Mortgage Rates Continue to Improve as Greece Worries Extend
Posted 05-05-2010 at 08:36 AM by VictorBurek
Happy Cinco de Mayo!
Benchmark Treasuries and mortgage backed securities continued to move higher in price, lower in yield yesterday as worries over Greece continue. The economic data from yesterday was rather positive but the “flight to safety” trade continued nonetheless. Despite the price gains with MBS, lenders held rate sheets steady on the day but we should receive better pricing this morning.
We do have some economic data to discuss this morning, but Greece remains in the spotlight as some of their citizens are rioting over budget cuts, and higher taxes.
At 7am eastern, the Mortgage Bankers Association released the Weekly Mortgage Applications Survey. 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.
Nothing shocking from today’s release. Purchase applications continued to post increases thanks to the Home Buyer Tax credit while refinance applications continue to decline. Purchase applications in the last week of April and the last week of the Home Buyer Tax credit posted a 13.0% increase while refinance applications declined -2.1% as most qualified home owners have already taken advantage of low rates with a refinance. Next week’s report should be quite interesting as it will be the first one without government stimulus in affect.
Next came a preview into the health of the labor market ahead of the official government data, which is due out this Friday....the ADP Employment Report. Historically, the ADP report has varied greatly from the official report, however its accuracy has been improving more recently. The biggest difference between the two jobs report is the ADP numbers do not take into account government hiring, only the private sector. Since our economy is driven by consumer spending, higher unemployment would indicate less consumer demand and spending, a negative for corporate profits. Investors tend to sell stocks when unemployment is high in favor of the safety of risk free Treasuries.
This morning’s release came in basically where expected showing that we added 32,000 private sector jobs last month. With the preview over, all eyes will be focused on the official government report due out Friday morning. Economists are expecting payrolls to gain 200,000 jobs thanks to government hiring of temporary census workers. The unemployment rate is expected to decline to 9.6% from 9.7%.
At 9am, the Department of Treasury announced the size of next week’s debt offering. They will offer $38billion of 3 year notes, $24billion of 10 year notes and $16billion of 30 year bonds. The supply of 3 year notes is $2billion less than the November and February refunding, the 10 year supply is $1billion less while the bond supply is the same. As our economy has been improving, tax revenue is increasing which should allow for a lesser supply of treasuries in the future.
Our final release this morning was the ISM Non-Manufacturing index. The Institute for Supply Management(ISM) surveys 400 firms including mining, construction, retail, etc… on the strength of business conditions. Readings above 50 indicate improving conditions while readings below 50 imply contraction or worsening conditions. Last month’s report came in higher than expected, registering a print of 55.4 for the fourth consecutive monthly increase in non-manufacturing business conditions. Today’s release matched last month at 55.4 slightly lower than expectations.
Reports from fellow mortgage professionals indicate lender rate sheets to be improved. The par 30 year conventional rate mortgage remains in the 4.875% to 5.125% range but several more lenders are offering 4.75%. 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 values, you should consider a government loan which offers the same rates as conventional with higher costs.
We have seen several days in a row of improving lender pricing thanks to the sovereign debt concerns with Greece and other European countries. At some point this is going to come to a conclusion which will probably result in the unwinding of the “flight to safety” trade that has benefited mortgage rates recently. Once that happens, we will probably see a sizeable move lower in price with fixed income investments which increases mortgage rates. I continue to favor locking all loans closing within 30 days as I feel rates have very little room to continue to improve and the likelihood of a correction which increases rates is high. In addition, we have the Employment Situation report coming on Friday which can impact the markets in a big way… especially if better than expected. Again, much to risk with very little to gain and it is always better to lock when you should have floated than it is to float when you should have locked.
Benchmark Treasuries and mortgage backed securities continued to move higher in price, lower in yield yesterday as worries over Greece continue. The economic data from yesterday was rather positive but the “flight to safety” trade continued nonetheless. Despite the price gains with MBS, lenders held rate sheets steady on the day but we should receive better pricing this morning.
We do have some economic data to discuss this morning, but Greece remains in the spotlight as some of their citizens are rioting over budget cuts, and higher taxes.
At 7am eastern, the Mortgage Bankers Association released the Weekly Mortgage Applications Survey. 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.
Nothing shocking from today’s release. Purchase applications continued to post increases thanks to the Home Buyer Tax credit while refinance applications continue to decline. Purchase applications in the last week of April and the last week of the Home Buyer Tax credit posted a 13.0% increase while refinance applications declined -2.1% as most qualified home owners have already taken advantage of low rates with a refinance. Next week’s report should be quite interesting as it will be the first one without government stimulus in affect.
Next came a preview into the health of the labor market ahead of the official government data, which is due out this Friday....the ADP Employment Report. Historically, the ADP report has varied greatly from the official report, however its accuracy has been improving more recently. The biggest difference between the two jobs report is the ADP numbers do not take into account government hiring, only the private sector. Since our economy is driven by consumer spending, higher unemployment would indicate less consumer demand and spending, a negative for corporate profits. Investors tend to sell stocks when unemployment is high in favor of the safety of risk free Treasuries.
This morning’s release came in basically where expected showing that we added 32,000 private sector jobs last month. With the preview over, all eyes will be focused on the official government report due out Friday morning. Economists are expecting payrolls to gain 200,000 jobs thanks to government hiring of temporary census workers. The unemployment rate is expected to decline to 9.6% from 9.7%.
At 9am, the Department of Treasury announced the size of next week’s debt offering. They will offer $38billion of 3 year notes, $24billion of 10 year notes and $16billion of 30 year bonds. The supply of 3 year notes is $2billion less than the November and February refunding, the 10 year supply is $1billion less while the bond supply is the same. As our economy has been improving, tax revenue is increasing which should allow for a lesser supply of treasuries in the future.
Our final release this morning was the ISM Non-Manufacturing index. The Institute for Supply Management(ISM) surveys 400 firms including mining, construction, retail, etc… on the strength of business conditions. Readings above 50 indicate improving conditions while readings below 50 imply contraction or worsening conditions. Last month’s report came in higher than expected, registering a print of 55.4 for the fourth consecutive monthly increase in non-manufacturing business conditions. Today’s release matched last month at 55.4 slightly lower than expectations.
Reports from fellow mortgage professionals indicate lender rate sheets to be improved. The par 30 year conventional rate mortgage remains in the 4.875% to 5.125% range but several more lenders are offering 4.75%. 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 values, you should consider a government loan which offers the same rates as conventional with higher costs.
We have seen several days in a row of improving lender pricing thanks to the sovereign debt concerns with Greece and other European countries. At some point this is going to come to a conclusion which will probably result in the unwinding of the “flight to safety” trade that has benefited mortgage rates recently. Once that happens, we will probably see a sizeable move lower in price with fixed income investments which increases mortgage rates. I continue to favor locking all loans closing within 30 days as I feel rates have very little room to continue to improve and the likelihood of a correction which increases rates is high. In addition, we have the Employment Situation report coming on Friday which can impact the markets in a big way… especially if better than expected. Again, much to risk with very little to gain and it is always better to lock when you should have floated than it is to float when you should have locked.
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