Mortgage Rates Rise, Again
Posted 12-22-2009 at 08:22 AM by VictorBurek
The prices of mortgage backed securities took a tumble yesterday. MBS opened lower and they continued lowered throughout the day which lead to all lenders repricing worse with some repricing multiple times. By the end of the day, the par 30 year fixed rate mortgage had climbed to 4.875%. The downward pressure is continuing this morning with MBS losing more ground at the open of trading. To remind readers, as the price of MBS move lower, lenders are forced to increase consumer borrowing costs.
No economic data was released yesterday, but this morning we have a couple reports that can affect the flow of investor money. First out this morning is the final reading of Gross Domestic Product(GDP) for third quarter. The initial reading indicated our economy grew 3.5% with the first revision showing a lower growth rate of 2.8%. The final reading indicated our economy grew less than economists expectations at 2.2% from July through September indicating the economic recovery is not quite as strong as first thought. Included within this report is a measure of inflation which indicated inflationary pressures are less than first thought. The initial reaction to the release was a move higher with MBS since the economic recovery is not as strong and inflation not as high, both positive signs for the fixed income sector. However, as the morning has progressed, MBS have moved back to the lows of the day. Despite this worse than expected economic data we must remember it is looking backward at growth for the third quarter.
Also out this morning is a report on Existing Home Sales from the National Association of Realtors. This report totals the number of existing homes, not new construction, in which a sale closed in the prior month. Recent reports have shown an increasing trend in home sales with last month’s report indicating record month over month increase of 10.1% to an annualized pace of 6.10million. Economists surveyed prior to this report were expecting continued improvement to 6.25million helped by government stimulus and near record low mortgage rates. Increasing home sales is a positive economic indicator that benefits the stock market as the purchase of a new home will lead to other purchases to fill the home which should lead to higher corporate profits. Additionally, consumers would have to feel pretty good about their own personal financial position and the overall economy to take the large step of buying a new home. The release indicated that existing home sales increased much more than expected to an annualized pace of 6.54million. Following the release, MBS have continued to move lower.
Wednesday brings us the most important data of the week. First will be Personal Income and Outlays which shows the month over month change in the amount of money Americans are earning and spending. Included within this data is the Fed’s favorite gauge for inflation with the Personal Consumption Expenditure. Both personal income and spending is expected to post monthly gains of 0.5% and 0.6% respectively, while the core PCE is expected to post a modest 0.1% increase. Since the bond market prefers slower growth which keeps inflation in check, MBS generally benefit when income and spending are lower than expected. Additionally, since inflation is the biggest enemy to mortgage rates, higher than expected PCE will pressure rates higher. Later in the morning we get another reading on how the consumer feels with Consumer Sentiment which is expected to post no gain from the prior month. The final report for the day gives us another peek at the housing sector with New Home Sales. This report totals the number of newly constructed homes with a committed sale during the prior month. Expectations call for a modest increase from last month’s 430,000 to an annual rate of 440,000.
Also on Wednesday, the Department of Treasury will announce the size of next week’s auction of treasuries. They will offer up to the highest bidders a new supply of 2 year, 5 year and 7 year notes. The added supply of debt on the market will continue to pressure bond yields higher which can negatively impacts mortgage rates.
Reports from fellow mortgage professionals indicate lender rate sheets to be worse this morning. The par 30 year conventional rate mortgage has risen again to the 4.875% to 5.125% range for well qualified consumers. To secure 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 an estimated one point loan origination/discount/broker fee.
I would like to ask the community of readers your opinion on lock vs float. Hopefully all readers have locked their loans but for the people who haven’t, what is your plan at this point? Do you feel MBS have given up much ground due to the low volume and holiday week and will recapture the losses once traders come back from vacation? Or do you feel rates have started to rise and the middle 4% range will not be seen again?
No economic data was released yesterday, but this morning we have a couple reports that can affect the flow of investor money. First out this morning is the final reading of Gross Domestic Product(GDP) for third quarter. The initial reading indicated our economy grew 3.5% with the first revision showing a lower growth rate of 2.8%. The final reading indicated our economy grew less than economists expectations at 2.2% from July through September indicating the economic recovery is not quite as strong as first thought. Included within this report is a measure of inflation which indicated inflationary pressures are less than first thought. The initial reaction to the release was a move higher with MBS since the economic recovery is not as strong and inflation not as high, both positive signs for the fixed income sector. However, as the morning has progressed, MBS have moved back to the lows of the day. Despite this worse than expected economic data we must remember it is looking backward at growth for the third quarter.
Also out this morning is a report on Existing Home Sales from the National Association of Realtors. This report totals the number of existing homes, not new construction, in which a sale closed in the prior month. Recent reports have shown an increasing trend in home sales with last month’s report indicating record month over month increase of 10.1% to an annualized pace of 6.10million. Economists surveyed prior to this report were expecting continued improvement to 6.25million helped by government stimulus and near record low mortgage rates. Increasing home sales is a positive economic indicator that benefits the stock market as the purchase of a new home will lead to other purchases to fill the home which should lead to higher corporate profits. Additionally, consumers would have to feel pretty good about their own personal financial position and the overall economy to take the large step of buying a new home. The release indicated that existing home sales increased much more than expected to an annualized pace of 6.54million. Following the release, MBS have continued to move lower.
Wednesday brings us the most important data of the week. First will be Personal Income and Outlays which shows the month over month change in the amount of money Americans are earning and spending. Included within this data is the Fed’s favorite gauge for inflation with the Personal Consumption Expenditure. Both personal income and spending is expected to post monthly gains of 0.5% and 0.6% respectively, while the core PCE is expected to post a modest 0.1% increase. Since the bond market prefers slower growth which keeps inflation in check, MBS generally benefit when income and spending are lower than expected. Additionally, since inflation is the biggest enemy to mortgage rates, higher than expected PCE will pressure rates higher. Later in the morning we get another reading on how the consumer feels with Consumer Sentiment which is expected to post no gain from the prior month. The final report for the day gives us another peek at the housing sector with New Home Sales. This report totals the number of newly constructed homes with a committed sale during the prior month. Expectations call for a modest increase from last month’s 430,000 to an annual rate of 440,000.
Also on Wednesday, the Department of Treasury will announce the size of next week’s auction of treasuries. They will offer up to the highest bidders a new supply of 2 year, 5 year and 7 year notes. The added supply of debt on the market will continue to pressure bond yields higher which can negatively impacts mortgage rates.
Reports from fellow mortgage professionals indicate lender rate sheets to be worse this morning. The par 30 year conventional rate mortgage has risen again to the 4.875% to 5.125% range for well qualified consumers. To secure 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 an estimated one point loan origination/discount/broker fee.
I would like to ask the community of readers your opinion on lock vs float. Hopefully all readers have locked their loans but for the people who haven’t, what is your plan at this point? Do you feel MBS have given up much ground due to the low volume and holiday week and will recapture the losses once traders come back from vacation? Or do you feel rates have started to rise and the middle 4% range will not be seen again?
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