Mortgage Rates Hold Onto Gains
Posted 05-14-2010 at 08:27 AM by VictorBurek
Mortgage rates continue to move sideways near the best levels of 2010 continuing the recent trend of no trend. Prior to yesterday’s auction of 30 year bonds, treasuies and mortgage backed securities came under some pressure to move higher in yield but a strong auction reversed the course allowing MBS to close slightly higher on the day. The price improvements were not enough to justify lenders repricing better especially with a heavy economic calendar due out Friday morning.
The first release of the day was Retail Sales from the Department of Commerce. This report shows the monthly change in the total receipts at retail stores. Since consumer spending accounts for a large majority of GDP, market participants track retail sales to gauge economic growth.
Last month’s report blew away expectations showing sales increasing 1.6% from the prior month. Today’s report also beat expectations on overall sales showing retail sales for April rose +0.4% when only a +0.2% increase was expected. When excluding auto sales from the data, the report came in as expected with a +0.4% monthly increase. Last month’s report was revised even higher to a +2.1% increase! This report marks the seventh straight month with improving sales indicating the American consumer is alive and shopping. Despite the positive economic report, dow futures point to a lower open while MBS continue to hold at the best levels of the year.
Released 45 minutes after the Retail Sales was the Industrial Production report. This data gives Federal Reserve economists a measure of the strength of the national manufacturing sector by measuring output at U.S. factories, utilities and mines. Higher industrial production would be a positive economic indicator which would benefit the stock market at the expense of the fixed income sector and mortgage rates. Last month’s report came in much lower than expected registering a +0.1% month over month gain when a +0.7% gain was expected. Today’s release also came in better than expected at a month over month gain of +0.8% versus expectations of +0.7%. This is the 10 month in a row of improving industrial production.
Our final release of the week provides the market with a measure of how consumers are feeling: Consumer Sentiment. The Reuter’s/University of Michigan’s Consumer Survey Center surveys 500 households on their personal financial conditions and attitudes about the economy. Market participants track consumer attitudes to get a gauge at future economic momentum. An optimistic consumer is more likely to spend which benefits stocks. A pessimistic consumer is more likely to save, which supports the bond market. This report is released twice per month giving us a preliminary reading and a final reading. Economists surveyed prior to today’s preliminary reading for May expected sentiment to improve from last month’s 72.2 reading to 73.5. The actual report indicated consumer sentiment was in line with expectations registering a 73.3.
Reports from fellow mortgage professionals indicate lenders have improved pricing slightly from yesterday lowering consumer borrowing costs. The par 30 year conventional rate mortgage remains 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 can always elect to pay less in closing costs but you will have to accept a higher interest rate. This is a great option for home owners or home buyers that do not plan on keeping their home for more than 3 years.
I continue to favor and advise locking all loans closing within 30 days and recommend you consider paying the extra fee to secure longer term locks if your closing is happening in more than 30 days. So far this morning, MBS are moving higher as the stock market is ignoring the positive economic data. Generally when stocks are moving lower, MBS and treasuries benefit which might lead to better pricing later today. Despite that, I still favor locking as things can turn the other direction very quickly and lenders take away much quicker than the pass along improvements. Additionally, time and time again this year, lenders have shown that they do not want rates to move lower than present levels.
Have a wonderful weekend be back to you on Monday.
The first release of the day was Retail Sales from the Department of Commerce. This report shows the monthly change in the total receipts at retail stores. Since consumer spending accounts for a large majority of GDP, market participants track retail sales to gauge economic growth.
Last month’s report blew away expectations showing sales increasing 1.6% from the prior month. Today’s report also beat expectations on overall sales showing retail sales for April rose +0.4% when only a +0.2% increase was expected. When excluding auto sales from the data, the report came in as expected with a +0.4% monthly increase. Last month’s report was revised even higher to a +2.1% increase! This report marks the seventh straight month with improving sales indicating the American consumer is alive and shopping. Despite the positive economic report, dow futures point to a lower open while MBS continue to hold at the best levels of the year.
Released 45 minutes after the Retail Sales was the Industrial Production report. This data gives Federal Reserve economists a measure of the strength of the national manufacturing sector by measuring output at U.S. factories, utilities and mines. Higher industrial production would be a positive economic indicator which would benefit the stock market at the expense of the fixed income sector and mortgage rates. Last month’s report came in much lower than expected registering a +0.1% month over month gain when a +0.7% gain was expected. Today’s release also came in better than expected at a month over month gain of +0.8% versus expectations of +0.7%. This is the 10 month in a row of improving industrial production.
Our final release of the week provides the market with a measure of how consumers are feeling: Consumer Sentiment. The Reuter’s/University of Michigan’s Consumer Survey Center surveys 500 households on their personal financial conditions and attitudes about the economy. Market participants track consumer attitudes to get a gauge at future economic momentum. An optimistic consumer is more likely to spend which benefits stocks. A pessimistic consumer is more likely to save, which supports the bond market. This report is released twice per month giving us a preliminary reading and a final reading. Economists surveyed prior to today’s preliminary reading for May expected sentiment to improve from last month’s 72.2 reading to 73.5. The actual report indicated consumer sentiment was in line with expectations registering a 73.3.
Reports from fellow mortgage professionals indicate lenders have improved pricing slightly from yesterday lowering consumer borrowing costs. The par 30 year conventional rate mortgage remains 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 can always elect to pay less in closing costs but you will have to accept a higher interest rate. This is a great option for home owners or home buyers that do not plan on keeping their home for more than 3 years.
I continue to favor and advise locking all loans closing within 30 days and recommend you consider paying the extra fee to secure longer term locks if your closing is happening in more than 30 days. So far this morning, MBS are moving higher as the stock market is ignoring the positive economic data. Generally when stocks are moving lower, MBS and treasuries benefit which might lead to better pricing later today. Despite that, I still favor locking as things can turn the other direction very quickly and lenders take away much quicker than the pass along improvements. Additionally, time and time again this year, lenders have shown that they do not want rates to move lower than present levels.
Have a wonderful weekend be back to you on Monday.
Total Comments 0
