Mortgage Rates Rally Following Greece Downgrade

Mortgage rates opened the day yesterday unchanged from last week and held relatively stable during morning trading as no economic data hit the news wires. Just after the lunch hour, news hit that Moody’s downgraded Greece’s credit rating to junk. This led to a mini “flight to safety” rally which led to mortgage backed securities moving higher in price as stocks sold off. The gains were not huge, but some lenders did reprice for the better lowering consumer borrowing costs.

We have several economic releases this morning…

First was the New York Federal Reserve's Empire State Manufacturing Survey. Each month, the New York Federal Reserve conducts a survey of approximately 175 manufacturing executives in New York. Participants are asked to state the direction they expect several business condition indicators to head in the upcoming months. Readings above 0 indicate expanding or improving conditions while readings below 0 indicate contraction. Last month’s survey came in well below April’s 31.86 reading at 19.11. Economists surveyed prior to today’s release expected conditions to improve to 21. The actual report came in below expectations at 19.57 but is improved from the prior month indicating that manufacturing is moving in the right direction.

Released at the same time was Import and Export Prices which gives us a read on inflation. The report indicated the prices of items we export rose 0.7% in May while the price of imported items decreased 0.6% thanks to lower oil prices. The strengthening dollar, due to sovereign debt concerns in Europe, is making the products we export more expensive which could weaken demand for our products overseas which is not good for our overall economic recovery. Today’s release continues to show inflation to be of very little concern but we do get a couple more inflation reports this week. Tomorrow we get the Producer Price index which measures inflation on the producer level and Thursday we get the more important Consumer Price index which measures inflation at the consumer level.

Our final data release on the day gives us a look into the housing sector with the release of the National Association of Home Builder's Confidence Index. The National Association of Home Builders produces a housing index based on a survey in which builders rate the general economy and housing market conditions. This report basically shows if home builders are optimistic or pessimistic about future housing demand which is crucial for our overall economic recovery. May’s report showed home builders becoming much more optimistic with the index rising 3 points to 22. Today’s survey indicated home builders are becoming pessimistic with the index coming in at 17. The end of the tax credit which helped boost housing demand for the first half of the year is the main cause of the disappointing report as it leaves an uncertain outlook for future housing demand.

Following the release of all of today’s data, MBS are extending the gains from yesterday despite the stock market moving higher. The par 30 year conventional rate mortgage remains in the 4.50% to 4.75% 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. Consumers with lower FICO scores and higher loan to values should consider a FHA loan which offers similar rates but higher costs.

I continue to favor locking as mortgage rates are almost back to the lowest level of 2010. If you are within 30 days of closing, go ahead and lock as you have very little to gain by floating. Like yesterday, the only loans I would recommend floating would be ones a day away from a shorter lock period which offers better pricing.