Mortgage Rates Hold Steady, But Pressure being Applied
Posted 03-30-2010 at 08:29 AM by VictorBurek
Following the roller coaster ride of last week, yesterday was rather tame. At the open, mortgage backed securities continued the rally from Friday pushing MBS prices higher which allowed lenders to offer better rates to start the week. Following the higher open, MBS traded in a tight range for the remainder of the day. All lenders left rate sheets unchanged on the day.
At 9:00am eastern, S&P/Case Shiller released their Home Price Index. The data tracks monthly changes in the value of residential real estate in 20 major U.S. cities. Many economists believe until home prices rebound, that the economy will be unable to gain recovery traction. Rising home values encourage home builders to begin new construction which leads to more jobs which adds strength to the overall economy.
Today’s release indicated home values unexpectedly rose for the eight consecutive month in January… this report has a two month lag. The 10-city index showed home values increasing on a seasonally adjusted basis by 0.4% beating December’s increase of 0.3%. Among the 20 city index, 12 posted monthly gains. The largest gain was seen in Los Angeles where home prices rose 1.8% from the prior month. This is the second month in a row with LA posting the largest monthly increase. Year over year, home prices have improved from last month’s -3.1% to -2.5%.
The only other report released today was the Consumer Confidence report. This is a survey conducted by the Conference Board of consumers regarding their present economic attitude and their expectations of future economic conditions. Since our economy is driven by consumer spending, market participants track consumer confidence to get a gauge on how the consumer is feeling. An optimistic consumer is much more likely to spend money while a pessimistic consumer is more likely to save or pay off debt. Last month’s report showed a huge decline in confidence with the index dropping from 55.9 in January to a 10 month low of 46.0. The major source of the decline was the outlook for the still troubled labor market. Economists surveyed prior to March’s report expected consumers to be more optimistic with a 50.0 reading.
The release indicated consumers to be more optimistic than thought coming in at 52.5. The markets had no reaction following the release.
Reports from fellow mortgage professionals indicate lender rate sheets to be worse than yesterday due to morning weakness in the bond market today. The par 30 year conventional rate mortgage is holding in the 4.875% to 5.125% 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 costs, but you will have to accept a higher interest rate which is the best option for consumers not planning on keeping their home for more than 3 years. A mortgage rate is like buying anything else, you can pay more and get a better(lower) rate, or pay less and get a higher rate.
I favor locking over floating at this point. To many unknowns in the near term. The Fed stops buying MBS tomorrow, more treasury supply coming Thursday and non farm payrolls is expected to post a large monthly gain in jobs on Friday.
When the Fed stops buying MBS, a large buyer of the asset is gone from the market… can that be good for MBS? I am not saying this event will force rates higher, but can it help rates move lower? More treasury supply coming Thursday and no end in sight for government borrowing. Plus, last week’s auctions were rather bad, so can more supply of treasuries be good for MBS? Lastly, most economic data has pointed toward an improving economy with jobs and housing being the only set back. Today's Case Shiller report showed home prices rising for the eight consecutive month so housing appears to have found a bottom in most parts of the country. Friday's payroll data is expected to show a gain of over 100,000 jobs; however, most of those gains are coming from temporary government hiring of census takers. If we get a large number of created jobs reported on Friday, can that be good for MBS? Today, you can still lock at 4.875%. If the bond market improves at best par drops .125% in rate, so you have very little to gain by floating.
Hopefully everyone learned from last week that rates rise much faster than they will fall.
At 9:00am eastern, S&P/Case Shiller released their Home Price Index. The data tracks monthly changes in the value of residential real estate in 20 major U.S. cities. Many economists believe until home prices rebound, that the economy will be unable to gain recovery traction. Rising home values encourage home builders to begin new construction which leads to more jobs which adds strength to the overall economy.
Today’s release indicated home values unexpectedly rose for the eight consecutive month in January… this report has a two month lag. The 10-city index showed home values increasing on a seasonally adjusted basis by 0.4% beating December’s increase of 0.3%. Among the 20 city index, 12 posted monthly gains. The largest gain was seen in Los Angeles where home prices rose 1.8% from the prior month. This is the second month in a row with LA posting the largest monthly increase. Year over year, home prices have improved from last month’s -3.1% to -2.5%.
The only other report released today was the Consumer Confidence report. This is a survey conducted by the Conference Board of consumers regarding their present economic attitude and their expectations of future economic conditions. Since our economy is driven by consumer spending, market participants track consumer confidence to get a gauge on how the consumer is feeling. An optimistic consumer is much more likely to spend money while a pessimistic consumer is more likely to save or pay off debt. Last month’s report showed a huge decline in confidence with the index dropping from 55.9 in January to a 10 month low of 46.0. The major source of the decline was the outlook for the still troubled labor market. Economists surveyed prior to March’s report expected consumers to be more optimistic with a 50.0 reading.
The release indicated consumers to be more optimistic than thought coming in at 52.5. The markets had no reaction following the release.
Reports from fellow mortgage professionals indicate lender rate sheets to be worse than yesterday due to morning weakness in the bond market today. The par 30 year conventional rate mortgage is holding in the 4.875% to 5.125% 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 costs, but you will have to accept a higher interest rate which is the best option for consumers not planning on keeping their home for more than 3 years. A mortgage rate is like buying anything else, you can pay more and get a better(lower) rate, or pay less and get a higher rate.
I favor locking over floating at this point. To many unknowns in the near term. The Fed stops buying MBS tomorrow, more treasury supply coming Thursday and non farm payrolls is expected to post a large monthly gain in jobs on Friday.
When the Fed stops buying MBS, a large buyer of the asset is gone from the market… can that be good for MBS? I am not saying this event will force rates higher, but can it help rates move lower? More treasury supply coming Thursday and no end in sight for government borrowing. Plus, last week’s auctions were rather bad, so can more supply of treasuries be good for MBS? Lastly, most economic data has pointed toward an improving economy with jobs and housing being the only set back. Today's Case Shiller report showed home prices rising for the eight consecutive month so housing appears to have found a bottom in most parts of the country. Friday's payroll data is expected to show a gain of over 100,000 jobs; however, most of those gains are coming from temporary government hiring of census takers. If we get a large number of created jobs reported on Friday, can that be good for MBS? Today, you can still lock at 4.875%. If the bond market improves at best par drops .125% in rate, so you have very little to gain by floating.
Hopefully everyone learned from last week that rates rise much faster than they will fall.
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