Mortgage Rates Move Higher After Setting New Record Lows
Posted 06-25-2010 at 08:36 AM by VictorBurek
I guess the rally in mortgage rates couldn’t continue forever… Yesterday, the prices of mortgage backed securities came under pressure to move lower in price which increases consumer borrowing costs. There was no specific reason for the move lower as the economic data continues to be weak, stocks sold off and yesterday’s auction of 7 year notes was met with very strong demand. Usually when we get weak data, a strong auction and a selloff in stocks, money flows into the fixed income sector but that didn’t happen. It simply came down to MBS becoming too expensive and were due a correction. All lenders did reprice for the worse proving yet again they take away much quicker than they pass along improvements.
We have two economic reports released today that can have an impact on mortgage rates. First out was the final revision to first quarter Gross Domestic Product(GDP).
GDP is the broadest measure of total economic activity. It reports on output in every sector of our economy. It is basically our economic scorecard. A rapidly growing economy usually leads to inflation, so the bond market prefers stable growth while stock traders generally enjoy a faster pace of expansion. We receive three different assessments of GDP: the Advance Read, the Preliminary Release, and the Final Report. Last month the Preliminary Release indicated our economy grew less rapidly falling from the Advanced Read of 3.2% to 3.0% which was worse than economists expectations of 3.4%.
Today’s Final Report also came in lower than expected indicating that our economy grew at an annualized pace of only 2.7%...3.0% was expected. Bringing the number down was a lower revision to consumer spending. Imbedded within this report is the Fed’s favorite gauge of inflation, the Personal Consumption Expenditure(PCE). This provided no surprises once again as the core PCE rose 0.7% from last year which is the lowest rate of inflation since 1962. Inflation remains of no concern today which will allow the Federal Reserve to maintain its current accommodative monetary policy.
Our final release of the week gives us a look at how the consumer is 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 of future economic momentum. An optimistic consumer is more likely to spend which benefits stock markets. A pessimistic consumer is more likely to save, which supports low yields in the bond market. This report gives us two readings each month, the preliminary and final. Earlier this month, the preliminary reading for June indicated consumers were more optimistic than expected coming in at 75.5. Today’s survey indicated once again that consumers are becoming more optimistic about our economic recovery coming in at a better than expected 76.0. This follows the final May reading of 73.6.
Reports from fellow mortgage professionals indicate lender rate sheets to be worse than yesterday. The par 30 year conventional rate mortgage remains in the 4.375% to 4.625% range for well qualified consumers. If a rate was costing you 1 point yesterday, it will cost you about 1.75 points today. 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.
Despite consumer borrowing costs being higher this morning, I still favor locking all loans. We are still very close to historic lows and I see no benefit with floating.
Have a great weekend, be back to you on Monday.
We have two economic reports released today that can have an impact on mortgage rates. First out was the final revision to first quarter Gross Domestic Product(GDP).
GDP is the broadest measure of total economic activity. It reports on output in every sector of our economy. It is basically our economic scorecard. A rapidly growing economy usually leads to inflation, so the bond market prefers stable growth while stock traders generally enjoy a faster pace of expansion. We receive three different assessments of GDP: the Advance Read, the Preliminary Release, and the Final Report. Last month the Preliminary Release indicated our economy grew less rapidly falling from the Advanced Read of 3.2% to 3.0% which was worse than economists expectations of 3.4%.
Today’s Final Report also came in lower than expected indicating that our economy grew at an annualized pace of only 2.7%...3.0% was expected. Bringing the number down was a lower revision to consumer spending. Imbedded within this report is the Fed’s favorite gauge of inflation, the Personal Consumption Expenditure(PCE). This provided no surprises once again as the core PCE rose 0.7% from last year which is the lowest rate of inflation since 1962. Inflation remains of no concern today which will allow the Federal Reserve to maintain its current accommodative monetary policy.
Our final release of the week gives us a look at how the consumer is 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 of future economic momentum. An optimistic consumer is more likely to spend which benefits stock markets. A pessimistic consumer is more likely to save, which supports low yields in the bond market. This report gives us two readings each month, the preliminary and final. Earlier this month, the preliminary reading for June indicated consumers were more optimistic than expected coming in at 75.5. Today’s survey indicated once again that consumers are becoming more optimistic about our economic recovery coming in at a better than expected 76.0. This follows the final May reading of 73.6.
Reports from fellow mortgage professionals indicate lender rate sheets to be worse than yesterday. The par 30 year conventional rate mortgage remains in the 4.375% to 4.625% range for well qualified consumers. If a rate was costing you 1 point yesterday, it will cost you about 1.75 points today. 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.
Despite consumer borrowing costs being higher this morning, I still favor locking all loans. We are still very close to historic lows and I see no benefit with floating.
Have a great weekend, be back to you on Monday.
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