Mortgage Rates Start Week Improved
Posted 06-01-2010 at 08:17 AM by VictorBurek
I hope everyone had a great extended weekend, but it is time to get back to work.
Last week ended on a positive note for mortgage rate watches as the fixed income sector benefitted from a weak stock market. As stocks moved lower on Friday, money flowed into the fixed income sector allowing some lenders to offer better pricing by day’s end. As is common before a long weekend, lenders were conservative on passing along better pricing but we should see better rate sheets this morning.
We have a couple economic reports hitting the news wires. First was the ISM Manufacturing Index from the Institute for Supply Management. This is a survey of more than 300 manufacturing firms on the strength of business conditions. Readings above 50 indicate expanding or improving conditions while readings below 50 indicate contraction. The ISM index has held above 50 for the last nine releases with last month’s report registering the highest print in over 6 years at 60.4. Economists surveyed prior to today’s release expected a slight pullback to 59.0. The report indicated business conditions came in basically as expected with a 59.7 read.
The other release on the day was Construction Spending. This data shows the monthly change in the amount of money spent on construction for public and private residential and non residential projects. Increasing construction spending is a positive economic indicator as it could lead to additional jobs and increased consumer spending on other items to complete the newly constructed home. This report has a two month lag so today’s data is for the month of April. Last month, which reported on March data, construction spending broke a streak of four consecutive month over month contractions with a better than expected +0.2% increase. With a glut of homes on the market, it isn’t a bad thing in my opinion to see less new construction though. Today’s release indicated construction spending in April increased much more than thought by +2.7%. Economists had expected no change from the prior month. Following the release of this report, stocks have shifted course and MBS have started to move lower.
Here are the highlights for the rest of the holiday shortened week:
Wednesday
- MBA Applications Index (low impact)
- Pending Home Sales (medium to high impact) This report also has a two month lag so the data will represent sales in April. Many believe that until housing picks up, our economic recovery will be very difficult which makes tracking home sales data of more importance today than in past times. Economists are expecting Pending Home Sales to post a month over month increase of +5.0%.
Thursday
- ADP Employment Report (medium impact) This data is not as important as the official government report due out on Friday, but it is gaining momentum as a good predictor of job growth.
- Productivity and Costs (medium impact)
- Jobless Claims (low to medium impact)
- Factory Orders (low to medium impact)
- ISM Non-Manufacturing Index (low impact)
- Announcement from the Department of Treasury of the term of next week’s auction of 3 year notes, 10 year notes and 30 year bonds. The additional supply of debt on the market can pressure both treasury and mortgage yields higher. (medium impact)
Friday
- Employment Situation Report (HIGH IMPACT) Economists are expecting 513,000 jobs were created last month following last month’s better than expected 290,000.
Reports from fellow mortgage professionals indicate lender rate sheets to be improved from last week. The par 30 year conventional rate mortgage is back in the 4.625% to 4.875% 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. For consumers with lower FICO scores and/or higher loan to values, you should consider a FHA loan which offers comparable rates but with higher costs.
I continue to favor locking as rates are back to the lows of the year. If you wish to float in hopes of further gains, keep an eye on stocks. Stocks are set for a much lower opening following a disappointing report on China manufacturing. If stocks stay in the red or sell off, float during the day but consider locking at day’s end. However, if stocks change course and post positive numbers, the fixed income sector will be pressured lower which will result in reprices for the worse.
Last week ended on a positive note for mortgage rate watches as the fixed income sector benefitted from a weak stock market. As stocks moved lower on Friday, money flowed into the fixed income sector allowing some lenders to offer better pricing by day’s end. As is common before a long weekend, lenders were conservative on passing along better pricing but we should see better rate sheets this morning.
We have a couple economic reports hitting the news wires. First was the ISM Manufacturing Index from the Institute for Supply Management. This is a survey of more than 300 manufacturing firms on the strength of business conditions. Readings above 50 indicate expanding or improving conditions while readings below 50 indicate contraction. The ISM index has held above 50 for the last nine releases with last month’s report registering the highest print in over 6 years at 60.4. Economists surveyed prior to today’s release expected a slight pullback to 59.0. The report indicated business conditions came in basically as expected with a 59.7 read.
The other release on the day was Construction Spending. This data shows the monthly change in the amount of money spent on construction for public and private residential and non residential projects. Increasing construction spending is a positive economic indicator as it could lead to additional jobs and increased consumer spending on other items to complete the newly constructed home. This report has a two month lag so today’s data is for the month of April. Last month, which reported on March data, construction spending broke a streak of four consecutive month over month contractions with a better than expected +0.2% increase. With a glut of homes on the market, it isn’t a bad thing in my opinion to see less new construction though. Today’s release indicated construction spending in April increased much more than thought by +2.7%. Economists had expected no change from the prior month. Following the release of this report, stocks have shifted course and MBS have started to move lower.
Here are the highlights for the rest of the holiday shortened week:
Wednesday
- MBA Applications Index (low impact)
- Pending Home Sales (medium to high impact) This report also has a two month lag so the data will represent sales in April. Many believe that until housing picks up, our economic recovery will be very difficult which makes tracking home sales data of more importance today than in past times. Economists are expecting Pending Home Sales to post a month over month increase of +5.0%.
Thursday
- ADP Employment Report (medium impact) This data is not as important as the official government report due out on Friday, but it is gaining momentum as a good predictor of job growth.
- Productivity and Costs (medium impact)
- Jobless Claims (low to medium impact)
- Factory Orders (low to medium impact)
- ISM Non-Manufacturing Index (low impact)
- Announcement from the Department of Treasury of the term of next week’s auction of 3 year notes, 10 year notes and 30 year bonds. The additional supply of debt on the market can pressure both treasury and mortgage yields higher. (medium impact)
Friday
- Employment Situation Report (HIGH IMPACT) Economists are expecting 513,000 jobs were created last month following last month’s better than expected 290,000.
Reports from fellow mortgage professionals indicate lender rate sheets to be improved from last week. The par 30 year conventional rate mortgage is back in the 4.625% to 4.875% 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. For consumers with lower FICO scores and/or higher loan to values, you should consider a FHA loan which offers comparable rates but with higher costs.
I continue to favor locking as rates are back to the lows of the year. If you wish to float in hopes of further gains, keep an eye on stocks. Stocks are set for a much lower opening following a disappointing report on China manufacturing. If stocks stay in the red or sell off, float during the day but consider locking at day’s end. However, if stocks change course and post positive numbers, the fixed income sector will be pressured lower which will result in reprices for the worse.
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