Pressure Continues on Mortgage Rates
Mortgage rates held steady yesterday morning and afternoon despite positive economic news and a so so auction of 5 year treasury notes. Later in the afternoon, the stock market which was posting positive gains all day changed course and closed lower with the Dow closing under 10,000 for the first time since February. As stocks sold off, we did see some money flow back into bonds which kept mortgage backed securities unchanged on the day. There were no reports of lenders repricing for the better or worse.
Despite the weakness in our stock market yesterday, overnight Asia and European stock markets have rallied which pressured treasury yields higher as traders unwind their “flight to safety” trade. To remind readers, as treasury yields get pressured higher, mortgage rates tend to follow. The weakness in US Treasuries has spilled over into MBS this morning prior to the release of the day’s domestic data.
Onto the data…
This morning the US Department of Commerce released the first revision of 1st quarter Gross Domestic Product. GDP is the broadest measure of total economic activity as it reports on output in every sector of the economy. It is basically our economy’s score card. A rapidly growing economy usually leads to inflation, so the bond market prefers stable growth while the stock market generally benefits from a faster pace. We get three different releases on GDP: the Advance Read, the Preliminary Release, and the Final Report. Last month’s Advance Read indicated our economy expanded at a rate of 3.2%. Economists expected an upward revision to 3.4% growth rate with today’s Preliminary Release.
The release indicated that our economy grew at a slower pace than expected. The Preliminary Release came in at 3.0%, well under the 3.4% that was expected. Included within this report is the Fed’s favorite gauge of inflation, the Personal Consumption Expenditure(PCE). It continues to show inflation to be of no concern today. The overall PCE index rose +1.5% while the more important core rate which strips out food and energy posted an increase of only +0.6%, both matching the Advance Read. The +0.6% core rate is the smallest annual pace of price increases since 1959 which will allow the Fed to maintain the current accommodative stance on monetary policy.
Released at the same time was the weekly Jobless Claims. This report provides three measures of the health of the labor market:
The report showed initial jobless claims for the week ending May 22 fell 14,000 to a higher than expected 460,000. The prior week’s initial claims were also revised higher by 3,000 to 474,000. Continued claims came in as expected falling 49,000 to 4.607million. Those Americans who have used up their traditional benefits and are now collecting Extended and Emergency Benefits decreased by about 3,000 to a stubbornly high 5.34million indicating it is still difficult to land new employment.
Even though the economic data this morning was worse than expected which usually benefits the fixed income sector, MBS continue to move lower as the stock market is poised for a much higher open. It seems the continued concerns from Europe are starting to dissipate and traders want to unwind their “flight to safety” positions. Additionally, we have a long weekend ahead which usually does not benefit MBS.
Finally, at 1pm eastern the Department of Treasury will announce the results of today’s auction of $31billion of 7 year treasury notes. The prior two auctions this week were not received very well but with the “flight to safety” trade still somewhat in effect, they were good enough to hold treasury yields relatively stable. Strong demand for our nation’s debt is one of several factors that can be attributed to the record low mortgage rates of the past year and a half.
Reports from fellow mortgage professionals indicate lender rate sheets to be worse than yesterday by about .25 in discount. That means if a rate was costing you 1 point yesterday, it will now cost you 1.25 points. The par 30 year conventional rate mortgage remains in the 4.625% to 4.875% range for well qualified consumers. To qualify for a par 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 costs but you will have to accept a higher interest rate.
I have been saying for the past couple weeks to LOCK, LOCK, LOCK. If you are still floating and within 60 days of closing, get your loan locked today. Stocks look ripe for a rebound from the recent sell off, treasuries have broken above a key level of support, we have a long weekend ahead of us and lenders continue to offer fixed rate mortgages well under 5%. You have very little if anything to gain by floating
Despite the weakness in our stock market yesterday, overnight Asia and European stock markets have rallied which pressured treasury yields higher as traders unwind their “flight to safety” trade. To remind readers, as treasury yields get pressured higher, mortgage rates tend to follow. The weakness in US Treasuries has spilled over into MBS this morning prior to the release of the day’s domestic data.
Onto the data…
This morning the US Department of Commerce released the first revision of 1st quarter Gross Domestic Product. GDP is the broadest measure of total economic activity as it reports on output in every sector of the economy. It is basically our economy’s score card. A rapidly growing economy usually leads to inflation, so the bond market prefers stable growth while the stock market generally benefits from a faster pace. We get three different releases on GDP: the Advance Read, the Preliminary Release, and the Final Report. Last month’s Advance Read indicated our economy expanded at a rate of 3.2%. Economists expected an upward revision to 3.4% growth rate with today’s Preliminary Release.
The release indicated that our economy grew at a slower pace than expected. The Preliminary Release came in at 3.0%, well under the 3.4% that was expected. Included within this report is the Fed’s favorite gauge of inflation, the Personal Consumption Expenditure(PCE). It continues to show inflation to be of no concern today. The overall PCE index rose +1.5% while the more important core rate which strips out food and energy posted an increase of only +0.6%, both matching the Advance Read. The +0.6% core rate is the smallest annual pace of price increases since 1959 which will allow the Fed to maintain the current accommodative stance on monetary policy.
Released at the same time was the weekly Jobless Claims. This report provides three measures of the health of the labor market:
- Initial Jobless Claims: totals the number of Americans who filed for first time unemployment benefits
- Continued Claims: totals the number of Americans who continue to file for benefits due to an inability to find a new job
- Extended and Emergency Benefits: totals the number of Americans who have exhausted their traditional benefits and are now receiving extended and emergency benefits
The report showed initial jobless claims for the week ending May 22 fell 14,000 to a higher than expected 460,000. The prior week’s initial claims were also revised higher by 3,000 to 474,000. Continued claims came in as expected falling 49,000 to 4.607million. Those Americans who have used up their traditional benefits and are now collecting Extended and Emergency Benefits decreased by about 3,000 to a stubbornly high 5.34million indicating it is still difficult to land new employment.
Even though the economic data this morning was worse than expected which usually benefits the fixed income sector, MBS continue to move lower as the stock market is poised for a much higher open. It seems the continued concerns from Europe are starting to dissipate and traders want to unwind their “flight to safety” positions. Additionally, we have a long weekend ahead which usually does not benefit MBS.
Finally, at 1pm eastern the Department of Treasury will announce the results of today’s auction of $31billion of 7 year treasury notes. The prior two auctions this week were not received very well but with the “flight to safety” trade still somewhat in effect, they were good enough to hold treasury yields relatively stable. Strong demand for our nation’s debt is one of several factors that can be attributed to the record low mortgage rates of the past year and a half.
Reports from fellow mortgage professionals indicate lender rate sheets to be worse than yesterday by about .25 in discount. That means if a rate was costing you 1 point yesterday, it will now cost you 1.25 points. The par 30 year conventional rate mortgage remains in the 4.625% to 4.875% range for well qualified consumers. To qualify for a par 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 costs but you will have to accept a higher interest rate.
I have been saying for the past couple weeks to LOCK, LOCK, LOCK. If you are still floating and within 60 days of closing, get your loan locked today. Stocks look ripe for a rebound from the recent sell off, treasuries have broken above a key level of support, we have a long weekend ahead of us and lenders continue to offer fixed rate mortgages well under 5%. You have very little if anything to gain by floating
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If you have been floating... hopefully you followed my advice on locking. MBS have moved considerably lower. All lenders have repriced increasing costs by about .50 in discount. That means if a rate was costing you 1 point this morning.. it is now costing 1.5 pts.Posted 05-27-2010 at 02:16 PM by VictorBurek
