Mortgage Rates Steady at Best Level of 2010

Mortgage rates opened the day yesterday near the best levels of 2010. Early in the morning, as stocks were posting healthy gains, mortgage rates came under a little pressure to move higher. Following the 10 year note auction which saw strong demand, sentiment in the markets started to shift and mortgage backed securities started to move higher in price. Just before close, stocks sold off and MBS continued to move higher in price to another new record high allowing most lenders to reprice for the better lowering consumer borrowing costs.

We have a couple data releases on the economic calendar. First was the weekly jobless claims. This report provides three measures of 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, market participants 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 consumer borrowing costs low. Below are the results...

1. Initial Jobless Claims: -3000 to 456,000 vs forecast of 448,000. Previous week was revised higher from 453,000 to 459,000. WORSE THAN EXPECTED
2. Continued Claims: -255,000 to 4.462million which is the lowest level since late 2008 vs. forecast for 4.64million. BETTER THAN EXPECTED
3. Extended and Emergency Benefits: +69,000 to 5.39million

The only other economic report to hit wires this morning was Balance of Goods and Services Trade or as it is commonly known, the International Trade Report. Trade balance data reports the difference between the monetary value of a country's exports and imports. A positive balance, or trade surplus, means exports exceed imports and illustrates that a country's economy is globally competitive. A negative balance of trade is known as a trade deficit or trade gap. The US currently runs a trade deficit.

A globally competitive economy creates more jobs for Americans because US companies must work to satisfy several sources of demand, from domestic and foreign consumers. Greater production translates into faster growth of local economies and a stronger consumer balance sheet, ultimately leading to increased corporate profits and higher stock prices. However, an over dependence on foreign demand for US goods and services implies the domestic economy is vulnerable to foreign economic disruptions.

This report has a two month lag, so today’s data covered April Trade Balance. The report indicated our trade deficit widened from $40.0billion in March to $40.3billion in April beating estimates of an widening to $41billion but the highest level since December 2008. Weaker demand for US products caused exports to decline 0.7% while imports declined 0.4%. Debt concerns in Europe may continue to weigh heavy on US exports which is not good news for our jobs sector or corporate profits. The US dollar has increased in value compared to the Euro which makes US products overseas more expensive dampening demand further which will hurt US corporate profits.

At 1pm eastern, the Department of Treasury will release the results of this week’s final auction. Today, the bond market will get a fresh supply of $13billion of 30 year bonds. The prior two auctions this week saw above average demand which has helped mortgage rates to hold near the best levels of the year.

Following the release of all of today’s data, MBS have given back all of the gains enjoyed following yesterday’s strong 10 year note auction. This will result in worsened rate sheets from late yesterday. It appears market participants are more focused on positive economic news from Asia then today’s domestic data which wasn’t positive for the US markets.

Reports from fellow mortgage professionals do indicate lenders have worsened rate sheets increasing consumer costs. The par 30 year fixed rate mortgage remains in the 4.50% to 4.75% 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.

Same recommendation as yesterday. I continue to favor locking all loans as the risk of higher rates outweighs the chance of lower rates. The only loans you should consider floating are ones a day away from a shorter lock period which offers better pricing.