Flight To Safety Continues, Mortgage Rates Rally
Posted 11-30-2010 at 10:32 AM by VictorBurek
Mortgage backed securities rallied yesterday as stocks around the globe sold off as investors sought the relative safety of U.S. Treasuries and MBS. Continued fears of further conflict between North and South Korea and debt concerns across Europe are the cause of the “flight to safety”. MBS managed decent price gains yesterday but only 1 lender repriced for the better. Lenders are very slow to pass along price improvements but very quick to take away. To remind readers, as MBS move higher in price, lenders can pass along better rate sheets.
We did receive a couple economic releases this morning. First out was the 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 October, the Chicago PMI rose to 60.6 from 60.4 in the prior month. Today’s release for November showed the Chicago PMI accelerating much more than expected to a print of 62.5 vs 61.0.
Next came the release of Consumer Confidence for November. This is a survey conducted by the Conference Board. They ask consumers questions about their present economic attitude and their expectations for future economic activity. Since our economy is driven by consumer spending, market participants track consumer confidence to gauge how consumers are feeling. An optimistic consumer is more likely to spend money, which benefits the stock market, while a pessimistic consumer is more likely to save or pay off debt, which is supportive of low interest rates. Last month’s report came in better than expected at 50.2 vs 49.2.
Despite the better than expected report, this survey is still well below the highs of May when the report registered a 63.3. Today’s survey also came in better than expectations with a print of 54.1 vs 52.0.
Despite both economic releases coming in better than expected, MBS are moving higher this morning as the “flight to safety” bid continues. Lender rate sheets are improved from yesterday. The par 30 year conventional rate mortgage remains in the 4.375% to 4.625% range but a few other lenders are offering 4.25%. As always, 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 fees of no fees, but you will have to accept a higher interest rate.
Like yesterday, I see no reason to lock today. If closing in the short term, less than a week, consider locking later today if the stock market rallies. If stocks continue to trade in the negative, the flight to safety bid should continue which might result in better pricing tomorrow.
We did receive a couple economic releases this morning. First out was the 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 October, the Chicago PMI rose to 60.6 from 60.4 in the prior month. Today’s release for November showed the Chicago PMI accelerating much more than expected to a print of 62.5 vs 61.0.
Next came the release of Consumer Confidence for November. This is a survey conducted by the Conference Board. They ask consumers questions about their present economic attitude and their expectations for future economic activity. Since our economy is driven by consumer spending, market participants track consumer confidence to gauge how consumers are feeling. An optimistic consumer is more likely to spend money, which benefits the stock market, while a pessimistic consumer is more likely to save or pay off debt, which is supportive of low interest rates. Last month’s report came in better than expected at 50.2 vs 49.2.
Despite the better than expected report, this survey is still well below the highs of May when the report registered a 63.3. Today’s survey also came in better than expectations with a print of 54.1 vs 52.0.
Despite both economic releases coming in better than expected, MBS are moving higher this morning as the “flight to safety” bid continues. Lender rate sheets are improved from yesterday. The par 30 year conventional rate mortgage remains in the 4.375% to 4.625% range but a few other lenders are offering 4.25%. As always, 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 fees of no fees, but you will have to accept a higher interest rate.
Like yesterday, I see no reason to lock today. If closing in the short term, less than a week, consider locking later today if the stock market rallies. If stocks continue to trade in the negative, the flight to safety bid should continue which might result in better pricing tomorrow.
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