Mortgage Rates Under Pressure, But Holding Steady
Posted 03-11-2010 at 07:55 AM by VictorBurek
Early morning weakness with Mortgage Backed Securities led to slightly worse lender rate sheets yesterday morning. Following another successful treasury auction, MBS regained all the morning losses but lenders did not pass along the improvement. Lenders are very quick to take away when MBS are falling in price but very slow in passing along improvements as MBS move higher in price.
We had a couple economic releases this morning.
First was the weekly jobless claims from the Department of Labor. This report provides three measures on the health of the labor market:
1. Initial Jobless Claims: totals the number of Americans who filed for first time unemployment benefits
2. Continued Claims: totals the number of Americans who continue to file for benefits due to an inability to find a new job
3. Extended Benefits: totals the number of Americans who have exhausted their traditional benefits and are now receiving emergency benefits
Since our economy is driven by consumer spending, market participants track employment data to get a sense of economic momentum. While an increase in jobless claims is a bad sign for the economy, weak data generally helps mortgage rates move lower. Higher rates of unemployment reduce income levels and strain consumer spending. Less spending erodes corporate profits and forces investors to sell stocks. When investors sell stocks they usually look to re-allocate funds into safer assets like U.S Treasuries. When Treasury yields fall mortgage rates usually follow their lead. As a general rule, bad news for the economy is good news for mortgage rates.
Last week’s claims numbers came in on the screws following the prior week’s much worse than expected report. This week’s report came in basically in line with expectations indicating a decline in initial claims to 462,000 from a revised 468,000 in the prior week. Continued claims increased by 37,000 to 4.56 million while the number of Americans receiving extended benefits declined by 174,830 to 5.69million.
Yesterday, the Senate approved a bill to once again extend benefits even further to as many as 99 weeks. The House takes up the bill next before it can be passed along to President Obama to make it law.
Released at the same time was the International Trade data. The Trade Balance report measures the monthly difference between what our nation imports and what our nation exports. The report showed that our trade deficit narrowed much more than expected in January to $-37.3billion from a revised $39.9billion deficit in December. Exports declined 0.3% while imports fell 1.7% indicating weaker demand here for foreign products. The largest decline with imported items was seen in oil as we imported the fewest barrels in a decade. The decline in exports was the first decline since last April ending a streak of 8 months in a row of gains.
At 1pm eastern, the Department of Treasury will release the results of today’s auction of $13billion of 30 year bonds. Weak demand at today’s auction will continue to pressure mortgage rates higher. The prior two auctions this week were received very well showing strong demand but were unable to help mortgage rates improve. With this being the last auction for the week, the potential for a movement in the interest rate market increases.
Reports from fellow mortgage professionals indicate lender rate sheets to be similar to yesterday. The par 30 year conventional rate mortgage remains in the 4.75% to 5.00% 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. You may elect to pay less in fees but you will have to accept a higher interest rate. If you are seeking a 15 year term, you should expect par in the 4.25% to 4.50% range with similar costs but lower FICO score requirement.
Tomorrow morning we get the Retail Sales, Consumer Sentiment and Business Inventories. Of the three, the Retail Sales report has the highest potential to move the markets. Higher than expected results can move rates higher. I continue to advise my clients and readers to lock as rates continue to hold at the best levels of the year and market participants show no willingness to drive mortgage rates lower. Same exception as yesterday, if you can float overnight and lock on a shorter term tomorrow, I would float.
We had a couple economic releases this morning.
First was the weekly jobless claims from the Department of Labor. This report provides three measures on the health of the labor market:
1. Initial Jobless Claims: totals the number of Americans who filed for first time unemployment benefits
2. Continued Claims: totals the number of Americans who continue to file for benefits due to an inability to find a new job
3. Extended Benefits: totals the number of Americans who have exhausted their traditional benefits and are now receiving emergency benefits
Since our economy is driven by consumer spending, market participants track employment data to get a sense of economic momentum. While an increase in jobless claims is a bad sign for the economy, weak data generally helps mortgage rates move lower. Higher rates of unemployment reduce income levels and strain consumer spending. Less spending erodes corporate profits and forces investors to sell stocks. When investors sell stocks they usually look to re-allocate funds into safer assets like U.S Treasuries. When Treasury yields fall mortgage rates usually follow their lead. As a general rule, bad news for the economy is good news for mortgage rates.
Last week’s claims numbers came in on the screws following the prior week’s much worse than expected report. This week’s report came in basically in line with expectations indicating a decline in initial claims to 462,000 from a revised 468,000 in the prior week. Continued claims increased by 37,000 to 4.56 million while the number of Americans receiving extended benefits declined by 174,830 to 5.69million.
Yesterday, the Senate approved a bill to once again extend benefits even further to as many as 99 weeks. The House takes up the bill next before it can be passed along to President Obama to make it law.
Released at the same time was the International Trade data. The Trade Balance report measures the monthly difference between what our nation imports and what our nation exports. The report showed that our trade deficit narrowed much more than expected in January to $-37.3billion from a revised $39.9billion deficit in December. Exports declined 0.3% while imports fell 1.7% indicating weaker demand here for foreign products. The largest decline with imported items was seen in oil as we imported the fewest barrels in a decade. The decline in exports was the first decline since last April ending a streak of 8 months in a row of gains.
At 1pm eastern, the Department of Treasury will release the results of today’s auction of $13billion of 30 year bonds. Weak demand at today’s auction will continue to pressure mortgage rates higher. The prior two auctions this week were received very well showing strong demand but were unable to help mortgage rates improve. With this being the last auction for the week, the potential for a movement in the interest rate market increases.
Reports from fellow mortgage professionals indicate lender rate sheets to be similar to yesterday. The par 30 year conventional rate mortgage remains in the 4.75% to 5.00% 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. You may elect to pay less in fees but you will have to accept a higher interest rate. If you are seeking a 15 year term, you should expect par in the 4.25% to 4.50% range with similar costs but lower FICO score requirement.
Tomorrow morning we get the Retail Sales, Consumer Sentiment and Business Inventories. Of the three, the Retail Sales report has the highest potential to move the markets. Higher than expected results can move rates higher. I continue to advise my clients and readers to lock as rates continue to hold at the best levels of the year and market participants show no willingness to drive mortgage rates lower. Same exception as yesterday, if you can float overnight and lock on a shorter term tomorrow, I would float.
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