Record US Debt Offering Pushes Rates Higher
Posted 04-23-2010 at 08:17 AM by VictorBurek
Following a couple days of positive progress, mortgage rates came under pressure yesterday after the Department of Treasury announced the largest amount of US debt offering for a single week. The added supply of debt on the market pressured both treasuries and mortgage backed securities to move lower in price which increases yields and mortgage rates. All lenders did reprice worse as the losses continued to close. Hopefully you locked in your rate yesterday as our strategy of “lock the price highs, float the lows” has held true once again.
Our week wraps up with two data releases. First out this morning was the monthly Durable Goods Order report. This report 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. Increasing orders implies there is the potential for higher corporate profits and maybe the need to hire additional staff for a growing operation. This is good for the overall economy and stocks...but a negative for the fixed income sector/interest rates.
Following three consecutive reports showing durable orders improving, today’s release gave us mixed results. New orders were expected to post a monthly gain of +0.5% but the report indicated orders fell -1.3%. However, when excluding transportation orders, the report indicated a much larger than expected gain of +2.8%...economists had only expected a +0.7% gain. The jump in ex-transportation orders was the largest monthly gain since December 2007! Before the release, treasury and MBS yields were moving lower, but the mixed results has eased the slide and hopefully have found support at present levels. The early morning weakness will result in worse rate sheets this morning.
Our final data release for the week gives us another look into the housing sector. The Department of Commerce released the monthly New Home Sales report. This report measures the number of new homes which have a committed sale during the month. A “sale” is defined as a deposit taken or sales agreement signed. Many believe that until housing recovers, it will be difficult for our economy to sustain any normal growth which makes tracking home sales data of more importance today than in past years.
Yesterday’s existing home sales report was quite positive indicating a 6.8% increase in sales. Economists surveyed prior to this morning’s release expected new home sales to increase from the 308,000 annualized pace last month to 325,000. New home sales have moved lower in 8 of the last 9 months. With a glut of existing homes on the market, it is not a bad thing to see new home sales moving lower.
The release indicates New Home Sales for March blew away expectations coming in at an annualized pace of 411,000! Year over year, new home sales are up +26.9%, the largest increase since 1963. It appears buyers are rushing to beat the deadline for the home buyer tax credit. The average price of a new home moved higher by +4.3% to $214,000. The supply of new homes available dropped from last month’s 8.6 month supply to only 6.7 months which is the lowest level since December 2007.
Reports from fellow mortgage professionals do indicate lender rate sheets to be worse this morning increasing consumer costs. The par 30 year conventional rate mortgage is holding in the 4.875% to 5.125% range for well qualified consumers. The lenders offering 4.75% yesterday, have increased to 4.875% this morning. To secure a par interest rate on a conventional mortgage 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. From yesterday to this morning, consumer costs have risen by .375% meaning if you were quoted a rate with 1 point yesterday, you will have to pay 1.375% points today.
If you are still floating, lets continue to float for the weekend. Since we are off the price highs, and approaching the price lows, lets see if our strategy will hold true once again. Additionally, lenders tend to be conservative with pricing on a Friday so I feel even if we move a little lower today, you should be able to secure the same rate on Monday. Lender rate sheets this morning do show a much larger drop in pricing than current MBS price justifies.
Have a great weekend, be back to you Monday morning with a look at the week ahead. We have a busy week next week including the Federal Open Market Committee meeting where they set our nation’s monetary policy. No data on Monday.
Our week wraps up with two data releases. First out this morning was the monthly Durable Goods Order report. This report 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. Increasing orders implies there is the potential for higher corporate profits and maybe the need to hire additional staff for a growing operation. This is good for the overall economy and stocks...but a negative for the fixed income sector/interest rates.
Following three consecutive reports showing durable orders improving, today’s release gave us mixed results. New orders were expected to post a monthly gain of +0.5% but the report indicated orders fell -1.3%. However, when excluding transportation orders, the report indicated a much larger than expected gain of +2.8%...economists had only expected a +0.7% gain. The jump in ex-transportation orders was the largest monthly gain since December 2007! Before the release, treasury and MBS yields were moving lower, but the mixed results has eased the slide and hopefully have found support at present levels. The early morning weakness will result in worse rate sheets this morning.
Our final data release for the week gives us another look into the housing sector. The Department of Commerce released the monthly New Home Sales report. This report measures the number of new homes which have a committed sale during the month. A “sale” is defined as a deposit taken or sales agreement signed. Many believe that until housing recovers, it will be difficult for our economy to sustain any normal growth which makes tracking home sales data of more importance today than in past years.
Yesterday’s existing home sales report was quite positive indicating a 6.8% increase in sales. Economists surveyed prior to this morning’s release expected new home sales to increase from the 308,000 annualized pace last month to 325,000. New home sales have moved lower in 8 of the last 9 months. With a glut of existing homes on the market, it is not a bad thing to see new home sales moving lower.
The release indicates New Home Sales for March blew away expectations coming in at an annualized pace of 411,000! Year over year, new home sales are up +26.9%, the largest increase since 1963. It appears buyers are rushing to beat the deadline for the home buyer tax credit. The average price of a new home moved higher by +4.3% to $214,000. The supply of new homes available dropped from last month’s 8.6 month supply to only 6.7 months which is the lowest level since December 2007.
Reports from fellow mortgage professionals do indicate lender rate sheets to be worse this morning increasing consumer costs. The par 30 year conventional rate mortgage is holding in the 4.875% to 5.125% range for well qualified consumers. The lenders offering 4.75% yesterday, have increased to 4.875% this morning. To secure a par interest rate on a conventional mortgage 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. From yesterday to this morning, consumer costs have risen by .375% meaning if you were quoted a rate with 1 point yesterday, you will have to pay 1.375% points today.
If you are still floating, lets continue to float for the weekend. Since we are off the price highs, and approaching the price lows, lets see if our strategy will hold true once again. Additionally, lenders tend to be conservative with pricing on a Friday so I feel even if we move a little lower today, you should be able to secure the same rate on Monday. Lender rate sheets this morning do show a much larger drop in pricing than current MBS price justifies.
Have a great weekend, be back to you Monday morning with a look at the week ahead. We have a busy week next week including the Federal Open Market Committee meeting where they set our nation’s monetary policy. No data on Monday.
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