Mortgage Rates Hold onto Gains, Locking
Posted 05-06-2010 at 08:10 AM by VictorBurek
The panic driven gains seen in bonds over the debt crisis in Europe, subsided somewhat yesterday. Following a higher opening for mortgage backed securities, lenders offered close to the best rate sheets we have seen this year. As the day progressed, both benchmark treasuries and MBS moved sideways closing near opening levels. All lenders left rate sheets unchanged on the day.
This morning the Department of Labor released the weekly Jobless Claims. This data 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 and Emergency Benefits: totals the number of Americans who have exhausted their traditional benefits and are now receiving extended and 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 lead to less consumer spending, which is bad for the overall economy but generally helpful in keeping mortgage rates from rising. The last couple reports have shown initial claims moving lower and economist expect that trend to continue with today’s report.
The report showed initial claims for the week ending April 30 fell to 444,000 in line with expectations and continuing the streak of lower claims. The prior week’s numbers were revised worse from the first reported 448,000 to 451,000 claims. The Labor Department did warn that bad weather across the middle of the country, the floods, might have distorted the report. They had to estimate the claims from Tennessee instead of getting actual numbers. Continued claims fell 59,000 to 4.59 million also in line with expectations. The number of Americans who are collecting Extended and Emergency Benefits rose 153,000 to 5.56million indicating those without a job continue to struggle finding new employment.
Released at the same time was the Productivity and Costs Report for the first quarter of this year. This data measures how efficient our work force is at producing our nation’s goods and services. A more productive work force means employers do not need to hire additional staff to increase production, while unit labor costs measures the labor cost of producing each unit of output. Higher productivity lowers the unit cost of producing goods and services which helps to keep inflation in check.
The release indicated productivity improved more than expected at +3.6% while unit labor costs declined more than expected by -1.6%. Higher productivity should help increase corporate profits which benefits the stock market while lower labor costs benefits bonds as it keeps inflationary pressures in check. In times of high unemployment, people tend to work harder for fear of losing their job which can be seen in the productivity numbers. Additionally, as workers are more productive employers have less need to hire additional staff which will have negative effects on hiring in the future. This isn’t great news for those without a job.
Reports from fellow mortgage professionals indicate lender rate sheets to be similar to slightly better than yesterday as lenders have passed along more of the price gains. Lenders are very quick to take away when MBS are falling price but very slow to pass along improvements. The par 30 year conventional rate mortgage is in the 4.75% to 5.00% 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. You may elect to pay less in fees, but you will have to accept a higher interest rate.
All data is past us and all eyes will be focused on tomorrows Employment Situation Report. Economists are expecting 200,000 jobs to have been created last month and the unemployment rate dropping to 9.6% from its current 9.7% rate. This report usually has a large impact on the markets but with concerns in Greece and Europe it may not have as big an impact. However, me for one is not going to risk it as I am advising all my personal clients that are not locked yet to lock today ahead of that report.
In my opinion, there is no benefit of floating into tomorrow’s Employment Situation report. If you are within 30 days of closing, get locked up today. I am not a fan of recommending longer term locks, but you may even consider locking if you are within 45 days but it will cost a little more. We are seeing about the best rates sheets of 2010 and I continue to believe rates will not move any lower than present levels.
This morning the Department of Labor released the weekly Jobless Claims. This data 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 and Emergency Benefits: totals the number of Americans who have exhausted their traditional benefits and are now receiving extended and 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 lead to less consumer spending, which is bad for the overall economy but generally helpful in keeping mortgage rates from rising. The last couple reports have shown initial claims moving lower and economist expect that trend to continue with today’s report.
The report showed initial claims for the week ending April 30 fell to 444,000 in line with expectations and continuing the streak of lower claims. The prior week’s numbers were revised worse from the first reported 448,000 to 451,000 claims. The Labor Department did warn that bad weather across the middle of the country, the floods, might have distorted the report. They had to estimate the claims from Tennessee instead of getting actual numbers. Continued claims fell 59,000 to 4.59 million also in line with expectations. The number of Americans who are collecting Extended and Emergency Benefits rose 153,000 to 5.56million indicating those without a job continue to struggle finding new employment.
Released at the same time was the Productivity and Costs Report for the first quarter of this year. This data measures how efficient our work force is at producing our nation’s goods and services. A more productive work force means employers do not need to hire additional staff to increase production, while unit labor costs measures the labor cost of producing each unit of output. Higher productivity lowers the unit cost of producing goods and services which helps to keep inflation in check.
The release indicated productivity improved more than expected at +3.6% while unit labor costs declined more than expected by -1.6%. Higher productivity should help increase corporate profits which benefits the stock market while lower labor costs benefits bonds as it keeps inflationary pressures in check. In times of high unemployment, people tend to work harder for fear of losing their job which can be seen in the productivity numbers. Additionally, as workers are more productive employers have less need to hire additional staff which will have negative effects on hiring in the future. This isn’t great news for those without a job.
Reports from fellow mortgage professionals indicate lender rate sheets to be similar to slightly better than yesterday as lenders have passed along more of the price gains. Lenders are very quick to take away when MBS are falling price but very slow to pass along improvements. The par 30 year conventional rate mortgage is in the 4.75% to 5.00% 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. You may elect to pay less in fees, but you will have to accept a higher interest rate.
All data is past us and all eyes will be focused on tomorrows Employment Situation Report. Economists are expecting 200,000 jobs to have been created last month and the unemployment rate dropping to 9.6% from its current 9.7% rate. This report usually has a large impact on the markets but with concerns in Greece and Europe it may not have as big an impact. However, me for one is not going to risk it as I am advising all my personal clients that are not locked yet to lock today ahead of that report.
In my opinion, there is no benefit of floating into tomorrow’s Employment Situation report. If you are within 30 days of closing, get locked up today. I am not a fan of recommending longer term locks, but you may even consider locking if you are within 45 days but it will cost a little more. We are seeing about the best rates sheets of 2010 and I continue to believe rates will not move any lower than present levels.
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