What Will Move Mortgage Rates in the Week Ahead
Posted 08-16-2010 at 08:07 AM by VictorBurek
Mortgage backed securities rallied on Friday recapturing most of the losses suffered on Thursday. Typical for a Friday, the majority of lenders did not pass along the price gains leaving rate sheets unchanged on the day but a few did reprice for the better. At the open this morning, MBS are extending the rally which allowed for better rate sheets this morning.
We had two relevant economic releases this morning. As a general rule, worse than expected economic data benefits bonds, while better than expected data benefits stocks.
First out was the New York Fed'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 report indicated an abrupt slowdown in growth posting a reading of 5.08 much lower than the 18.0 that was expected by economists! Today’s release did show an improvement from last month registering a print of 7.1 but did fall short of the 8.0 that was expected.
Our final data release on the day was 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. Since the end of the homebuyer tax credit, this survey has shown confidence falling. June’s survey indicated that home builder confidence fell 5 points to 17 while July’s survey fell further to 14. Today’s release indicated home builder confidence continues to slip posting a 13.
As for the rest of the week, tomorrow we get our busiest day of data with three potentially high impacting reports. We get a measure on the strength of housing with Housing Starts. Released at the same time will be the Producer Price Index which measures inflation at the producer level. Lastly we get Industrial Production which gives us a measure of the strength of the manufacturing sector of our economy. Higher industrial production would be a positive economic indicator which would benefit the stock market at the expense of the fixed income sector.
On Thursday we get the weekly jobless claims, Leading Indicators, and Philly Fed survey. In addition to the economic reports we also find out the terms of next week’s debt offering from the Department of Treasury when they announce the size of next week’s auction of 2 year, 5 year and 7 year notes. The additionally supply of debt on the markets can pressure both treasury yields and mortgage rates higher. Recent announcements have shown the Department of Treasury needing to borrow less and less to meet spending obligations.
Reports from fellow mortgage professionals do indicate lender rate sheets to be improved from Friday. The par 30 year conventional rate mortgage remains in the 4.25% to 4.50% range for well qualified consumers. We even have a few lenders offering 4.125% again. 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. This is a great option for consumers not planning on keeping the current home for more than three years.
If you floated over the weekend, you were rewarded this morning. If you are within 15 days of closing, I would recommend you lock and take advantage of today’s pricing. If you are closing in more than 15 days and want to gamble, keep an eye on stocks. If stocks rally, mortgage rates will come under pressure to move higher.
We had two relevant economic releases this morning. As a general rule, worse than expected economic data benefits bonds, while better than expected data benefits stocks.
First out was the New York Fed'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 report indicated an abrupt slowdown in growth posting a reading of 5.08 much lower than the 18.0 that was expected by economists! Today’s release did show an improvement from last month registering a print of 7.1 but did fall short of the 8.0 that was expected.
Our final data release on the day was 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. Since the end of the homebuyer tax credit, this survey has shown confidence falling. June’s survey indicated that home builder confidence fell 5 points to 17 while July’s survey fell further to 14. Today’s release indicated home builder confidence continues to slip posting a 13.
As for the rest of the week, tomorrow we get our busiest day of data with three potentially high impacting reports. We get a measure on the strength of housing with Housing Starts. Released at the same time will be the Producer Price Index which measures inflation at the producer level. Lastly we get Industrial Production which gives us a measure of the strength of the manufacturing sector of our economy. Higher industrial production would be a positive economic indicator which would benefit the stock market at the expense of the fixed income sector.
On Thursday we get the weekly jobless claims, Leading Indicators, and Philly Fed survey. In addition to the economic reports we also find out the terms of next week’s debt offering from the Department of Treasury when they announce the size of next week’s auction of 2 year, 5 year and 7 year notes. The additionally supply of debt on the markets can pressure both treasury yields and mortgage rates higher. Recent announcements have shown the Department of Treasury needing to borrow less and less to meet spending obligations.
Reports from fellow mortgage professionals do indicate lender rate sheets to be improved from Friday. The par 30 year conventional rate mortgage remains in the 4.25% to 4.50% range for well qualified consumers. We even have a few lenders offering 4.125% again. 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. This is a great option for consumers not planning on keeping the current home for more than three years.
If you floated over the weekend, you were rewarded this morning. If you are within 15 days of closing, I would recommend you lock and take advantage of today’s pricing. If you are closing in more than 15 days and want to gamble, keep an eye on stocks. If stocks rally, mortgage rates will come under pressure to move higher.
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