Mortgage Rates Stabilize at Low’s of Year, Let’s Float
Posted 03-26-2010 at 08:22 AM by VictorBurek
At the open yesterday, it appeared mortgage rates were destined to move even higher. Mortgage backed securities and their closest relative, US Treasuries, were both under pressure yesterday to move lower in price which raises treasury yields and mortgage rates. That downward pressure continued following another disappointing treasury auction which saw less demand than expected. Many lenders did reprice for the worse. However, during afternoon trading buyers stepped in and MBS managed to regain all of the day’s losses which led to some lenders repricing better giving back what they took away earlier in the day.
This morning the US Department of Commerce released the final reading of fourth quarter Gross Domestic Product(GDP). GDP is the broadest measure of total economic activity and includes every sector of our economy. It is basically our economy’s score card. A rapidly growing economy usually leads to inflation, so the bond market prefers slower growth while the stock market generally benefits from faster growth. The initial reading indicated our economy grew 5.7% with the first revision we received last month indicating an even higher rate at an overall pace of 5.9% which was much better than economists had originally forecasted.
Today’s released showed that our economy grew less than first thought last quarter. Economists had expected today’s report to show our economy grew at 5.9% matching last month’s revised reading, but the report indicated a growth rate of only 5.6%. This is still the fastest growth we’ve seen in six years. For 2009, our economy contracted 2.4% which is the worst single year performance since 1946. Included within this report is the Fed’s favorite gauge of inflation, the Personal Consumption Expenditure(PCE). It continues to show inflation to be of no concern today but there was a slight uptick in the readings. The overall PCE index rose 2.5% versus the first reported increase in prices of 2.3%. The more important core rate which strips out food and energy posted an increase to 1.8% from the first reported 1.6% increase.
Our final economic report for the week comes from the University of Michigan’s Consumer Survey Center. They question 500 households each month on their personal financial conditions and attitudes about the economy. An optimistic consumer is more likely to spend which benefits stocks. A pessimistic consumer is more likely to save, which benefits the bond market. The initial report for March indicated consumers becoming more pessimistic with the index slipping from 73.6 in February to 72.5. Economists expected March’s final print to indicate an improvement in consumer attitudes with a read of 73.0. The actual number showed consumer sentiment improving more than expected with a read of 73.6.
Reports from fellow mortgage professionals indicate lender rate sheets to be similar to yesterday morning. The par 30 year conventional rate mortgage is holding in the 5.00% to 5.25% range for well qualified consumers. There are still a few lenders offering par at 4.875%. 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. You may elect to pay less in costs but you will have to accept a higher interest rate.
If you can lock in today at 4.875% with acceptable fees, you should strongly consider locking. If your lender is offering 5.00% or higher, I feel it is worth the risk to float. This is the strategy of lock at the price highs, float the lows which has worked very well this year. MBS price is at the lows of the year and a rebound is very possible but we need to give it some time. I continue to believe 4.75% is the lowest rate we shall see this year. With the upcoming end of the Fed’s MBS purchase program and the seemingly unending supply of treasuries coming to market, we may not see 4.75% again but a dip in rates from present levels is possible. If you can stomach the ride, lets cautiously float.
Have a great weekend!
This morning the US Department of Commerce released the final reading of fourth quarter Gross Domestic Product(GDP). GDP is the broadest measure of total economic activity and includes every sector of our economy. It is basically our economy’s score card. A rapidly growing economy usually leads to inflation, so the bond market prefers slower growth while the stock market generally benefits from faster growth. The initial reading indicated our economy grew 5.7% with the first revision we received last month indicating an even higher rate at an overall pace of 5.9% which was much better than economists had originally forecasted.
Today’s released showed that our economy grew less than first thought last quarter. Economists had expected today’s report to show our economy grew at 5.9% matching last month’s revised reading, but the report indicated a growth rate of only 5.6%. This is still the fastest growth we’ve seen in six years. For 2009, our economy contracted 2.4% which is the worst single year performance since 1946. Included within this report is the Fed’s favorite gauge of inflation, the Personal Consumption Expenditure(PCE). It continues to show inflation to be of no concern today but there was a slight uptick in the readings. The overall PCE index rose 2.5% versus the first reported increase in prices of 2.3%. The more important core rate which strips out food and energy posted an increase to 1.8% from the first reported 1.6% increase.
Our final economic report for the week comes from the University of Michigan’s Consumer Survey Center. They question 500 households each month on their personal financial conditions and attitudes about the economy. An optimistic consumer is more likely to spend which benefits stocks. A pessimistic consumer is more likely to save, which benefits the bond market. The initial report for March indicated consumers becoming more pessimistic with the index slipping from 73.6 in February to 72.5. Economists expected March’s final print to indicate an improvement in consumer attitudes with a read of 73.0. The actual number showed consumer sentiment improving more than expected with a read of 73.6.
Reports from fellow mortgage professionals indicate lender rate sheets to be similar to yesterday morning. The par 30 year conventional rate mortgage is holding in the 5.00% to 5.25% range for well qualified consumers. There are still a few lenders offering par at 4.875%. 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. You may elect to pay less in costs but you will have to accept a higher interest rate.
If you can lock in today at 4.875% with acceptable fees, you should strongly consider locking. If your lender is offering 5.00% or higher, I feel it is worth the risk to float. This is the strategy of lock at the price highs, float the lows which has worked very well this year. MBS price is at the lows of the year and a rebound is very possible but we need to give it some time. I continue to believe 4.75% is the lowest rate we shall see this year. With the upcoming end of the Fed’s MBS purchase program and the seemingly unending supply of treasuries coming to market, we may not see 4.75% again but a dip in rates from present levels is possible. If you can stomach the ride, lets cautiously float.
Have a great weekend!
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Comments
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Lenders already repricing better... keep floating.Posted 03-26-2010 at 10:24 AM by VictorBurek
