Mortgage Rates Continue to Rally
Posted 09-11-2009 at 08:12 AM by VictorBurek
Today is the anniversary of the horrible attacks on our nation on September 11th, 2001. I hope everyone takes a moment to reflect on that day and its significance. My heart and my prayers go out to anyone who was directly affected by those attacks and lost friends and family members. Hopefully we will never forget.
Despite a rally in stocks, mortgage backed securities managed to post nice gains yesterday following a stronger than expected 30 year bond auction. It is not very common to see stocks and bonds both rally on the same day especially when stocks rallied to their best levels in over three months. Several lenders did reprice for the better following the auction at 1pm as the gains in MBS price held to the end of the day. To remind readers, as the price of MBS move higher, lenders can offer lower mortgage rates.
The U.S. Department of Labor released the monthly Import and Export price report which measures the monthly change in the price of products our nation imports from other countries and exports. Changes to the price of these products are important to market participants as it will provide a signal of inflationary pressures here and abroad. The report shows that both import and export prices increased by more than expectations. The increase in import prices was much higher due to a sharp increase in oil prices last month. When excluding oil, import prices only posted a modest gain. Higher prices for goods and services applies pressure on mortgage rates to increase; however, following the release of this report there was no initial reaction in the bond market. All past reports and speak from the Fed shows that inflation is not a concern today even though this report showed prices increasing by more than expectations. Year over year, both still show a big decline in prices.
The final report of the week is the Reuter’s/University of Michigan’s Consumer Sentiment index. This is a survey of 500 households each month on their personal financial conditions and attitudes about the economy. An optimistic consumer is more likely to spend money into the economy while a pessimistic consumer is more likely to save. Since our economy is driven by consumer spending, stocks tend to rally with a better than expected reading which can pull money out of bonds. The thought process is more consumer spending leads to higher corporate profits but also can lead to higher prices which hurts the fixed income sector. The last reading from this survey showed sentiment increasing from the prior month but still below the highs of the year that were achieved in May. The report shows that consumer sentiment in August jumped considerably higher. So it appears that you, the consumer, is much more optimistic regarding our economy. I would like to hear from you on this topic. You may not want to give an opinion on your own financial conditions, but what is your outlook for our economy? Do you see it continuing to improve or are you worried of an impending correction?
Early reports from fellow mortgage professionals are indicating that the par 30 year conventional rate mortgage remains in the 4.75% to 5.00% range for the best qualified consumers. In order to secure a par interest rate on a 30 year conventional 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 the loan including one point loan origination/discount/broker fee. If you are looking to secure a 15 year fixed rate conventional mortgage, you should expect a rate between 4.25% to 4.50%. When securing a 15 year fixed rate mortgage, you only need a 620 FICO score to qualify for the best rate.
Next week the economic data picks up with some major hitters including a couple reads on inflation, housing starts and retail sales. The highest impacting report for the week will be the read on retail sales on Tuesday. If that report comes in better than expected, mortgage rates are very likely to move higher. Since rates move higher faster than they move lower, I am going to continue to caution you on floating. We have picked up some nice gains over the last few days and it is always risky to float over a weekend. Many events can take place over the weekend that can drastically affect the markets on Monday.
Despite a rally in stocks, mortgage backed securities managed to post nice gains yesterday following a stronger than expected 30 year bond auction. It is not very common to see stocks and bonds both rally on the same day especially when stocks rallied to their best levels in over three months. Several lenders did reprice for the better following the auction at 1pm as the gains in MBS price held to the end of the day. To remind readers, as the price of MBS move higher, lenders can offer lower mortgage rates.
The U.S. Department of Labor released the monthly Import and Export price report which measures the monthly change in the price of products our nation imports from other countries and exports. Changes to the price of these products are important to market participants as it will provide a signal of inflationary pressures here and abroad. The report shows that both import and export prices increased by more than expectations. The increase in import prices was much higher due to a sharp increase in oil prices last month. When excluding oil, import prices only posted a modest gain. Higher prices for goods and services applies pressure on mortgage rates to increase; however, following the release of this report there was no initial reaction in the bond market. All past reports and speak from the Fed shows that inflation is not a concern today even though this report showed prices increasing by more than expectations. Year over year, both still show a big decline in prices.
The final report of the week is the Reuter’s/University of Michigan’s Consumer Sentiment index. This is a survey of 500 households each month on their personal financial conditions and attitudes about the economy. An optimistic consumer is more likely to spend money into the economy while a pessimistic consumer is more likely to save. Since our economy is driven by consumer spending, stocks tend to rally with a better than expected reading which can pull money out of bonds. The thought process is more consumer spending leads to higher corporate profits but also can lead to higher prices which hurts the fixed income sector. The last reading from this survey showed sentiment increasing from the prior month but still below the highs of the year that were achieved in May. The report shows that consumer sentiment in August jumped considerably higher. So it appears that you, the consumer, is much more optimistic regarding our economy. I would like to hear from you on this topic. You may not want to give an opinion on your own financial conditions, but what is your outlook for our economy? Do you see it continuing to improve or are you worried of an impending correction?
Early reports from fellow mortgage professionals are indicating that the par 30 year conventional rate mortgage remains in the 4.75% to 5.00% range for the best qualified consumers. In order to secure a par interest rate on a 30 year conventional 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 the loan including one point loan origination/discount/broker fee. If you are looking to secure a 15 year fixed rate conventional mortgage, you should expect a rate between 4.25% to 4.50%. When securing a 15 year fixed rate mortgage, you only need a 620 FICO score to qualify for the best rate.
Next week the economic data picks up with some major hitters including a couple reads on inflation, housing starts and retail sales. The highest impacting report for the week will be the read on retail sales on Tuesday. If that report comes in better than expected, mortgage rates are very likely to move higher. Since rates move higher faster than they move lower, I am going to continue to caution you on floating. We have picked up some nice gains over the last few days and it is always risky to float over a weekend. Many events can take place over the weekend that can drastically affect the markets on Monday.
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