Mortgage Rates Holding Steady Under 5%
Posted 08-31-2009 at 08:18 AM by VictorBurek
Last week mortgage rates held steady just under 5% for the majority of the week. We did have a brief scare mid week when it appeared rates were destined to rise to the low 5% range; however, mortgage backed securities managed to gain some momentum despite most of the economic reports being better than expected. As a general rule, better than expected economic data usually benefits stocks while worse than expected data generally benefits fixed income investments. It appears the big run up in stocks is losing momentum which is bringing some money into the fixed income markets which includes treasuries and mortgage backed securities.
Not much as far as economic data today or for that matter this week until Friday when we get the single most important piece of scheduled economic data that is released on a monthly basis, the Employment Situation report. The only data to digest this morning is a report on the strength of business conditions around the Chicago area with the release of the Chicago PMI. Readings above 50 indicate positive growth while readings below 50 indicates contraction. The last two releases of this report have shown conditions to be improving and economists surveyed are expecting that trend to continue with a near breakeven reading of 48.0. The report indicates that business conditions in the Chicago area are at breakeven levels with a 50.0 reading indicating no growth or contraction. Following the release of this better than expected economic data there was no reaction in the markets.
Tomorrow we get motor vehicle sales and construction spending but the highest impacting report on the day will be the ISM Manufacturing index. The Institute of Supply Management(ISM) surveys over 300 manufacturing firms on the strength of business conditions. This report is very similar to the Chicago PMI in that readings above 50 indicate growth while readings below 50 indicate contraction. This survey has shown that manufacturing conditions continue to improve with the last five readings each coming in better than the prior month indicating the current recession may be ending. Economists surveyed are expecting this report to reflect the first positive reading of growth since 2007 with a 50.5!
On Wednesday we get a precursor to the Employment Situation with the release of the ADP Employment report. This data measures the number of jobs lost or created on a monthly basis but is compiled by a private company rather than the U.S. Department of Labor. Historically speaking this report has varied greatly from the official numbers but it is gaining some credibility of late due to improved accuracy. One large difference between the ADP and the official Employment Situation report is that the ADP numbers do not take into account government jobs. In addition to this report we also get Productivity and Costs from the U.S. Department of Labor. This data shows market participants how efficient our labor force is at producing our nation’s goods and the labor costs of producing each unit of output. Productivity and Costs are an indicator of future inflationary trends. The final report to be released on Wednesday is factory orders which gives market participants a forward looking indicator of how busy factories will be in the months ahead. Increasing factory orders is an indicator of future spending by consumers to buy the products that are being produced.
At 2pm eastern on Wednesday, the Federal Open Market Committee will release the minutes from the prior fed meeting held three weeks ago. As always, most of the information contained in the minutes will already be known, but market participants will thoroughly review for any hints at future monetary policy and the Fed’s economic outlook. FOMC meetings are held eight times a year and at these meetings our nation’s monetary policy is set. The release of these minutes always has the potential of moving the markets.
Thursday brings us a couple economic reports, weekly jobless claims and ISM non-manufacturing index, but these reports will take a back seat to the Employment Situation data coming on Friday. The highest impacting event taking place will be the announcement from the U.S. Department of Treasury of the size of the upcoming treasury auctions next week. The Treasury Department plans to auction off 30 year bonds, 10 year notes and 3 year notes to the highest bidders. The added supply of debt will pressure treasury yields to rise to attract buyers. Even though our government has issued record amounts of treasuries to fund operations, it seems investors continue to have a strong appetite for our debt. This strong demand is helping to keep mortgage rates at very attractive levels.
Friday brings us the official government numbers on our nation’s Employment situation. This report gives us four different measures. First is the number of jobs lost or created from the prior month. Recent reports have shown in easing in the number of jobs that have been lost during the current recession. Economists surveyed are expecting this trend to continue with only 200,000 jobs lost from the prior month. That will be a substantial improvement from early in the year when jobs lost were posting numbers higher than 600,000! The next measure is our nation’s official unemployment rate. Last month’s report surprised almost everyone with the unemployment rate dropping to 9.4% when most expected to see an increase. Economists surveyed this month are expecting the rate to move higher to 9.6%. More jobs lost and/or a higher unemployment rate than expected usually benefits the fixed income sector. The final two measures from this report shows market participants the average hourly wage and work week. If workers are making more money and working longer hours, they should have more money to spend into the economy so investors track wages and hours as an indicator of future consumer spending.
Early reports from fellow mortgage professionals continue to show the par 30 year conventional rate mortgage in the 4.875% to 5.125% range for the best qualified consumers. In order to secure a par rate for a 30 year fixed rate 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 associated with your loan including one point loan origination/discount/broker feel. If your credit score is lower you will either have to pay additional fees to secure a par rate or take a higher interest rate.
