Rates Rally Exhausts as Data Beats Estimates
Posted 09-24-2010 at 08:25 AM by VictorBurek
Mortgage rates took a small step backward yesterday as existing home sales data came in better than expectations. A few lenders that issued pricing prior to the report did reprice for the worse.
Our week wraps up with two potentially impactful reports. First out, and of higher importance, was Durable Goods Orders. This data measures the number of new orders placed at U.S. factories for products that are expected to last at least three years. This would include items such as computers, appliances, and electronics. This report tells economists how busy factories will be in the months ahead. Increasing orders implies there is more potential for higher corporate revenues and profits. It could also imply that firms would need to hire additional staff to ensure they keep up with growing orders. This is a positive for the overall economy and stocks...but a negative for the fixed income sector/interest rates.
The report indicated Durable Goods Orders for August fell 1.3%, greater than the 1.0% decline that was expected. Offsetting the miss was a revision to last month’s report from +.4% to +.7%. When excluding transportation orders, the report came in much higher than expected at +2.0%, the largest increase since March vs estimates of only a +1.0% rise. Last month’s data was also revised better from the first reported drop of 3.7% to only a decline of 2.8%. Following this report, stock futures have moved much higher pressuring interest rates higher.
Our final report on the week gave us another look at the strength of the housing sector with the release of New Home Sales. The Census Bureau considers a new home sold when the buyers sign the sales contract. The house can be in any stage of construction: not yet started, under construction, or already completed. Typically about 25% of the houses are sold at the time of completion. The remaining 75% are evenly split between those not yet started and those under construction. Since the end of the home buyer tax credit, home sales data has been quite disappointing. In July, New Home Sales fell to a record low of 276,000 units on an annualized basis.
Today’s release indicated New Home Sales in August rose to an annualized pace of 288,000, just short of the 290,000 that was expected by economists. This is the second lowest level on record. The median New Home price fell 1.2% from August 2009 to $204,700, and the supply of homes on the market fell to a 8.6 month supply from 8.7 months in July. The total supply of new homes on the market is 206,000 units, the fewest since August 1968.
Lender rate sheets are worse again this morning. The par 30 year conventional rate mortgage remains in the 4.25% to 4.50% range. The lenders offering 4.125% earlier this week are no longer doing so without additional costs. To secure a par interest rate on a conventional mortgage you must have a 740 or higher FICO score, a loan to value at 80% or less and pay all the closing costs including an estimated one point loan origination/discount/broker fee.
Our strategy for locking, which has been very successful, is to lock the price highs and float the price lows. Currently, mortgage backed security prices are near the lows so I favor floating. Additionally, lenders tend to be somewhat conservative with their pricing on Fridays. Rates are still very close to all time lows, so nothing wrong with locking as that does remove all risk but I feel we will either see the same pricing next week or improved pricing.
Have a great weekend!
Our week wraps up with two potentially impactful reports. First out, and of higher importance, was Durable Goods Orders. This data measures the number of new orders placed at U.S. factories for products that are expected to last at least three years. This would include items such as computers, appliances, and electronics. This report tells economists how busy factories will be in the months ahead. Increasing orders implies there is more potential for higher corporate revenues and profits. It could also imply that firms would need to hire additional staff to ensure they keep up with growing orders. This is a positive for the overall economy and stocks...but a negative for the fixed income sector/interest rates.
The report indicated Durable Goods Orders for August fell 1.3%, greater than the 1.0% decline that was expected. Offsetting the miss was a revision to last month’s report from +.4% to +.7%. When excluding transportation orders, the report came in much higher than expected at +2.0%, the largest increase since March vs estimates of only a +1.0% rise. Last month’s data was also revised better from the first reported drop of 3.7% to only a decline of 2.8%. Following this report, stock futures have moved much higher pressuring interest rates higher.
Our final report on the week gave us another look at the strength of the housing sector with the release of New Home Sales. The Census Bureau considers a new home sold when the buyers sign the sales contract. The house can be in any stage of construction: not yet started, under construction, or already completed. Typically about 25% of the houses are sold at the time of completion. The remaining 75% are evenly split between those not yet started and those under construction. Since the end of the home buyer tax credit, home sales data has been quite disappointing. In July, New Home Sales fell to a record low of 276,000 units on an annualized basis.
Today’s release indicated New Home Sales in August rose to an annualized pace of 288,000, just short of the 290,000 that was expected by economists. This is the second lowest level on record. The median New Home price fell 1.2% from August 2009 to $204,700, and the supply of homes on the market fell to a 8.6 month supply from 8.7 months in July. The total supply of new homes on the market is 206,000 units, the fewest since August 1968.
Lender rate sheets are worse again this morning. The par 30 year conventional rate mortgage remains in the 4.25% to 4.50% range. The lenders offering 4.125% earlier this week are no longer doing so without additional costs. To secure a par interest rate on a conventional mortgage you must have a 740 or higher FICO score, a loan to value at 80% or less and pay all the closing costs including an estimated one point loan origination/discount/broker fee.
Our strategy for locking, which has been very successful, is to lock the price highs and float the price lows. Currently, mortgage backed security prices are near the lows so I favor floating. Additionally, lenders tend to be somewhat conservative with their pricing on Fridays. Rates are still very close to all time lows, so nothing wrong with locking as that does remove all risk but I feel we will either see the same pricing next week or improved pricing.
Have a great weekend!
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