Mortgage Rates Hold in the Range and the Week Ahead
Posted 11-02-2009 at 08:37 AM by VictorBurek
Last week ended on a strong note for mortgage backed securities. With the stock market moving considerably lower, market participants moved their cash into the fixed income sector bringing the benchmark 10 yr note back under 3.40% and helping MBS close at their best levels over the last couple weeks. All lenders did reprice for the better as the price gains held to close.
This morning we had a few economic reports hit the news wires. First report out gives us a reading on the strength of the manufacturing sector of our economy with the ISM Manufacturing Index. The Institute for Supply Management surveys more than 300 manufacturers across the country on the strength of their business conditions. Readings above 50 indicate expansion while readings below 50 indicate contraction. Since March of this year this report has consistently shown conditions improving with Augusts’ report moving above 50 for the first time since January 2008!
The report continues to show the manufacturing sector of our economy improving with a higher than expected reading of 55.7. Following the release of this economic positive report, the stock market has moved considerably higher putting MBS under some pressure to move lower in price.
Next, the U.S. Department of Commerce released the monthly construction spending report which simply gives us a reading on whether construction spending is increasing or decreasing. New construction has a snow ball effect on our economy and is a good indicator of economic momentum. First, increased spending on construction should lead to additional construction jobs giving consumers more income that can be spent into the economy. Secondly, when a new building, residential or non residential, is completed there are many items that need to be purchased to complete it such as flooring, window treatments and furniture. This increased spending could lead to higher corporate profits so the stock market likes to see healthy increases to the amount of money spent on construction.
The release of this report shows that construction spending for September(2 month lag) came in higher than expected posting a monthly increase of 0.8% vs a 0.2% decline. Offsetting this positive report was last month’s numbers were revised much worse from an initially reported 0.8% gain to a 0.1% decline.
The final report of the day comes from the National Association of Realtors with the release of the Pending Home Sales Index. This data totals the number of homes in which a contract has been signed but not yet closed. Just like the construction spending report, this data is also a good indicator of future economic momentum since the purchase of a new home leads to many other purchases.
The report indicates that pending home sales for September(2 month lag) came in higher for the eighth consecutive month posting a month over month increase of 6.1% as home buyers rush to meet the deadline for the homebuyer tax credit. Since a pending home sale is not an actual closed transaction, this positive economic report should have minimal effect on the markets.
The rest of the week is filled with some high impacting reports and events. To highlight a few of these items, first the Federal Open Market Committee meets on Tuesday for their 2 day meeting where they set our nation’s monetary policy and give an economic outlook. It is widely expected that they will maintain the current accommodative stance keeping the Fed fund rate at 0 to .25%. On Wednesday, we get the Fed statement which will be scoured by market participants for any hint at future monetary policy and the Fed’s outlook on the economy. Additionally, we get the announcement from the U.S. Treasury of the size of the upcoming auctions next week. And on Friday, we get the single most important economic report with the release of the Employment Situation. It is expected to show the unemployment rate moving higher to 9.9% and a loss of 175,000 jobs from the prior month. If this report comes in better than expected, mortgage rates can move higher very quickly.
Early reports from fellow mortgage professionals indicate lender rate sheets to be better than what we had on Friday morning. 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.
Following the release of today’s data, MBS have moved off the highs but continue to hold well within the current trading range which I have used to recommend locking or floating. With a lot of high impacting reports coming out this week, floating is risky but with risk comes potential reward. This is not a lock recommendation just a warning that rates could go either way. I would recommend for anyone closing within the next week to go ahead and lock and remove all chances of a spike higher in mortgage rates.
This morning we had a few economic reports hit the news wires. First report out gives us a reading on the strength of the manufacturing sector of our economy with the ISM Manufacturing Index. The Institute for Supply Management surveys more than 300 manufacturers across the country on the strength of their business conditions. Readings above 50 indicate expansion while readings below 50 indicate contraction. Since March of this year this report has consistently shown conditions improving with Augusts’ report moving above 50 for the first time since January 2008!
The report continues to show the manufacturing sector of our economy improving with a higher than expected reading of 55.7. Following the release of this economic positive report, the stock market has moved considerably higher putting MBS under some pressure to move lower in price.
Next, the U.S. Department of Commerce released the monthly construction spending report which simply gives us a reading on whether construction spending is increasing or decreasing. New construction has a snow ball effect on our economy and is a good indicator of economic momentum. First, increased spending on construction should lead to additional construction jobs giving consumers more income that can be spent into the economy. Secondly, when a new building, residential or non residential, is completed there are many items that need to be purchased to complete it such as flooring, window treatments and furniture. This increased spending could lead to higher corporate profits so the stock market likes to see healthy increases to the amount of money spent on construction.
The release of this report shows that construction spending for September(2 month lag) came in higher than expected posting a monthly increase of 0.8% vs a 0.2% decline. Offsetting this positive report was last month’s numbers were revised much worse from an initially reported 0.8% gain to a 0.1% decline.
The final report of the day comes from the National Association of Realtors with the release of the Pending Home Sales Index. This data totals the number of homes in which a contract has been signed but not yet closed. Just like the construction spending report, this data is also a good indicator of future economic momentum since the purchase of a new home leads to many other purchases.
The report indicates that pending home sales for September(2 month lag) came in higher for the eighth consecutive month posting a month over month increase of 6.1% as home buyers rush to meet the deadline for the homebuyer tax credit. Since a pending home sale is not an actual closed transaction, this positive economic report should have minimal effect on the markets.
The rest of the week is filled with some high impacting reports and events. To highlight a few of these items, first the Federal Open Market Committee meets on Tuesday for their 2 day meeting where they set our nation’s monetary policy and give an economic outlook. It is widely expected that they will maintain the current accommodative stance keeping the Fed fund rate at 0 to .25%. On Wednesday, we get the Fed statement which will be scoured by market participants for any hint at future monetary policy and the Fed’s outlook on the economy. Additionally, we get the announcement from the U.S. Treasury of the size of the upcoming auctions next week. And on Friday, we get the single most important economic report with the release of the Employment Situation. It is expected to show the unemployment rate moving higher to 9.9% and a loss of 175,000 jobs from the prior month. If this report comes in better than expected, mortgage rates can move higher very quickly.
Early reports from fellow mortgage professionals indicate lender rate sheets to be better than what we had on Friday morning. 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.
Following the release of today’s data, MBS have moved off the highs but continue to hold well within the current trading range which I have used to recommend locking or floating. With a lot of high impacting reports coming out this week, floating is risky but with risk comes potential reward. This is not a lock recommendation just a warning that rates could go either way. I would recommend for anyone closing within the next week to go ahead and lock and remove all chances of a spike higher in mortgage rates.
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