Mortgage Rates Might Have Found a Top
Posted 11-17-2010 at 08:19 AM by VictorBurek
After a brutal few days, mortgage rates seemed to have found a ceiling. Well, maybe they have found a ceiling but we do have some high impact data today that could change things. Yesterday, mortgage backed securities managed to have their first positive day since last week. It was a bumpy ride though. MBS opened under pressure forcing lenders to increase rates yesterday morning. Right at 1pm the tide shifted and MBS began to rally closing higher in price on the day. All lenders did reprice for the better lowering consumer borrowing costs.
The Department of Labor released the Consumer Price Index this morning. The CPI measures price changes, inflation or deflation, on a fixed basket of goods and services purchased by consumers. Inflation is a high ranking enemy of interest rates. The Federal reserve has stated over and over that inflation is not a concern today. Actually, they would like to see a little inflation as deflation can be a much larger problem for the economy. Yesterday’s Producer Price Index, which measures price changes at the producer level indicated overall prices increased less than expected with the core rate unexpectedly declining 0.6%!
Today’s release indicated inflation at the consumer level rose less than expected and continues to be in check. Headline consumer prices rose 0.2% last month, lower than the 0.3% increase expected. Year over year, headline CPI is up 1.2% after being up 1.1% last month. The core rate was unchanged for the third month in a row also better than the 0.1% rise that was expected. Year over year, core prices are up 0.6% after being up 0.8% last month. The year over year rise in core prices is the lowest since 1957 when they index began!
We have further confirmation that inflation is not a risk today. Part of the purpose of QEII is the Fed feels inflation is too low and deflation continues to be a threat. The Fed would like to see inflation around 2%. In a speech on Nov. 6, Fed Chairman Ben Bernanke stated “You don’t want inflation to be too high but you also don’t want it to be to low” and “Our purpose is to provide additional stimulus(QEII) to help the economy recover and to avoid potentially additional disinflation, which I think we all agree would be a worse outcome.”
Our other data release was Housing Starts & Building Permits. Released by the Department of Commerce, Housing Starts data estimates how much new residential real estate construction occurred in the previous month. Building Permits data provides an estimate on the number of homes planning on being built, a forward looking indicator of economic expansion. Since the end of the home buyer tax credit earlier this year, housing data has been quite disappointing.
The prior two month’s reports indicated much higher than expected starts with last month’s Housing Starts coming in at an annualized pace of 610,000 units, a five month high, leading many to believe that housing may have found a bottom. On the other hand, Building Permits fell 5.6% to a much worse than expected annualized pace of 539,000 indicating further weakness in the months ahead.
Today’s data was disappointing as both Starts and Permits came in lower than expectations. Housing Starts fell 12% to an annualized pace of only 519,000 vs estimates for 600,000. This is the lowest reading since April 2009. Building permits rose 0.5% to a annualized pace of 550,000 vs estimates for 570,000. With a glut of housing on the market and a large “shadow inventory” it isn’t a bad thing to see less new homes being built.
Following the two bond friendly reports, MBS are extending the gains from yesterday which allowed lenders to offer better rate sheets this morning. The par 30 year conventional rate mortgage has fallen to the 4.25% to 4.50% range 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. Lower FICO scores will have to pay additional costs to secure a par rate or accept a higher rate due to Loan Level Price Adjusters.
Let’s continue to float and see if MBS can continue to rally.
The Department of Labor released the Consumer Price Index this morning. The CPI measures price changes, inflation or deflation, on a fixed basket of goods and services purchased by consumers. Inflation is a high ranking enemy of interest rates. The Federal reserve has stated over and over that inflation is not a concern today. Actually, they would like to see a little inflation as deflation can be a much larger problem for the economy. Yesterday’s Producer Price Index, which measures price changes at the producer level indicated overall prices increased less than expected with the core rate unexpectedly declining 0.6%!
Today’s release indicated inflation at the consumer level rose less than expected and continues to be in check. Headline consumer prices rose 0.2% last month, lower than the 0.3% increase expected. Year over year, headline CPI is up 1.2% after being up 1.1% last month. The core rate was unchanged for the third month in a row also better than the 0.1% rise that was expected. Year over year, core prices are up 0.6% after being up 0.8% last month. The year over year rise in core prices is the lowest since 1957 when they index began!
We have further confirmation that inflation is not a risk today. Part of the purpose of QEII is the Fed feels inflation is too low and deflation continues to be a threat. The Fed would like to see inflation around 2%. In a speech on Nov. 6, Fed Chairman Ben Bernanke stated “You don’t want inflation to be too high but you also don’t want it to be to low” and “Our purpose is to provide additional stimulus(QEII) to help the economy recover and to avoid potentially additional disinflation, which I think we all agree would be a worse outcome.”
Our other data release was Housing Starts & Building Permits. Released by the Department of Commerce, Housing Starts data estimates how much new residential real estate construction occurred in the previous month. Building Permits data provides an estimate on the number of homes planning on being built, a forward looking indicator of economic expansion. Since the end of the home buyer tax credit earlier this year, housing data has been quite disappointing.
The prior two month’s reports indicated much higher than expected starts with last month’s Housing Starts coming in at an annualized pace of 610,000 units, a five month high, leading many to believe that housing may have found a bottom. On the other hand, Building Permits fell 5.6% to a much worse than expected annualized pace of 539,000 indicating further weakness in the months ahead.
Today’s data was disappointing as both Starts and Permits came in lower than expectations. Housing Starts fell 12% to an annualized pace of only 519,000 vs estimates for 600,000. This is the lowest reading since April 2009. Building permits rose 0.5% to a annualized pace of 550,000 vs estimates for 570,000. With a glut of housing on the market and a large “shadow inventory” it isn’t a bad thing to see less new homes being built.
Following the two bond friendly reports, MBS are extending the gains from yesterday which allowed lenders to offer better rate sheets this morning. The par 30 year conventional rate mortgage has fallen to the 4.25% to 4.50% range 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. Lower FICO scores will have to pay additional costs to secure a par rate or accept a higher rate due to Loan Level Price Adjusters.
Let’s continue to float and see if MBS can continue to rally.
Total Comments 2
Comments
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A couple lenders have already repriced for the better today.Posted 11-17-2010 at 09:31 AM by VictorBurek
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The volatility continues... MBS have now moved lower, still up on the day, but a few lenders that repriced for the better are now repricing for the worse.Posted 11-17-2010 at 12:31 PM by VictorBurek
