less and pay all closing costs including an estimated one point loan origination/discount/broker fee. If you are seeking a 5 year adjustable rate mortgage, you should expect a par interest rate in the 3.375% to 3.625% range with similar qualifications and costs. ARMS are a great option for consumers who know they will not be keeping their current home for many years, but they do come with more risk. Consult with your mortgage professional as to the best mortgage option for you and your family.
I have said many times in the past that you should lock at the price highs of MBS and float the lows. Yesterday, MBS were near their highest price levels of the year thus I favored locking all loans closing within 30 days. MBS are a few ticks lower today but still very close to the price highs so I will continue to advise readers and clients to lock. Lenders and market participants continue to show they have no desire to drive MBS higher in price which would lead to lower mortgage rates. The only floaters should be consumers a day away from locking on a shorter lock.
The economic calendar is packed today.
The Bureau of Labor Statistics released the Consumer Price Index this morning. This index measures the price change of a fixed basket of goods and services purchased by consumers, also known as inflation, the enemy of interest rates. Yesterday’s Producer Price Index report showed no inflation on the wholesale level. When judging inflation, we tend to consider consumer prices to be much more important than producer price levels. During periods of bad economic times, producers find it difficult to pass along higher prices to the end consumer which makes tracking consumer inflation reports much more important.
Today’s release also shows inflation to be in check. Overall consumer prices were unchanged month over month beating expectations of a 0.1% increase in prices. The more important core rate, which strips out food and energy from the reading, came in right on expectations with a month over month increase of 0.1%. Year over year, overall consumer prices are up a modest 2.2% with core prices up only 1.3%. With inflation not a worry, the Fed should be able to maintain the current accommodative monetary policy for an “extended period” as they have stated in their FOMC Statement.
Released at the same time was the weekly jobless claims. This report provides three measures on the health of the labor market:
1. Initial Jobless Claims: totals the number of Americans who filed for first time unemployment benefits
2. Continued Claims: totals the number of Americans who continue to file for benefits due to an inability to find a new job
3. Extended Benefits: totals the number of Americans who have exhausted their traditional benefits and are now receiving emergency benefits
Since our economy is driven by consumer spending, economists track employment data to get a sense of future economic momentum. Higher jobless claims leads to less consumer spending which is bad for the overall economy but generally helps mortgage rates move lower. The prior two week’s reports came in right on expectations. Today’s release indicated 457,000 Americans filed for Initial Jobless Claims, slightly more than the 455,000 that was expected. This is a decline of 5000 from the prior week. Continued claims rose by 12,000 to 4.58million while the number of Americans receiving emergency Extended Benefits increased 352,800 to 6.04million. That is a record high!!!
The next report of the day came from the Conference Board: Leading Indicators. This is a composite index of 10 economic indicators that are expected to provide a forward looking indication of economic activity. If the month over month change is positive, it indicates the economy is improving. Most of the components of this report have already been released so this doesn’t give us much new information. Economists were expecting an increase of 0.1% following last month’s 0.3% increase, and that is what we got.
The final report of the day gives us a measure of the strength of manufacturing in the Philadelphia region. When this report shows a reading above 0 it indicates improving conditions while readings below 0 indicate contraction. Recent readings have shown continued improving conditions with last month’s report coming in higher than expected at 17.0. Today’s release indicated a reading of 18.9 slightly higher than the 18.0 that was expected. We have another report indicating an improving economy despite very high unemployment.
Also of note today was the announcement from the Department of Treasury of the size of next week’s offering of U.S. debt. When our government doesn’t have the money to pay for spending, they borrow money by issuing Treasuries. The added supply of debt on the market can pressure both treasury and mortgage yields higher. Market participants expected today’s announced sized of 2 year, 5 year and 7 year notes to match the last offering totaling $118billion. The announcement came in as expected with $44billion of 2 year notes coming to market next Tuesday, $42billion of 5 year notes being offered on Wednesday and $32billion of 7 year notes coming on Thursday.
Reports from fellow mortgage professionals indicate lender rate sheets to be 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 of 80% or less and pay all closing costs including an estimated one point loan origination/discount/broker fee. If you are seeking a 5 year adjustable rate mortgage, you should expect a par interest rate in the 3.375% to 3.625% range with similar qualifications and costs. ARMS are a great option for consumers who know they will not be keeping their current home for many years, but they do come with more risk. Consult with your mortgage professional as to the best mortgage option for you and your family.
I have said many times in the past that you should lock at the price highs of MBS and float the lows. Yesterday, MBS were near their highest price levels of the year thus I favored locking all loans closing within 30 days. MBS are a few ticks lower today but still very close to the price highs so I will continue to advise readers and clients to lock. Lenders and market participants continue to show they have no desire to drive MBS higher in price which would lead to lower mortgage rates. The only floaters should be consumers a day away from locking on a shorter lock.
Total Comments 0
