Mortgage Rates Extend Rally as MBS Close at Record High Price
Posted 07-30-2010 at 08:57 AM by VictorBurek
The “flight to safety” bid is still in effect. Yesterday, benchmark treasuries and mortgage backed securities both benefited from stocks selling off. The economic data came in as expected and the final treasury auction of the week posted weak results but with treasury yields so low, it is not surprising to see investor demand weaken. Most of the price gains with MBS occurred prior to the auction results, so the weak demand didn’t hurt. As the price gains held, all lenders did reprice for the better improving consumer borrowing costs.
We have several economic reports hitting today. First out was the first estimate of second quarter Gross Domestic Product(GDP).
GDP is the broadest measure of total economic activity. It reports on the output of every economic sector. It's basically our economic report card. A rapidly growing economy can lead to price inflation, the bond market prefers stable growth while stocks generally enjoy a faster pace of economic expansion.
We receive three different assessments of GDP: the Advance Read, the Preliminary Release, and the Final Report. Today the Bureau of Economic Analysis released the Advanced Read of second quarter GDP.
The report indicated that our economy expanded less than expected. Second quarter GDP came in at an annualized pace of 2.4% following last quarter’s revised growth of 3.7% from 2.7%. Economists had expected the report to show a 2.5% growth rate. The slower pace of growth will make employers less likely to hire workers which is not good news for those without a job or our economy as a whole. Embedded within this report is the Fed’s favorite gauge on inflation…Personal Consumption Expenditure(PCE). As stated before, inflation is one of the biggest enemies of mortgage rates. The report indicated price inflation at the consumer level grew well below acceptable levels. With inflation in check, the Federal Reserve can continue to hold interest rates low. Following the release of this report, stock market futures moved lower and MBS have continued to move higher to price levels never seen before.
Our next report was the Chicago Purchasing Managers Index. This data gives us a look into the strength of the business conditions in the Chicago region. If the index is above 50, it indicates expanding or improving conditions while readings below 50 imply contracting conditions. We have had two consecutive months of falling business conditions with last month’s report coming in at 59.1, well below April’s print of 63.8. Economists expected today’s report to continue to show conditions worsening to 56.0 but in a surprise the actual print was 62.3!
Our final release of the week: Consumer Sentiment. The Reuter’s/University of Michigan’s Consumer Center surveys 500 households on their attitudes on the economy and personal financial status. Market participants track consumer attitudes to gauge future economic momentum. An optimistic consumer is more likely to spend, which benefits the stock markets. A pessimistic consumer is more likely to save, which supports low yields in the bond market. Low yields in the bond market allow lenders to keep mortgage rates low. The first reading for July sentiment came in at 66.5 and today’s final reading came in a little better than expected with a print of 67.8.
Following the release of the better than expected Chicago PMI and Consumer Sentiment, stocks have moved off their lows pulling some money away from bonds but MBS are still holding near the highest price ever. With the price gains, lenders are passing along lower mortgage rates. The par 30 year conventional rate mortgage is now in the 4.25% to 4.50% range for well qualified consumers. The par 15 year fixed rate conventional mortgage has also fallen to the 3.75 to 4.00% range.
Today’s rate sheets are the best I have ever seen. With the aggressive rate sheets, lenders will be slammed today with locks. Don’t be surprised if we get a reprice for the worse for no reason other than pipeline control. If lenders get too busy, one way to slow down submissions and locks is to increase rates.
We have several economic reports hitting today. First out was the first estimate of second quarter Gross Domestic Product(GDP).
GDP is the broadest measure of total economic activity. It reports on the output of every economic sector. It's basically our economic report card. A rapidly growing economy can lead to price inflation, the bond market prefers stable growth while stocks generally enjoy a faster pace of economic expansion.
We receive three different assessments of GDP: the Advance Read, the Preliminary Release, and the Final Report. Today the Bureau of Economic Analysis released the Advanced Read of second quarter GDP.
The report indicated that our economy expanded less than expected. Second quarter GDP came in at an annualized pace of 2.4% following last quarter’s revised growth of 3.7% from 2.7%. Economists had expected the report to show a 2.5% growth rate. The slower pace of growth will make employers less likely to hire workers which is not good news for those without a job or our economy as a whole. Embedded within this report is the Fed’s favorite gauge on inflation…Personal Consumption Expenditure(PCE). As stated before, inflation is one of the biggest enemies of mortgage rates. The report indicated price inflation at the consumer level grew well below acceptable levels. With inflation in check, the Federal Reserve can continue to hold interest rates low. Following the release of this report, stock market futures moved lower and MBS have continued to move higher to price levels never seen before.
Our next report was the Chicago Purchasing Managers Index. This data gives us a look into the strength of the business conditions in the Chicago region. If the index is above 50, it indicates expanding or improving conditions while readings below 50 imply contracting conditions. We have had two consecutive months of falling business conditions with last month’s report coming in at 59.1, well below April’s print of 63.8. Economists expected today’s report to continue to show conditions worsening to 56.0 but in a surprise the actual print was 62.3!
Our final release of the week: Consumer Sentiment. The Reuter’s/University of Michigan’s Consumer Center surveys 500 households on their attitudes on the economy and personal financial status. Market participants track consumer attitudes to gauge future economic momentum. An optimistic consumer is more likely to spend, which benefits the stock markets. A pessimistic consumer is more likely to save, which supports low yields in the bond market. Low yields in the bond market allow lenders to keep mortgage rates low. The first reading for July sentiment came in at 66.5 and today’s final reading came in a little better than expected with a print of 67.8.
Following the release of the better than expected Chicago PMI and Consumer Sentiment, stocks have moved off their lows pulling some money away from bonds but MBS are still holding near the highest price ever. With the price gains, lenders are passing along lower mortgage rates. The par 30 year conventional rate mortgage is now in the 4.25% to 4.50% range for well qualified consumers. The par 15 year fixed rate conventional mortgage has also fallen to the 3.75 to 4.00% range.
Today’s rate sheets are the best I have ever seen. With the aggressive rate sheets, lenders will be slammed today with locks. Don’t be surprised if we get a reprice for the worse for no reason other than pipeline control. If lenders get too busy, one way to slow down submissions and locks is to increase rates.
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