Mortgage Rates Steady Near Historic Lows

Since Friday, lender pricing has improved 75 basis points bringing the par interest rate very close to all time lows. Mortgage rates were unable to extend those gains yesterday as the interest rates markets took a breather.

The data picked up today with several releases starting with weekly Jobless Claims. Released by the Department of Labor, this report provides three timely metrics on the health of the labor market:

• Initial Jobless Claims: totals the number of Americans who filed for first time unemployment benefits in the previous week
• Continued Claims: totals the number of Americans who continue to file for benefits due to an inability to find a new job
• Extended and Emergency Benefits: totals the number of Americans who have exhausted their traditional benefits and are now receiving extended and emergency benefits

Since our economy is driven by consumer spending, market participants track employment data to get a gauge on economic momentum. Higher jobless claims imply less consumers have jobs and therefore less money to spend. This is a negative for the overall economy but generally helpful in keeping consumer borrowing costs from rising. Since peaking in mid August at 500,000 claims, recent reports have shown initial claims falling.

Here are the results:

• Initial Jobless Claims: +12,000 to 465,000 vs. estimates for a read of 450,000. WORSE THAN EXPECTED. Prior week’s data was revised worse to show 3,000 more claims.
• Continued Claims: -48,000 to 4.489 million vs. estimates of 4.460million.
• Extended and Emergency Benefits: +208,000 to 5.17million.

Next on the docket was Existing Home Sales for August from the National Association of Realtors (NAR). This data totals the number of previously owned homes in which a sale closed during the prior month. Last month’s report was downright horrible showing sales plunging a record 27.2% in July to an annualized pace of only 3.83million home sales and far short of economists’ expectations.

Today’s release indicated Existing Home Sales for August increased 7.6%, slightly better than expectations of only a 7% rise. On an annualized pace that equates to 4.13 million homes sold. The increased sales helped to lower the supply of homes on the market to 11.6 months. NAR states that month’s supply would need to fall to 8 to 9 months to stabilize home prices. The median home price fell 1.9% from last month to $178,600. Year over year, existing home sales are down 19.0%. Despite the positive news on higher home sales, today’s annualized pace is still the second lowest level on record, with last month being the lowest ever.

Our final data release was Leading Indicators for August. This is a composite index of 10 economic data points that are believed to be forward looking indicators of economic activity. If the month over month change is positive, it indicates the economy is improving. Most of the components of this report have already been released so the market generally has a limited reaction to the news. Today’s data indicated Leading Indicators rose 0.3%, beating forecasts of only a 0.1% rise indicating the economy will continue to expand.

Last but not least, the Treasury Department announced the terms of next week's round of Treasury auctions. When our government does not have enough cash on hand to pay for current spending outlays, they borrow funds in the debt market by issuing Treasury bills, notes, and bonds. The added supply of debt on the market can pressure yields and mortgage rates higher. Recent issuances have shown a declining need to borrow by our government which is positive for mortgage rates. The Treasury Department announced it will sell $36 billion 2 year notes next Tuesday, $35 billion 5-year notes next Wednesday, and $29 billion 7-year notes next Thursday. These offering amounts are $1 billion less for 2-year notes and 5 year notes, and the same for 7 year notes than the prior auction of similar securities.

Due to morning weakness in the fixed income sector following Existing Home Sales and Leading Indicators, lender rate sheets are slightly worse than yesterday. The par 30 year conventional rate mortgage remains in the 4.25% to 4.50% range with several lenders still offering 4.125%. The par 15 year conventional rate mortgage continues to hold in the 3.75% to 4.00% range. To secure a par interest rate you will be required to pay all the closing costs associated with your loan which includes lender fees, title fees, government recording fees and taxes including one point loan origination/discount/broker fee. You may elect to pay less in costs but you will have to accept a higher interest rate.

Same lock advice as yesterday. Short term closings should lock while those with time are probably safe to float but you should consider locking as lender pricing is very close to the best we have ever seen.