Mortgage Rates Under Some Pressure but Holding At Lifetime Lows
Yesterday morning lenders offered the most aggressive rate sheets of all time. Following worse than expected economic data which usually benefits bonds, mortgage backed securities came under some pressure. With prices of MBS at all time highs, it isn’t surprising to see some kind of a pullback despite bond friendly data. The losses were not substantial but a few lenders did reprice for the worse increasing consumer borrowing costs. As the day progressed, stocks started to sell off and money flowed back into the fixed income sector allowing MBS to regain most of the day’s losses.
The data started out this morning with Weekly Jobless Claims. Released by the Department of Labor, this report provides three timely metrics on the health of the job market:
1. Initial Jobless Claims: totals the number of Americans who filed for first time unemployment benefits in the previous week
2. Continued Claims: totals the number of Americans who continue to file for benefits due to an inability to find a new job in the previous week
3. Extended and Emergency Benefits: totals the number of Americans who have exhausted their traditional benefits and are now receiving extended and emergency benefits, in the previous week
Since our economy is driven by consumer spending, market participants track employment data to get a sense of future economic momentum. Higher jobless claims imply less consumers have jobs and therefore less money to spend. This is a negative for the economy...but generally helpful in keeping consumer borrowing costs down.
Here are the results:
1. Initial Jobless Claims: up 13,000 to 472,000 vs. estimates for a read of 450,000. Prior week’s data was revised worse to show an additional 2,000 claims. Worse Than Expected
2. Continued Claims: up 43,000 to 4.62million vs. estimates for a read of 4.54 million. Worse Than Expected
3. Extended and Emergency Benefits: down 376,000 to 4.92million. The plunge in emergency claims is due to the end of benefits. Congress failed to act on a plan to extend emergency benefits beyond the current 99 months, so many unemployed have finally ran out of benefits.
All eyes are now focused on tomorrow’s Non-Farm Payroll report. Economists are expecting a loss of 110,000 jobs and the unemployment rate moving higher to 9.8%. If you are hoping for mortgage rates to fall further it will take a very disappointing report tomorrow. However, if we get a better than expected report, mortgage rates will probably rise very quickly.
Our next report gives us a measure on the strength of the manufacturing sector of our economy. The ISM Manufacturing Index is based on a survey conducted by the Institute for Supply Management. It covers more than 300 manufacturing firms and reports on their feedback of business conditions. Readings above 50 indicate economic expansion or improving conditions while readings below 50 indicate economic contraction or deteriorating conditions. The ISM index has held above 50 for the last ten months with last month’s report registering a better than expected 59.7. Economists surveyed prior to today’s release expected a slight pullback to 59.0. The report indicated business conditions came in worse than expected with a read of 56.2.
The next economic report released today was May 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 job creation and increased consumer spending on items needed to complete construction projects. This report has a two month lag so it generally does not affect the market.
Overall construction spending, which includes public and private outlays, fell by 0.2% which was better than the 0.8% decline that was expected. The prior month’s data was revised lower from the first reported increase of 2.7% to only 2.3%. Year over year, construction spending posted a 8.0% decline.
Our final report on the day was Pending Home Sales. Released by the National Association of Realtors(NAR), the Pending Home Sales Index measures the number of sales contracts signed to purchase existing homes, not newly constructed houses. A sale is listed as "pending" when a contract to purchase an existing home (single-family, condos, and co-ops) has been signed but the transaction has not closed. A signed contract is not counted as an actual existing home sale until the transaction closes. This data has a two month lag, so today's release looks at sales contracts signed in May, after the expiration of the home buyer tax credit so a decline is to be expected.
The NAR reported that Pending Home Sales plummeted 30.0% in May, which was far greater than the 12.5% decline economists had forecast. On a year over year basis, pending home sales are down 15.9% compared with last month’s up 22.4% reading. This is very bad news for an already struggling housing sector.
While on the subject of housing, we did get good news regarding the Home Buyer Tax Credit. To qualify for up to an $8000 tax credit you had to be under contract by April 30 and close by June 30. Congress has just passed a bill to extend the closing date to September 30 as many lenders are back logged causing delays in closing. If you were not under contract by April 30, you are not eligible for any credit.
Overall the data this morning was very bad. Stocks are reacting how you would expect, posting near triple digit declines, but the money isn’t flowing into mortgage backed securities. MBS are posting small losses this morning which is reflected in lender rate sheets. The par 30 year conventional rate mortgage remains in the 4.375% to 4.625% 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. You may elect to pay less in closing costs, but you will have to accept a higher interest rate.
