Mortgage Rates Resilient But Fade Into the Close
Posted 10-15-2010 at 08:28 AM by VictorBurek
Mortgage rates held relatively stable yesterday during morning and afternoon trading. The economic data was mixed, producer prices were a little warmer than expected but many more people had to file for unemployment benefits last week. However, following a very poor auction of 30 year bonds, the rates market couldn’t hold off a move lower in price higher in yields. Most lenders did reprice for the worse late in the day as mortgage backed securities went out at the lows of the day.
We have a busy day on the economic calendar.
The Department of Labor released the Consumer Price Index this morning. The CPI measures price changes, inflation or deflation, on a fixed basket of goods and services purchased by consumers. Inflation is a high ranking enemy of interest rates. The Federal reserve has stated over and over that inflation is not a concern today. Actually, they would like to see a little inflation as deflation can be a much larger problem for the economy. Yesterday’s Producer Price Index, which measures price changes at the producer level did show a little higher than expected overall price increases but the more important core rate came in on the screws showing a modest 0.1% month over month increase.
Today’s release indicated inflation at the consumer level continues to be in check. Headline consumer prices rose 0.1% last month, lower than the 0.2% increase expected. Year over year, headline CPI is up 1.1% after being up 1.2% last month. The core rate was unchanged also better than the 0.1% rise that was expected. Year over year, core prices are up 0.8% after being up 0.9% last month. The year over year rise in core prices is the lowest since 1961! In a speech this morning, Ben Bernanke stated “inflation is too low” and “the risk of deflation is higher than desirable”. The Fed’s mandate is to have inflation just under 2%.
Released at the same time was Retail Sales. This data reports on the monthly change in total sales receipts taken in at retail stores. The Census Bureau's Retail Sales release is the first report of the month on consumer spending, and since consumer spending accounts for a large majority of GDP, it's capable of affecting the sentiment of the broader marketplace.
The report indicated the consumer spent much more than expected with the third consecutive month of increasing sales. Overall retail sales rose 0.6% last month vs. expectations of only a 0.3% rise. Adding more good news was the prior month’s data revised higher from 0.4% to 0.7% and July’s data was revised from 0.3% to 0.5%. When excluding auto sales, today’s data matched expectations with a 0.4% rise but the prior month’s data was also revised higher from 0.6% to 1.0%. It appears the consumer is out there shopping and spending money.
We also received a report on the strength of the manufacturing sector in the New York region with the release of the Empire State Manufacturing Survey. Each month, the New York Federal Reserve conducts a survey of approximately 175 manufacturing executives in New York. Participants are asked to state the direction they expect several business condition indicators to head in the upcoming months. Readings above 0 indicate expanding or improving conditions while readings below 0 indicate contraction. Since peaking in April of this year, this report has been trending lower each month with last month’s report coming lower than expected at 4.14. Economists surveyed for today’s data expected the survey to come in with a print of 8.0. The survey came in much better than expected at 15.7, the highest print for the survey in four months.
Our final report for the week gave us a read on how the consumer is feeling… 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, this benefits 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. Economists were expecting an uptick in sentiment to 69.0 from last month’s 68.2 print, but today’s survey came in lower at 67.9.
Lender rate sheets are notably worse this morning. The par 30 year conventional rate mortgage remains in the 4.00% to 4.25% range but rates below 4% have disappeared unless you want to pay additional points. To secure a par interest rate on a conventional mortgage 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 costs but you will have to accept a higher interest rate.
Lender rate sheets were issued this morning when MBS were at session lows but have since moved higher following the Consumer Sentiment survey. As long as stocks do not rally today, I favor floating all loans over the weekend. MBS are well off their price highs, so back to the strategy of lock the highs, float the lows.
We have a busy day on the economic calendar.
The Department of Labor released the Consumer Price Index this morning. The CPI measures price changes, inflation or deflation, on a fixed basket of goods and services purchased by consumers. Inflation is a high ranking enemy of interest rates. The Federal reserve has stated over and over that inflation is not a concern today. Actually, they would like to see a little inflation as deflation can be a much larger problem for the economy. Yesterday’s Producer Price Index, which measures price changes at the producer level did show a little higher than expected overall price increases but the more important core rate came in on the screws showing a modest 0.1% month over month increase.
Today’s release indicated inflation at the consumer level continues to be in check. Headline consumer prices rose 0.1% last month, lower than the 0.2% increase expected. Year over year, headline CPI is up 1.1% after being up 1.2% last month. The core rate was unchanged also better than the 0.1% rise that was expected. Year over year, core prices are up 0.8% after being up 0.9% last month. The year over year rise in core prices is the lowest since 1961! In a speech this morning, Ben Bernanke stated “inflation is too low” and “the risk of deflation is higher than desirable”. The Fed’s mandate is to have inflation just under 2%.
Released at the same time was Retail Sales. This data reports on the monthly change in total sales receipts taken in at retail stores. The Census Bureau's Retail Sales release is the first report of the month on consumer spending, and since consumer spending accounts for a large majority of GDP, it's capable of affecting the sentiment of the broader marketplace.
The report indicated the consumer spent much more than expected with the third consecutive month of increasing sales. Overall retail sales rose 0.6% last month vs. expectations of only a 0.3% rise. Adding more good news was the prior month’s data revised higher from 0.4% to 0.7% and July’s data was revised from 0.3% to 0.5%. When excluding auto sales, today’s data matched expectations with a 0.4% rise but the prior month’s data was also revised higher from 0.6% to 1.0%. It appears the consumer is out there shopping and spending money.
We also received a report on the strength of the manufacturing sector in the New York region with the release of the Empire State Manufacturing Survey. Each month, the New York Federal Reserve conducts a survey of approximately 175 manufacturing executives in New York. Participants are asked to state the direction they expect several business condition indicators to head in the upcoming months. Readings above 0 indicate expanding or improving conditions while readings below 0 indicate contraction. Since peaking in April of this year, this report has been trending lower each month with last month’s report coming lower than expected at 4.14. Economists surveyed for today’s data expected the survey to come in with a print of 8.0. The survey came in much better than expected at 15.7, the highest print for the survey in four months.
Our final report for the week gave us a read on how the consumer is feeling… 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, this benefits 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. Economists were expecting an uptick in sentiment to 69.0 from last month’s 68.2 print, but today’s survey came in lower at 67.9.
Lender rate sheets are notably worse this morning. The par 30 year conventional rate mortgage remains in the 4.00% to 4.25% range but rates below 4% have disappeared unless you want to pay additional points. To secure a par interest rate on a conventional mortgage 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 costs but you will have to accept a higher interest rate.
Lender rate sheets were issued this morning when MBS were at session lows but have since moved higher following the Consumer Sentiment survey. As long as stocks do not rally today, I favor floating all loans over the weekend. MBS are well off their price highs, so back to the strategy of lock the highs, float the lows.
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MBS are moving lower... lenders may reprice worse.Posted 10-15-2010 at 12:13 PM by VictorBurek
