Mortgage Rates Take a Step Back
Posted 09-15-2009 at 07:41 AM by VictorBurek
After holding at levels not seen since early this summer, mortgage rates are coming under some pressure. Yesterday, mortgage backed securities were pressured lower in price which forces lenders to offer higher mortgage rates. The downward move continued all the way into close which led to some lenders repricing for the worse. MBS continue to be range bound, but no longer at the top of that range, ahead of many high impacting economic reports which start this morning.
First on the docket and most impacting is the release of the monthly Retail Sales report. Since our economy is driven by consumer spending, market participants track the monthly change in retail sales figures for a gauge into whether the consumer is spending money or still holding back. The stock market generally moves higher with a better than expected reading while MBS benefit with a weak reading. Recent reports have shown that retail sales have been picking up and economists surveyed prior to this report are expecting that trend to continue.
The report shows that retail sales for August improved much higher than expected. When excluding auto sales, retail sales are up three times higher than expected posting the biggest monthly gain in three years! The overall numbers were expected to post healthy gains due to cash for clunkers increasing auto sales last month, but the reading excluding auto sales was a surprise and shows that the consumer may be starting to spend. Have you increased your spending lately or are you continuing to hold back increasing savings?
Next, the U.S. Department of Labor released the Producer Price Index which gives a measure of inflation at the producer level. The PPI report is not as impacting as the Consumer Price Index report which is released tomorrow that measures inflation at the consumer level. Quite often producers do not pass along higher prices to the end consumer, which makes the PPI report less relevant than CPI. All recent reports and talk from all Fed officials have indicated that inflation is not a concern today and should be well contained for the foreseeable future.
The report shows that producer price inflation increased much higher than expected coming in two times higher than economists expectations. The core reading which strips out food and energy due to their volatility posted a monthly increase of 0.2% while expectations called for only a 0.1% increase. Before anyone gets on the bus of “here is inflation”, let’s look at the year over year numbers. The overall reading shows producer prices are down 4.3%, and the core reading only shows a modest 2.3% increase which is well within the Fed’s comfort zone. Even though this report was much worse than expected, one report is not a trend.
Lastly the New York Fed released their monthly Empire State Manufacturing survey which measures the strength of business conditions around the New York region. Last month’s report indicated the first positive reading since early 2008. With the release, the survey shows that conditions continue to improve with the second consecutive month of a positive reading.
At 10am eastern, Federal Reserve Chairman Ben Bernanke will deliver a speech on the year of the crisis to the Brookings Institute. Any time he speaks, market participants will pay attention for any hint at future monetary policy and his outlook for economic growth. His words always have the ability to rattle the markets.
Following the three better than expected economic reports, the pressure on MBS continues which should lead to higher consumer borrowing costs this morning.
Early reports from fellow mortgage professionals are indicating that mortgage rates did worsen overnight. The par 30 year conventional rate mortgage is in the 4.875% to 5.125% range for the best qualified consumers. In order to secure a par interest rate you must have a FICO 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. If you are looking to secure a 15 year fixed rate mortgage, you should expect a par rate in the 4.375% to 4.625% range. To qualify for the 15 year par rate you must have a FICO score of 620 or higher, a loan to value at 80% or less and pay all closing costs including one point.
With more high impacting reports coming tomorrow, floating is risky. If the reports today are any indication of what we get tomorrow, the downward pressure on MBS will continue which can quickly move rates higher. Always remember that mortgage rates move higher much faster than they move lower. I would recommend that anyone closing within the next 30 days strongly consider locking this morning ahead of the potential of more positive economic data this week.
First on the docket and most impacting is the release of the monthly Retail Sales report. Since our economy is driven by consumer spending, market participants track the monthly change in retail sales figures for a gauge into whether the consumer is spending money or still holding back. The stock market generally moves higher with a better than expected reading while MBS benefit with a weak reading. Recent reports have shown that retail sales have been picking up and economists surveyed prior to this report are expecting that trend to continue.
The report shows that retail sales for August improved much higher than expected. When excluding auto sales, retail sales are up three times higher than expected posting the biggest monthly gain in three years! The overall numbers were expected to post healthy gains due to cash for clunkers increasing auto sales last month, but the reading excluding auto sales was a surprise and shows that the consumer may be starting to spend. Have you increased your spending lately or are you continuing to hold back increasing savings?
Next, the U.S. Department of Labor released the Producer Price Index which gives a measure of inflation at the producer level. The PPI report is not as impacting as the Consumer Price Index report which is released tomorrow that measures inflation at the consumer level. Quite often producers do not pass along higher prices to the end consumer, which makes the PPI report less relevant than CPI. All recent reports and talk from all Fed officials have indicated that inflation is not a concern today and should be well contained for the foreseeable future.
The report shows that producer price inflation increased much higher than expected coming in two times higher than economists expectations. The core reading which strips out food and energy due to their volatility posted a monthly increase of 0.2% while expectations called for only a 0.1% increase. Before anyone gets on the bus of “here is inflation”, let’s look at the year over year numbers. The overall reading shows producer prices are down 4.3%, and the core reading only shows a modest 2.3% increase which is well within the Fed’s comfort zone. Even though this report was much worse than expected, one report is not a trend.
Lastly the New York Fed released their monthly Empire State Manufacturing survey which measures the strength of business conditions around the New York region. Last month’s report indicated the first positive reading since early 2008. With the release, the survey shows that conditions continue to improve with the second consecutive month of a positive reading.
At 10am eastern, Federal Reserve Chairman Ben Bernanke will deliver a speech on the year of the crisis to the Brookings Institute. Any time he speaks, market participants will pay attention for any hint at future monetary policy and his outlook for economic growth. His words always have the ability to rattle the markets.
Following the three better than expected economic reports, the pressure on MBS continues which should lead to higher consumer borrowing costs this morning.
Early reports from fellow mortgage professionals are indicating that mortgage rates did worsen overnight. The par 30 year conventional rate mortgage is in the 4.875% to 5.125% range for the best qualified consumers. In order to secure a par interest rate you must have a FICO 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. If you are looking to secure a 15 year fixed rate mortgage, you should expect a par rate in the 4.375% to 4.625% range. To qualify for the 15 year par rate you must have a FICO score of 620 or higher, a loan to value at 80% or less and pay all closing costs including one point.
With more high impacting reports coming tomorrow, floating is risky. If the reports today are any indication of what we get tomorrow, the downward pressure on MBS will continue which can quickly move rates higher. Always remember that mortgage rates move higher much faster than they move lower. I would recommend that anyone closing within the next 30 days strongly consider locking this morning ahead of the potential of more positive economic data this week.
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