The Week Ahead as Mortgage Rates Stay Below 5%
Posted 09-14-2009 at 08:20 AM by VictorBurek
Mortgage rates continue to hold below 5% despite some better than expected economic data last week. As a general rule, better than expected economic data usually leads to higher mortgage rates while worse than expected data improves rates. At the close on Friday, the price of mortgage backed securities were near the highest levels seen since early this summer. As the price of MBS moves higher, lenders can offer lower mortgage rates to consumers.
The week ahead does have some high impacting reports which will affect the flow of investor money and can move mortgage rates. Today brings no economic reports but we do have a few speeches by Fed officials. Anytime Fed officials speak, market participants pay attention for any hints at future monetary policy and their outlook on future economic conditions. Today at 12:30pm, Richmond Federal Reserve Bank President Jeffrey Lacker will give a speech on financial regulation. At 3:30pm, San Francisco Reserve Bank President Janet Yellen will give a speech on economic outlook and monetary policy.
On Tuesday we receive a couple key reports. The first being the Producer Price index which measures inflation at the producer level. Typically, reports on inflation are a major market mover, but at the current time inflation is not on the radar. All prior reports on inflation and the minutes from past Fed meetings supports the fact that inflation is not a worry in the near term. Probably the highest impacting report for the week will be Retail sales which measures the monthly change in total receipts at stores. Since our economy is driven by consumer spending, this report will give a direct measure of whether consumers are spending money or not. The report is expected to show an increase in sales from the prior month but much of the increase will be attributed to the cash for clunkers program which sparked a 25% surge in auto sales last month. How about you, are you spending money or still holding back on spending?
Wednesday brings us another read on inflation with the Consumer Price index. This report measures inflation at the consumer level while the prior day’s report measures inflation on the producer level. This report is expected to show a increase in overall prices but the core reading which strips out food and energy is only expected to show a modest 0.1% rise in prices. We also get a reading on the strength of manufacturing with the release of Industrial Production. If industries are producing more goods, that should lead to higher sales and higher corporate profits. The MBS market prefers slower growth which results in less inflationary pressures so they generally improve with a weaker or slower rate of production. Last month’s reading on industrial production showed the first positive number for 2009 and economists surveyed expect another positive reading due to the boost provided by the cash for clunkers program.
Thursday brings us the weekly jobless claims and a read on housing with the Housing Starts report. Of more importance will be the announcement from the U.S. Department of Treasury of the size of the upcoming auction next week of 2 year, 5 year and 7 year treasury notes. The added supply of debt on the market will apply pressure on treasury yields to move higher to attract more buyers. This increase in treasury yields can apply pressure on mortgage rates to rise as well. Despite record amounts of government borrowing, demand for our nation’s debt has remained strong which is one of the factors that have helped mortgage rates hold at historic low levels.
There are no economic reports coming on Friday; however, it is Quadruple Witching day which can create a lot of volatility in the market. Quadruple Witching day happens four times a year and it is when contracts for stock index futures, stock index options, stock options and single stock futures all expire.
Early reports from fellow mortgage professionals are indicating that today’s rate sheets are slightly worse than Friday’s. The par 30 year conventional rate mortgage moved higher to the 4.875% to 5.125% range for the best qualified consumers. In order to get a par interest rate 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 one point loan origination/discount/broker fee. As always, you can elect to pay less in fees and secure a higher interest rate. This is a good strategy for someone keeping a home for less than 3 years, but if you are planning on keeping your home longer it usually makes sense to pay more in fees to get the lower rate. Without paying those fees, the homeowner ends up paying much more over the life of the loan with higher interest payments.
The week ahead does have some high impacting reports which will affect the flow of investor money and can move mortgage rates. Today brings no economic reports but we do have a few speeches by Fed officials. Anytime Fed officials speak, market participants pay attention for any hints at future monetary policy and their outlook on future economic conditions. Today at 12:30pm, Richmond Federal Reserve Bank President Jeffrey Lacker will give a speech on financial regulation. At 3:30pm, San Francisco Reserve Bank President Janet Yellen will give a speech on economic outlook and monetary policy.
On Tuesday we receive a couple key reports. The first being the Producer Price index which measures inflation at the producer level. Typically, reports on inflation are a major market mover, but at the current time inflation is not on the radar. All prior reports on inflation and the minutes from past Fed meetings supports the fact that inflation is not a worry in the near term. Probably the highest impacting report for the week will be Retail sales which measures the monthly change in total receipts at stores. Since our economy is driven by consumer spending, this report will give a direct measure of whether consumers are spending money or not. The report is expected to show an increase in sales from the prior month but much of the increase will be attributed to the cash for clunkers program which sparked a 25% surge in auto sales last month. How about you, are you spending money or still holding back on spending?
Wednesday brings us another read on inflation with the Consumer Price index. This report measures inflation at the consumer level while the prior day’s report measures inflation on the producer level. This report is expected to show a increase in overall prices but the core reading which strips out food and energy is only expected to show a modest 0.1% rise in prices. We also get a reading on the strength of manufacturing with the release of Industrial Production. If industries are producing more goods, that should lead to higher sales and higher corporate profits. The MBS market prefers slower growth which results in less inflationary pressures so they generally improve with a weaker or slower rate of production. Last month’s reading on industrial production showed the first positive number for 2009 and economists surveyed expect another positive reading due to the boost provided by the cash for clunkers program.
Thursday brings us the weekly jobless claims and a read on housing with the Housing Starts report. Of more importance will be the announcement from the U.S. Department of Treasury of the size of the upcoming auction next week of 2 year, 5 year and 7 year treasury notes. The added supply of debt on the market will apply pressure on treasury yields to move higher to attract more buyers. This increase in treasury yields can apply pressure on mortgage rates to rise as well. Despite record amounts of government borrowing, demand for our nation’s debt has remained strong which is one of the factors that have helped mortgage rates hold at historic low levels.
There are no economic reports coming on Friday; however, it is Quadruple Witching day which can create a lot of volatility in the market. Quadruple Witching day happens four times a year and it is when contracts for stock index futures, stock index options, stock options and single stock futures all expire.
Early reports from fellow mortgage professionals are indicating that today’s rate sheets are slightly worse than Friday’s. The par 30 year conventional rate mortgage moved higher to the 4.875% to 5.125% range for the best qualified consumers. In order to get a par interest rate 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 one point loan origination/discount/broker fee. As always, you can elect to pay less in fees and secure a higher interest rate. This is a good strategy for someone keeping a home for less than 3 years, but if you are planning on keeping your home longer it usually makes sense to pay more in fees to get the lower rate. Without paying those fees, the homeowner ends up paying much more over the life of the loan with higher interest payments.
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