Mortgage Rates Hold Steady as FOMC Meeting Begins

We had a pretty boring day in the fixed income markets yesterday. The prices of mortgage backed securities had a brief period of weakness around noon, but quickly recaptured the losses to close basically where they began the day. The lack of volatility allowed lenders to keep mortgage rates unchanged on the day.

Today is the first day of the Federal Open Market Committee’s two day meeting where our nation’s monetary policy is set. These meetings occur eight times a year and are considered one the most influential events for all markets. At these meetings, the Fed sets the federal funds rate which serves as a benchmark for all other rates. Currently, the fed fund rate sits in a range of 0% to 0.25%, it is widely accepted that there will be no change to that rate. On day one, nothing much happens publically, but tomorrow we will get the Fed statement at 2:15pm eastern where they will announce any change to the fed fund rate, give an economic outlook and announce any changes to Fed policies.

S&P/Case Shiller released their monthly Home Price Index this morning. This data tracks the monthly change in the value of residential real estate across the United States. Many economists believe that until home prices start to stabilize and rise, it will be extremely difficult for our economy to sustain acceptable growth. This makes tracking home sales data much more important than usual. During periods of declining home values, consumers are much more likely to save money and pay off debt as they watch the value of the largest investment depreciate. Rising home values encourages new construction, remodeling, etc… which increases consumer spending and benefits the overall economy. Recent reports from Case Shiller have shown home price depreciation easing with some cities posting positive monthly gains.

Last month’s report indicated home prices rose in January… this report has a two month lag. The 20 city index posted a +0.3% increase while the 10 city index rose +0.4%. Twelve of the 20 cities posted month over month price gains with Los Angeles leading the way with a +1.8% increase. Today’s release indicated a pull back in home values with a month over month decline of -0.9% more than economists expected. Year over year, home prices posted a monthly gain of +0.6% also less than the +1.9% increase expected. This is the first year over year increase in home prices since December 2006. Eleven of the twenty cities from the index showed a year over year decline with Las Vegas leading the way posting a -15% decline in home prices. San Francisco led the gains with a year over year price increase of +12%. Unlike last month when 12 of the 20 cities posted monthly gains, this report showed 19 cities posting price declines. Not much reaction in the markets following this worse than expected report, but MBS are holding onto early morning price gains which should be reflected in better looking rate sheets this morning.

Our final data release for the day gives us a measure on how you the consumer is feeling with the Consumer Confidence report. This is a survey conducted by the Conference Board of consumers regarding their present economic attitude and their expectations of future economic conditions. Since our economy is driven by consumer spending, market participants track consumer confidence to get a gauge on how the consumer is feeling. An optimistic consumer is much more likely to spend money while a pessimistic consumer is more likely to save or pay off debt.

Last month’s report indicated a rebound in confidence moving from 46.0 in February to 52.5. Economists surveyed prior to this morning’s release expected that trend to continue with a reading of 54.0. Today’s release indicated continued improvement with consumer attitudes registering a 57.9, the highest reading since September 2008. Following the release of this better than expected data, MBS have given back

At 1pm eastern, the Department of Treasury will announce the results of today’s auction of $44billion of 2 year notes. If demand for our nation’s debt is weak, mortgage rates will be pressured higher as benchmark treasury yields move higher to attract buyers.

Reports from fellow mortgage professionals indicate lender rate sheets are slightly improved this morning due to early price gains with MBS this morning. The par 30 year conventional rate mortgage remains in the 4.875% to 5.125% range for well qualified consumers. 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. If you have lower FICO scores or higher loan to value, you should consider a government FHA loan which offers similar rates as conventional, but with higher costs.

Due to weakness in overseas equities, the fixed income sector is seeing money flow into it this morning. This mini rally has brought MBS to the top of the recent range which has triggered my lock alert following the strategy of “lock the price highs, float the loans”. With some potentially high impacting reports and events in the coming days, I favor locking all loans closing within the next 30 days. In my opinion, even if all the events go our way, mortgage rates have very little room to move lower but plenty of room to move higher.