I continue to favor locking as mortgage rates continue to hold at all time lows. In addition, we get the Employment Situation report which is the single most important economic report we get monthly. It can move the markets in a big way. If it is worse than expected, rates will either hold onto recent gains or could move lower… but how much further can a 30 year fixed rate fall? There is much more room for rates to rise than to fall.
The data started out this morning with Weekly Jobless Claims. Released by the Department of Labor, this report provides three timely metrics on the health of the job market:
1. Initial Jobless Claims: totals the number of Americans who filed for first time unemployment benefits in the previous week
2. Continued Claims: totals the number of Americans who continue to file for benefits due to an inability to find a new job in the previous week
3. Extended and Emergency Benefits: totals the number of Americans who have exhausted their traditional benefits and are now receiving extended and emergency benefits, in the previous week
Since our economy is driven by consumer spending, market participants track employment data to get a sense of future economic momentum. Higher jobless claims imply less consumers have jobs and therefore less money to spend. This is a negative for the economy...but generally helpful in keeping consumer borrowing costs down.
Here are the results:
1. Initial Jobless Claims: up 13,000 to 472,000 vs. estimates for a read of 450,000. Prior week’s data was revised worse to show an additional 2,000 claims. Worse Than Expected
2. Continued Claims: up 43,000 to 4.62million vs. estimates for a read of 4.54 million. Worse Than Expected
3. Extended and Emergency Benefits: down 376,000 to 4.92million. The plunge in emergency claims is due to the end of benefits. Congress failed to act on a plan to extend emergency benefits beyond the current 99 months, so many unemployed have finally ran out of benefits.
All eyes are now focused on tomorrow’s Non-Farm Payroll report. Economists are expecting a loss of 110,000 jobs and the unemployment rate moving higher to 9.8%. If you are hoping for mortgage rates to fall further it will take a very disappointing report tomorrow. However, if we get a better than expected report, mortgage rates will probably rise very quickly.
Our next report gives us a measure on the strength of the manufacturing sector of our economy. The ISM Manufacturing Index is based on a survey conducted by the Institute for Supply Management. It covers more than 300 manufacturing firms and reports on their feedback of business conditions. Readings above 50 indicate economic expansion or improving conditions while readings below 50 indicate economic contraction or deteriorating conditions. The ISM index has held above 50 for the last ten months with last month’s report registering a better than expected 59.7. Economists surveyed prior to today’s release expected a slight pullback to 59.0. The report indicated business conditions came in worse than expected with a read of 56.2.
The next economic report released today was May 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 job creation and increased consumer spending on items needed to complete construction projects. This report has a two month lag so it generally does not affect the market.
Overall construction spending, which includes public and private outlays, fell by 0.2% which was better than the 0.8% decline that was expected. The prior month’s data was revised lower from the first reported increase of 2.7% to only 2.3%. Year over year, construction spending posted a 8.0% decline.
Our final report on the day was Pending Home Sales. Released by the National Association of Realtors(NAR), the Pending Home Sales Index measures the number of sales contracts signed to purchase existing homes, not newly constructed houses. A sale is listed as "pending" when a contract to purchase an existing home (single-family, condos, and co-ops) has been signed but the transaction has not closed. A signed contract is not counted as an actual existing home sale until the transaction closes. This data has a two month lag, so today's release looks at sales contracts signed in May, after the expiration of the home buyer tax credit so a decline is to be expected.
The NAR reported that Pending Home Sales plummeted 30.0% in May, which was far greater than the 12.5% decline economists had forecast. On a year over year basis, pending home sales are down 15.9% compared with last month’s up 22.4% reading. This is very bad news for an already struggling housing sector.
While on the subject of housing, we did get good news regarding the Home Buyer Tax Credit. To qualify for up to an $8000 tax credit you had to be under contract by April 30 and close by June 30. Congress has just passed a bill to extend the closing date to September 30 as many lenders are back logged causing delays in closing. If you were not under contract by April 30, you are not eligible for any credit.
Overall the data this morning was very bad. Stocks are reacting how you would expect, posting near triple digit declines, but the money isn’t flowing into mortgage backed securities. MBS are posting small losses this morning which is reflected in lender rate sheets. The par 30 year conventional rate mortgage remains in the 4.375% to 4.625% 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. You may elect to pay less in closing costs, but you will have to accept a higher interest rate.
I continue to favor locking as mortgage rates continue to hold at all time lows. In addition, we get the Employment Situation report which is the single most important economic report we get monthly. It can move the markets in a big way. If it is worse than expected, rates will either hold onto recent gains or could move lower… but how much further can a 30 year fixed rate fall? There is much more room for rates to rise than to fall.
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