Mortgage Rates Holding Near Historic Lows, The Week Ahead
Posted 06-28-2010 at 08:07 AM by VictorBurek
Mortgage rates bounced around last week near all time historic lows. On Wednesday, we did see about the best rates sheets ever(definitely the best of 2010) following very disappointing housing data. Those price gains were short lived as the market opened lower on Thursday and continued lower throughout the day forcing lenders to increase mortgage rates. There was no apparent reason for the selloff other than rally exhaustion…basically bonds had risen too far too fast. However weak economic data on Friday allowed money to flow out of stocks and back into bonds bringing mortgage rates close to what we saw on Wednesday.
This morning brings us the release of only one relevant piece of economic data… Personal Income and Outlays from the Department of Commerce. This monthly report gives us a look at the strength of the American consumer by tracking what they make and what they spend. A stronger consumer benefits the stock market while a weaker consumer benefits the bond market.
This data gives us three readings on the health of consumers. First is personal income which shows the monthly change in income that households receive from all sources. Next is consumer spending which shows the monthly change in the amount of money consumers are spending on durable and non-durable goods and services. The final reading is the Personal Consumption Expenditure(PCE) which tracks inflation on the consumer level and is the Fed’s preferred measure of inflation.
The release indicated personal income in May rose 0.4% slightly lower than the 0.5% increase that was expected. Offsetting the miss was last month’s data was revised 0.1% higher to 0.5%. Year over year, personal income is up 1.6% down from the 2.6% reported last month.
Consumer spending matched expectations coming in at a month over month increase of 0.2%. Year over year, consumer spending is up 4.6%.
The core PCE rose 0.2% slightly more than the 0.1% gain expected. Year over year, core PCE rose from 1.2% to 1.3% still well within the Fed’s comfort zone for acceptable price increases.
Despite the somewhat positive economic report, mortgage backed securities have continued to move higher following the trend set on Friday. This should allow lenders to pass along aggressive rate sheets this morning.
Here is a look at what might impact mortgage rates in the week ahead:
Tuesday
- S&P/Case Shiller Home Price Index(low to medium impact) This data tracks the monthly change in the value of residential real estate across the United States.
- Consumer Confidence(medium impact) An optimistic consumer is more likely to spend money which benefits stocks while a pessimistic consumer is more likely to save or pay off debt which benefits the bond market.
Wednesday
- MBA Applications Index(low impact)
- ADP Employment Report(medium impact) This data is not as influential as the official Employment Situation Report but it does provide market participants with a sneak peak of the health of the labor market. The farther away this number is from expectations, the more important it will be to investors.
- Chicago PMI(low to medium impact)
Thursday
- Weekly Jobless Claims(low to medium impact)
- ISM Manufacturing Index(medium impact)
- Construction Spending(medium impact)
- Pending Home Sales Index(low to medium impact) This report has a two month lag so the data will represent pending sales made in May.
Friday
- Employment Situation (HIGH IMPACT) The data is expected to show our economy lost 110,000 jobs last month following the prior month’s less than expected gain of 431,000. The unemployment rate is expected to climb from 9.7% to 9.8%.
- Factory Orders
Reports from fellow mortgage professionals indicate lenders passing along the best rates of the year. The par 30 year conventional rate mortgage remains in the 4.375% to 4.625% 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 can elect to pay less in fees but you will have to accept a higher interest rate.
I continue to favor locking as rates are back to the best level we have seen this year. Much higher risk of higher rates than lower rates at this point.
This morning brings us the release of only one relevant piece of economic data… Personal Income and Outlays from the Department of Commerce. This monthly report gives us a look at the strength of the American consumer by tracking what they make and what they spend. A stronger consumer benefits the stock market while a weaker consumer benefits the bond market.
This data gives us three readings on the health of consumers. First is personal income which shows the monthly change in income that households receive from all sources. Next is consumer spending which shows the monthly change in the amount of money consumers are spending on durable and non-durable goods and services. The final reading is the Personal Consumption Expenditure(PCE) which tracks inflation on the consumer level and is the Fed’s preferred measure of inflation.
The release indicated personal income in May rose 0.4% slightly lower than the 0.5% increase that was expected. Offsetting the miss was last month’s data was revised 0.1% higher to 0.5%. Year over year, personal income is up 1.6% down from the 2.6% reported last month.
Consumer spending matched expectations coming in at a month over month increase of 0.2%. Year over year, consumer spending is up 4.6%.
The core PCE rose 0.2% slightly more than the 0.1% gain expected. Year over year, core PCE rose from 1.2% to 1.3% still well within the Fed’s comfort zone for acceptable price increases.
Despite the somewhat positive economic report, mortgage backed securities have continued to move higher following the trend set on Friday. This should allow lenders to pass along aggressive rate sheets this morning.
Here is a look at what might impact mortgage rates in the week ahead:
Tuesday
- S&P/Case Shiller Home Price Index(low to medium impact) This data tracks the monthly change in the value of residential real estate across the United States.
- Consumer Confidence(medium impact) An optimistic consumer is more likely to spend money which benefits stocks while a pessimistic consumer is more likely to save or pay off debt which benefits the bond market.
Wednesday
- MBA Applications Index(low impact)
- ADP Employment Report(medium impact) This data is not as influential as the official Employment Situation Report but it does provide market participants with a sneak peak of the health of the labor market. The farther away this number is from expectations, the more important it will be to investors.
- Chicago PMI(low to medium impact)
Thursday
- Weekly Jobless Claims(low to medium impact)
- ISM Manufacturing Index(medium impact)
- Construction Spending(medium impact)
- Pending Home Sales Index(low to medium impact) This report has a two month lag so the data will represent pending sales made in May.
Friday
- Employment Situation (HIGH IMPACT) The data is expected to show our economy lost 110,000 jobs last month following the prior month’s less than expected gain of 431,000. The unemployment rate is expected to climb from 9.7% to 9.8%.
- Factory Orders
Reports from fellow mortgage professionals indicate lenders passing along the best rates of the year. The par 30 year conventional rate mortgage remains in the 4.375% to 4.625% 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 can elect to pay less in fees but you will have to accept a higher interest rate.
I continue to favor locking as rates are back to the best level we have seen this year. Much higher risk of higher rates than lower rates at this point.
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