Mortgage rates continue to hold under 5% for the longest time in the last few months. There still seems to be no incentive to push mortgage rates any lower. If Friday’s job report comes in better than expected mortgage rates could rise rather quickly so I am going to continue to caution you on floating. Anytime you can lock a 30 year fixed rate under 5%, that is hard to pass up. If you are currently trying to determine whether you should lock or float, I would like to hear from you in the comments section. If you are floating, why? Do you feel rates would move lower and how low would they have to go to get you to lock?
Not much as far as economic data today or for that matter this week until Friday when we get the single most important piece of scheduled economic data that is released on a monthly basis, the Employment Situation report. The only data to digest this morning is a report on the strength of business conditions around the Chicago area with the release of the Chicago PMI. Readings above 50 indicate positive growth while readings below 50 indicates contraction. The last two releases of this report have shown conditions to be improving and economists surveyed are expecting that trend to continue with a near breakeven reading of 48.0. The report indicates that business conditions in the Chicago area are at breakeven levels with a 50.0 reading indicating no growth or contraction. Following the release of this better than expected economic data there was no reaction in the markets.
Tomorrow we get motor vehicle sales and construction spending but the highest impacting report on the day will be the ISM Manufacturing index. The Institute of Supply Management(ISM) surveys over 300 manufacturing firms on the strength of business conditions. This report is very similar to the Chicago PMI in that readings above 50 indicate growth while readings below 50 indicate contraction. This survey has shown that manufacturing conditions continue to improve with the last five readings each coming in better than the prior month indicating the current recession may be ending. Economists surveyed are expecting this report to reflect the first positive reading of growth since 2007 with a 50.5!
On Wednesday we get a precursor to the Employment Situation with the release of the ADP Employment report. This data measures the number of jobs lost or created on a monthly basis but is compiled by a private company rather than the U.S. Department of Labor. Historically speaking this report has varied greatly from the official numbers but it is gaining some credibility of late due to improved accuracy. One large difference between the ADP and the official Employment Situation report is that the ADP numbers do not take into account government jobs. In addition to this report we also get Productivity and Costs from the U.S. Department of Labor. This data shows market participants how efficient our labor force is at producing our nation’s goods and the labor costs of producing each unit of output. Productivity and Costs are an indicator of future inflationary trends. The final report to be released on Wednesday is factory orders which gives market participants a forward looking indicator of how busy factories will be in the months ahead. Increasing factory orders is an indicator of future spending by consumers to buy the products that are being produced.
At 2pm eastern on Wednesday, the Federal Open Market Committee will release the minutes from the prior fed meeting held three weeks ago. As always, most of the information contained in the minutes will already be known, but market participants will thoroughly review for any hints at future monetary policy and the Fed’s economic outlook. FOMC meetings are held eight times a year and at these meetings our nation’s monetary policy is set. The release of these minutes always has the potential of moving the markets.
Thursday brings us a couple economic reports, weekly jobless claims and ISM non-manufacturing index, but these reports will take a back seat to the Employment Situation data coming on Friday. The highest impacting event taking place will be the announcement from the U.S. Department of Treasury of the size of the upcoming treasury auctions next week. The Treasury Department plans to auction off 30 year bonds, 10 year notes and 3 year notes to the highest bidders. The added supply of debt will pressure treasury yields to rise to attract buyers. Even though our government has issued record amounts of treasuries to fund operations, it seems investors continue to have a strong appetite for our debt. This strong demand is helping to keep mortgage rates at very attractive levels.
Friday brings us the official government numbers on our nation’s Employment situation. This report gives us four different measures. First is the number of jobs lost or created from the prior month. Recent reports have shown in easing in the number of jobs that have been lost during the current recession. Economists surveyed are expecting this trend to continue with only 200,000 jobs lost from the prior month. That will be a substantial improvement from early in the year when jobs lost were posting numbers higher than 600,000! The next measure is our nation’s official unemployment rate. Last month’s report surprised almost everyone with the unemployment rate dropping to 9.4% when most expected to see an increase. Economists surveyed this month are expecting the rate to move higher to 9.6%. More jobs lost and/or a higher unemployment rate than expected usually benefits the fixed income sector. The final two measures from this report shows market participants the average hourly wage and work week. If workers are making more money and working longer hours, they should have more money to spend into the economy so investors track wages and hours as an indicator of future consumer spending.
Early reports from fellow mortgage professionals continue to show the par 30 year conventional rate mortgage in the 4.875% to 5.125% range for the best qualified consumers. In order to secure a par rate for a 30 year fixed rate 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 associated with your loan including one point loan origination/discount/broker feel. If your credit score is lower you will either have to pay additional fees to secure a par rate or take a higher interest rate.
Mortgage rates continue to hold under 5% for the longest time in the last few months. There still seems to be no incentive to push mortgage rates any lower. If Friday’s job report comes in better than expected mortgage rates could rise rather quickly so I am going to continue to caution you on floating. Anytime you can lock a 30 year fixed rate under 5%, that is hard to pass up. If you are currently trying to determine whether you should lock or float, I would like to hear from you in the comments section. If you are floating, why? Do you feel rates would move lower and how low would they have to go to get you to lock?
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