Mortgage Rates Improve, Still Floating
Posted 10-29-2010 at 08:26 AM by VictorBurek
After many days of worsening mortgage rates, we got some relief yesterday. Mortgage backed securities slowly and steadily improved yesterday as investors saw an opportunity to buy at the price lows. The strong demand forced MBS prices to move higher which allowed lenders to issue improved rate sheets yesterday morning. Price gains during the day allowed lenders to reprice for the better in the early afternoon improving rates further. By day’s end, rates had declined to where 4% was in the reach for well qualified consumers on a 30 year fixed.
Quite a bit of data hit today. First was our initial look into third quarter Gross Domestic Product(GDP).
GDP is the broadest measure of total economic activity. It reports on the output of every economic sector. It's basically our economic report card. A rapidly growing economy can lead to price inflation, one of the largest enemies of low rates. The bond market prefers stable growth while stocks generally enjoy a faster pace of economic expansion.
We receive three different assessments of GDP: the Advance Read, the Preliminary Release, and the Final Report. Today the Bureau of Economic Analysis released the Advance Read for third quarter. The report came in right on the screws indicating our economy grew at a 2% annualized pace improving from a 1.7% growth rate in the second quarter. The improved growth rate was led by a 2.6% increase in consumer spending, the largest increase since 2006! Imbedded within this report is the Fed’s favorite gauge on inflation, the Personal Consumption Expenditure(PCE). Both the overall PCE index and the Core PCE index which strips out food and energy, rose less than expected indicating that inflation continues to be of little concern today. Core PCE fell from 1.0% in quarter two to 0.8% in the third quarter.
The next report on the docket today: Chicago Purchasing Managers Index. This data gives us a look into the strength of the manufacturing sector of our economy. It measures the strength of business conditions in the Chicago region. Index values over 50 imply the sector is growing. Index values below 50 imply the sector is contracting. In September, the Chicago PMI rose to 60.4 from 56.7 in August. Today’s release for October showed the Chicago PMI basically holding steady coming in at 60.6, higher than the 57.6 economists expected.
Our final report for the week gave us a read on how the consumer is feeling… Consumer Sentiment. The Reuter’s/University of Michigan’s Consumer Center surveys 500 households on their attitudes on the economy and personal financial status. Market participants track consumer attitudes to gauge future economic momentum. An optimistic consumer is more likely to spend, this benefits stock markets. A pessimistic consumer is more likely to save, which supports low yields in the bond market. Low yields in the bond market allow lenders to keep mortgage rates low. Economists were expecting an uptick in sentiment to 68.0 from last month’s less than expected 67.9. Today’s report indicated Consumer Sentiment slipped to 67.7.
Lender rate sheets are improved from yesterday. The par 30 year conventional rate mortgage remains in the 4.125% to 4.375% range with several lenders offering 4.00% 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 costs but you will have to accept a higher rate which is a great option for consumers not planning on keeping current home for more than three years. Your mortgage professional should be able to help you determine the breakeven point to determine the optimal cost/rate structure of your loan.
I still favor floating all loans in anticipation of rates continuing to decline following the FOMC meeting November 3rd.
I will be out of town for a few days, so my next post will not come until Thursday. Have a great weekend.
Quite a bit of data hit today. First was our initial look into third quarter Gross Domestic Product(GDP).
GDP is the broadest measure of total economic activity. It reports on the output of every economic sector. It's basically our economic report card. A rapidly growing economy can lead to price inflation, one of the largest enemies of low rates. The bond market prefers stable growth while stocks generally enjoy a faster pace of economic expansion.
We receive three different assessments of GDP: the Advance Read, the Preliminary Release, and the Final Report. Today the Bureau of Economic Analysis released the Advance Read for third quarter. The report came in right on the screws indicating our economy grew at a 2% annualized pace improving from a 1.7% growth rate in the second quarter. The improved growth rate was led by a 2.6% increase in consumer spending, the largest increase since 2006! Imbedded within this report is the Fed’s favorite gauge on inflation, the Personal Consumption Expenditure(PCE). Both the overall PCE index and the Core PCE index which strips out food and energy, rose less than expected indicating that inflation continues to be of little concern today. Core PCE fell from 1.0% in quarter two to 0.8% in the third quarter.
The next report on the docket today: Chicago Purchasing Managers Index. This data gives us a look into the strength of the manufacturing sector of our economy. It measures the strength of business conditions in the Chicago region. Index values over 50 imply the sector is growing. Index values below 50 imply the sector is contracting. In September, the Chicago PMI rose to 60.4 from 56.7 in August. Today’s release for October showed the Chicago PMI basically holding steady coming in at 60.6, higher than the 57.6 economists expected.
Our final report for the week gave us a read on how the consumer is feeling… Consumer Sentiment. The Reuter’s/University of Michigan’s Consumer Center surveys 500 households on their attitudes on the economy and personal financial status. Market participants track consumer attitudes to gauge future economic momentum. An optimistic consumer is more likely to spend, this benefits stock markets. A pessimistic consumer is more likely to save, which supports low yields in the bond market. Low yields in the bond market allow lenders to keep mortgage rates low. Economists were expecting an uptick in sentiment to 68.0 from last month’s less than expected 67.9. Today’s report indicated Consumer Sentiment slipped to 67.7.
Lender rate sheets are improved from yesterday. The par 30 year conventional rate mortgage remains in the 4.125% to 4.375% range with several lenders offering 4.00% 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 costs but you will have to accept a higher rate which is a great option for consumers not planning on keeping current home for more than three years. Your mortgage professional should be able to help you determine the breakeven point to determine the optimal cost/rate structure of your loan.
I still favor floating all loans in anticipation of rates continuing to decline following the FOMC meeting November 3rd.
I will be out of town for a few days, so my next post will not come until Thursday. Have a great weekend.
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