Mortgage Rates Hold Steady at 2010 Lows Ahead of More Supply
Posted 01-21-2010 at 09:22 AM by VictorBurek
Yesterday, mortgage backed securities closed at their highest level since early December which resulted in lenders offering the best rates of 2010. Despite the downward pressure created when the Treasury Department is about to announce more debt, tame inflation data helped MBS hold onto the gains. Lender rate sheets held unchanged on the day.
We have another busy day of data…
First to be released was the weekly jobless claims. This report gives us several readings on the number of Americans who filed for unemployment benefits:
1. Initial claims totals the number of first time filers.
2. Continuing claims totals the number of Americans who continue to file due to a lack of finding new employment.
3. Extended benefits which totals the number of Americans who are receiving emergency benefits beyond the traditional time allowed to collect. Under a recent government stimulus program, benefits can be extended up to 20 additional weeks and another 13 additional weeks in states with higher levels of unemployment.
To help you better understand the flow of claims. When a American first files for benefits they are counted in initial claims. If that American files in the following week, they are now counted in continuing claims. They will continue to be counted in this category until they find a job or they use up their traditional benefits. If they continue to file after traditional benefits are used up, they leave that category and are now counted in extended benefits. They will be counted in that category until they find a job or until those benefits run out and they are no longer counted.
The report indicated initial jobless claims rose 36,000 last week to 482,000, much worse than the 440,000 that was expected. This was the third straight week of higher claims and the highest level in two months which doesn’t point to an improving jobs sector. Continuing claims fell 18,000 to 4.599 million. Offsetting the positive continuing claims reading was the substantial increase in the extended benefits category which posted an increase of 613,000 to 5.92million! What we see from this report is the improvement in continuing claims is simply people leaving that category and moving into the extended benefits count.
The next report of the day came from the Conference Board with their Leading Indicators report. This is a composite index of 10 economic indicators that should lead to overall economic activity. If the month over month change is positive, it indicates the economy is improving. Most of the components of this report have already been released so this doesn’t give us much new information about the economy.
The release indicated that Leading Indicators continues to show our economy improving with a 1.1% increase beating estimates of only a 0.7% rise.
The final economic release of the day and the week gives us a measure of the strength of manufacturing in the Philadelphia region. Readings above 0 indicate improving conditions while readings below 0 indicate contraction. Recent readings have shown manufacturing conditions improving with last month’s report jumping from 16.7 in November to 20.4 in December. Economists surveyed expect a slight pull back with this month’s report to 18.4.
The release indicated manufacturing conditions took a step back coming in lower than expectations at 15.2.
The U.S. Department of Treasury announced the size of next week’s debt offering. When our government does not have the cash to pay for spending, they borrow the money by issuing Treasuries. The added supply of debt on the market can pressure both treasury and mortgage yields higher. Today they announced a new supply of $44billion of 2 year notes, $42billion of 5 year notes and $32billion of 7 year notes.
Reports from fellow mortgage professionals indicate lender rate sheets to be similar to yesterday’s. The par 30 year conventional rate mortgage remains in the 4.75% to 5.00% range for well qualified consumers. To secure a par 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. If you are seeking a 15 year term, you should expect a par rate in the 4.25% to 4.50% range with similar costs.
With lenders still offering the best rates of the year and the inability of MBS to move above overhead resistance, you should consider locking. As I said yesterday, we have picked up some gains this week and by locking you take advantage of those gains. At this point, without a fundamental shift in investor sentiment or the economy, it is going to be very difficult for mortgage rates to move lower. In my opinion you do not have much to gain by floating. Also like yesterday, I am not totally against floating into tomorrow but do feel the recent price gains warrant some profit taking.
Currently, the stock market is posting large declines which has moved some money into the fixed income sector. It appears the equities market is reacting negatively to a proposal from President Obama limiting the size and trading activities of financial institutions as a way to reduce risk. This could spark the shift in investor sentiment as I mentioned above. If you plan to take advantage of today’s rates, wait until close of business to lock. It is quite possible that we see some reprices for the better which can lower your closing costs.
We have another busy day of data…
First to be released was the weekly jobless claims. This report gives us several readings on the number of Americans who filed for unemployment benefits:
1. Initial claims totals the number of first time filers.
2. Continuing claims totals the number of Americans who continue to file due to a lack of finding new employment.
3. Extended benefits which totals the number of Americans who are receiving emergency benefits beyond the traditional time allowed to collect. Under a recent government stimulus program, benefits can be extended up to 20 additional weeks and another 13 additional weeks in states with higher levels of unemployment.
To help you better understand the flow of claims. When a American first files for benefits they are counted in initial claims. If that American files in the following week, they are now counted in continuing claims. They will continue to be counted in this category until they find a job or they use up their traditional benefits. If they continue to file after traditional benefits are used up, they leave that category and are now counted in extended benefits. They will be counted in that category until they find a job or until those benefits run out and they are no longer counted.
The report indicated initial jobless claims rose 36,000 last week to 482,000, much worse than the 440,000 that was expected. This was the third straight week of higher claims and the highest level in two months which doesn’t point to an improving jobs sector. Continuing claims fell 18,000 to 4.599 million. Offsetting the positive continuing claims reading was the substantial increase in the extended benefits category which posted an increase of 613,000 to 5.92million! What we see from this report is the improvement in continuing claims is simply people leaving that category and moving into the extended benefits count.
The next report of the day came from the Conference Board with their Leading Indicators report. This is a composite index of 10 economic indicators that should lead to overall economic activity. If the month over month change is positive, it indicates the economy is improving. Most of the components of this report have already been released so this doesn’t give us much new information about the economy.
The release indicated that Leading Indicators continues to show our economy improving with a 1.1% increase beating estimates of only a 0.7% rise.
The final economic release of the day and the week gives us a measure of the strength of manufacturing in the Philadelphia region. Readings above 0 indicate improving conditions while readings below 0 indicate contraction. Recent readings have shown manufacturing conditions improving with last month’s report jumping from 16.7 in November to 20.4 in December. Economists surveyed expect a slight pull back with this month’s report to 18.4.
The release indicated manufacturing conditions took a step back coming in lower than expectations at 15.2.
The U.S. Department of Treasury announced the size of next week’s debt offering. When our government does not have the cash to pay for spending, they borrow the money by issuing Treasuries. The added supply of debt on the market can pressure both treasury and mortgage yields higher. Today they announced a new supply of $44billion of 2 year notes, $42billion of 5 year notes and $32billion of 7 year notes.
Reports from fellow mortgage professionals indicate lender rate sheets to be similar to yesterday’s. The par 30 year conventional rate mortgage remains in the 4.75% to 5.00% range for well qualified consumers. To secure a par 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. If you are seeking a 15 year term, you should expect a par rate in the 4.25% to 4.50% range with similar costs.
With lenders still offering the best rates of the year and the inability of MBS to move above overhead resistance, you should consider locking. As I said yesterday, we have picked up some gains this week and by locking you take advantage of those gains. At this point, without a fundamental shift in investor sentiment or the economy, it is going to be very difficult for mortgage rates to move lower. In my opinion you do not have much to gain by floating. Also like yesterday, I am not totally against floating into tomorrow but do feel the recent price gains warrant some profit taking.
Currently, the stock market is posting large declines which has moved some money into the fixed income sector. It appears the equities market is reacting negatively to a proposal from President Obama limiting the size and trading activities of financial institutions as a way to reduce risk. This could spark the shift in investor sentiment as I mentioned above. If you plan to take advantage of today’s rates, wait until close of business to lock. It is quite possible that we see some reprices for the better which can lower your closing costs.
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