Mortgage Rates Hold Steady as Stocks Gain
Posted 07-27-2010 at 08:27 AM by VictorBurek
Better than expected New Home Sales data led to the stock market posting strong gains yesterday. Typically, when stocks advance it is at the expense of the fixed income sector. Well, benchmark treasury yields have risen over the last week, but mortgage backed securities seem to be in their own little world as the “flight to safety” bid remains intact. MBS traded in a tight range with very little volatility which allowed lenders to hold rates steady on the day and only a few basis points higher than the all time lows.
We have two economic reports and a treasury auction today…
First out was the S&P/Case Shiller Home Price Index. This data tracks the monthly change in the value of residential real estate across the U.S. During periods of rising home values, home owners are more likely to spend money as they see the value of their largest asset moving higher. In contrast, during periods of declining home values, home owners are much more likely to save money to offset the losses in home equity. Many economists believe that until home prices fully stabilize it will be extremely difficult for our economy to sustain growth. This makes tracking home sales data much more important than usual. This report has a two month lag, so today’s data reflects the change in value for May.
This morning’s release indicated home prices rose both month over month and year over year on a non-seasonally adjusted basis. The 20 city index rose 4% from April while the 10 city index posted a 1.3% gain. Year over year, the 20 city index is up 4.6% while the 10 city index is up 5.4%. On a seasonally adjusted basis, the 10 city index posted a 0.5% gain from last month matching the prior month’s gain. The data also showed 13 of the 20 cities posted a year over year gain led by San Francisco which posted a 18% increase in home prices. The biggest loser year over year continues to be Las Vegas which posted a 6.53% decline in prices.
Our other scheduled economic release of the day gave us a measure on how consumers are feeling with the release of Consumer Confidence. This is a survey conducted by the Conference Board, they ask consumers questions about their present economic attitude and expectations of future economic conditions. Since our economy is driven by consumer spending, market participants track consumer confidence to get a gauge on how the consumer is feeling. An optimistic consumer is much more likely to spend money which benefits the stock market while a pessimistic consumer is more likely to save or pay off debt which is supportive of low interest rates.
Last month’s report was very disappointing with the index dropping nearly 10 points to 52.9. The major concern of consumers continues to be the lack of job growth. Today’s release indicated consumers confidence continues to slip coming in lower than expected with a print of 50.4.
At 1pm, the Treasury Department will release the results of today’s auction of $38billion of 2 year notes. Strong demand for our nation’s debt is one of several factors that have contributed to record low mortgage rates. Since the life of a mortgage is much closer to 5 to 7 years than 2 years, today’s auction should not have as large an impact on mortgage rates. However, it could set the tone for tomorrow’s 5 year and Thursday’s 7 year note auction which both could have a impact on the near term direction of mortgage rates.
This morning’s rate sheets are very similar to what we saw yesterday. The par 30 year fixed rate conventional mortgage rates continues to hold in the 4.375% to 4.625% 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. If you have lower FICO scores or a higher loan to value, you should consider a FHA loan which offers similar rates down to a 620 FICO score but with higher closing costs thanks to an upfront fee of 2.25% of the loan amount.
I continue to see no benefit in floating. If you are within 30 days, I would recommend locking ahead of the treasury auctions.
We have two economic reports and a treasury auction today…
First out was the S&P/Case Shiller Home Price Index. This data tracks the monthly change in the value of residential real estate across the U.S. During periods of rising home values, home owners are more likely to spend money as they see the value of their largest asset moving higher. In contrast, during periods of declining home values, home owners are much more likely to save money to offset the losses in home equity. Many economists believe that until home prices fully stabilize it will be extremely difficult for our economy to sustain growth. This makes tracking home sales data much more important than usual. This report has a two month lag, so today’s data reflects the change in value for May.
This morning’s release indicated home prices rose both month over month and year over year on a non-seasonally adjusted basis. The 20 city index rose 4% from April while the 10 city index posted a 1.3% gain. Year over year, the 20 city index is up 4.6% while the 10 city index is up 5.4%. On a seasonally adjusted basis, the 10 city index posted a 0.5% gain from last month matching the prior month’s gain. The data also showed 13 of the 20 cities posted a year over year gain led by San Francisco which posted a 18% increase in home prices. The biggest loser year over year continues to be Las Vegas which posted a 6.53% decline in prices.
Our other scheduled economic release of the day gave us a measure on how consumers are feeling with the release of Consumer Confidence. This is a survey conducted by the Conference Board, they ask consumers questions about their present economic attitude and expectations of future economic conditions. Since our economy is driven by consumer spending, market participants track consumer confidence to get a gauge on how the consumer is feeling. An optimistic consumer is much more likely to spend money which benefits the stock market while a pessimistic consumer is more likely to save or pay off debt which is supportive of low interest rates.
Last month’s report was very disappointing with the index dropping nearly 10 points to 52.9. The major concern of consumers continues to be the lack of job growth. Today’s release indicated consumers confidence continues to slip coming in lower than expected with a print of 50.4.
At 1pm, the Treasury Department will release the results of today’s auction of $38billion of 2 year notes. Strong demand for our nation’s debt is one of several factors that have contributed to record low mortgage rates. Since the life of a mortgage is much closer to 5 to 7 years than 2 years, today’s auction should not have as large an impact on mortgage rates. However, it could set the tone for tomorrow’s 5 year and Thursday’s 7 year note auction which both could have a impact on the near term direction of mortgage rates.
This morning’s rate sheets are very similar to what we saw yesterday. The par 30 year fixed rate conventional mortgage rates continues to hold in the 4.375% to 4.625% 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. If you have lower FICO scores or a higher loan to value, you should consider a FHA loan which offers similar rates down to a 620 FICO score but with higher closing costs thanks to an upfront fee of 2.25% of the loan amount.
I continue to see no benefit in floating. If you are within 30 days, I would recommend locking ahead of the treasury auctions.
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