Rates Continue to Hold Near Two Month Lows
Posted 09-01-2009 at 08:40 AM by VictorBurek
Early morning weakness yesterday with mortgage backed securities at the same time that lenders issue rate sheets led to several lenders being somewhat conservative with their morning pricing. As the day progressed, weakness in stocks resulted in the flow of money finding its way into the fixed income sector in spite of better than expected economic data. The lenders that issued early morning rate sheets did pass along better pricing by mid afternoon as MBS closed at the highest levels in nearly two months.
We do have some economic data hitting the wires this morning, but with the ever so important Employment Situation report waiting in the wings it will be interesting to see how the data affects the markets.
Today we get another measure on the strength of manufacturing with the ISM Manufacturing Index. Yesterday we got the Chicago PMI which measures the strength of business conditions around Chicago, while today’s report is a much broader index and thus much more relevant. The Institute for Supply Management(ISM) surveys over 300 manufacturing companies from across the country on the strength of business conditions. Readings above 50 indicate that business conditions are expanding while readings below 50 indicate contraction. The last five surveys each showed improving conditions which has helped spark the recent rally in stocks. Economists surveyed expect that trend to continue with the first above 50 reading since January 2008! The report shows that business conditions in August improved much more than expected providing further proof that the recession may be over. Augusts’ ISM index is the highest level since 2006!
We also receive a couple reports on the housing sector today. First is Construction Spending which measures the monthly change in the dollar value of new construction activity. With a glut of existing homes on the market, the less new construction would help to liquidate the existing inventory. Last month’s reading on construction spending unexpectedly improved over the prior month and economists surveyed are expecting a flat reading for this report. The report indicates that construction spending for July declined more than expected posting a month over month decrease in construction spending of 0.2%.
The final report today is the Pending Home Sales Index from the National Association of Realtors. This data tracks the monthly change in the number of pending home sales which is when a contract has been placed on a home, but the loan has yet to close. With tougher underwriting and Home Valuation Code of Conduct creating problems with appraisals, many more contracts are falling out and not actually closing. Since a person would have to feel pretty confident in their own personal financial position and their outlook on the economy to buy a home, this report gives market participants a gauge into future economic growth. A purchase of a new home leads to many other major purchases which is positive for corporate profits and stocks. The report shows that pending home sales jumped more than expected in July making for a record sixth consecutive increase. The current index level is the highest since June of 2007. It appears that the government stimulus for first time home buyers is having a positive effect on the housing sector along with low prices and attractive mortgage rates.
While on the subject of pending home sales, I would like to hear from you. Have any of you started to buy a home but the loan did not close? Or if you are in the industry, what percentage of new home purchases are falling out in your pipeline and what is the major cause of the fallout?
Early reports from fellow mortgage professionals are indicating that the par 30 year conventional rate mortgage remains in the 4.875% to 5.125% range for the best qualified consumers. If you are looking to secure a 15 year fixed rate mortgage, you should expect a par rate between 4.375% to 4.625%. As always, to secure a par interest rate you must have a loan to value at 80% or less and pay all closing costs including one point loan origination/discount/broker fee. If you are securing a 30 year fixed rate, you must have a FICO credit score of 740 to get a par rate. If your credit score is lower you will either have to pay additional fees or take a higher interest rate. For consumers looking to secure a 15 year fixed rate, you only need a FICO score of 620 to qualify for the par rate.
Mortgage backed securities remain at the top of the current trading range and with the Employment Situation report looming I will continue to advise you to lock your loan. Rates today are as low as they have been for the last couple months. Any positive economic data can cause MBS to sell off very quickly which increases mortgage rates. Keep in mind that rates move higher faster than they move lower. If you have been floating over the last few weeks, you have already picked up some gains and now is time to cash in. With the better than expected data on manufacturing and pending home sales, MBS are under pressure this morning. If the stock market can manage a rally, the fixed income sector might take a step back increasing mortgage rates.
We do have some economic data hitting the wires this morning, but with the ever so important Employment Situation report waiting in the wings it will be interesting to see how the data affects the markets.
Today we get another measure on the strength of manufacturing with the ISM Manufacturing Index. Yesterday we got the Chicago PMI which measures the strength of business conditions around Chicago, while today’s report is a much broader index and thus much more relevant. The Institute for Supply Management(ISM) surveys over 300 manufacturing companies from across the country on the strength of business conditions. Readings above 50 indicate that business conditions are expanding while readings below 50 indicate contraction. The last five surveys each showed improving conditions which has helped spark the recent rally in stocks. Economists surveyed expect that trend to continue with the first above 50 reading since January 2008! The report shows that business conditions in August improved much more than expected providing further proof that the recession may be over. Augusts’ ISM index is the highest level since 2006!
We also receive a couple reports on the housing sector today. First is Construction Spending which measures the monthly change in the dollar value of new construction activity. With a glut of existing homes on the market, the less new construction would help to liquidate the existing inventory. Last month’s reading on construction spending unexpectedly improved over the prior month and economists surveyed are expecting a flat reading for this report. The report indicates that construction spending for July declined more than expected posting a month over month decrease in construction spending of 0.2%.
The final report today is the Pending Home Sales Index from the National Association of Realtors. This data tracks the monthly change in the number of pending home sales which is when a contract has been placed on a home, but the loan has yet to close. With tougher underwriting and Home Valuation Code of Conduct creating problems with appraisals, many more contracts are falling out and not actually closing. Since a person would have to feel pretty confident in their own personal financial position and their outlook on the economy to buy a home, this report gives market participants a gauge into future economic growth. A purchase of a new home leads to many other major purchases which is positive for corporate profits and stocks. The report shows that pending home sales jumped more than expected in July making for a record sixth consecutive increase. The current index level is the highest since June of 2007. It appears that the government stimulus for first time home buyers is having a positive effect on the housing sector along with low prices and attractive mortgage rates.
While on the subject of pending home sales, I would like to hear from you. Have any of you started to buy a home but the loan did not close? Or if you are in the industry, what percentage of new home purchases are falling out in your pipeline and what is the major cause of the fallout?
Early reports from fellow mortgage professionals are indicating that the par 30 year conventional rate mortgage remains in the 4.875% to 5.125% range for the best qualified consumers. If you are looking to secure a 15 year fixed rate mortgage, you should expect a par rate between 4.375% to 4.625%. As always, to secure a par interest rate you must have a loan to value at 80% or less and pay all closing costs including one point loan origination/discount/broker fee. If you are securing a 30 year fixed rate, you must have a FICO credit score of 740 to get a par rate. If your credit score is lower you will either have to pay additional fees or take a higher interest rate. For consumers looking to secure a 15 year fixed rate, you only need a FICO score of 620 to qualify for the par rate.
Mortgage backed securities remain at the top of the current trading range and with the Employment Situation report looming I will continue to advise you to lock your loan. Rates today are as low as they have been for the last couple months. Any positive economic data can cause MBS to sell off very quickly which increases mortgage rates. Keep in mind that rates move higher faster than they move lower. If you have been floating over the last few weeks, you have already picked up some gains and now is time to cash in. With the better than expected data on manufacturing and pending home sales, MBS are under pressure this morning. If the stock market can manage a rally, the fixed income sector might take a step back increasing mortgage rates.
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