The theme in the secondary mortgage market this week has been volatility. Prices of mortgage backed securities have moved around a wide range as traders attempt to balance their uncertain long term economic outlooks with optimistic short term sentiment in stocks. This ongoing struggle has mostly insulated mortgage rates from movements in related markets, but not totally. Today, mortgage backed securities opened lower in price and most lenders moved mortgage rates higher.
Today is the busiest day of the week for economic data. First to hit the wires this morning was Weekly Jobless Claims. This report totals the number of Americans who filed for first time unemployment benefits in the prior week. As part of this report we get continuing claims which totals the number of Americans who continue to file due to lack of finding a new job. Since our economy is driven by consumer spending, higher unemployment rates generally benefit the bond market while equities tend to rally on better than expected data. Makes sense. If more people are working, there will be more money to be spent in the economy which helps drive corporate profits. Recent reports have shown jobless claims improving but they remain stubbornly high as many companies are still nervous about the economic landscape (consumer demand).
The U.S. Department of Labor reported that first time claims for unemployment benefits continue to improve. 514,000 new claims were made which is better than the 520,000 economists were expecting. This is the lowest level of claims since January. Last week’s numbers were revised slightly higher from 521,000 to 524,000. Continuing claims posted a weekly decline, falling from 6.040 million to 5.99 million. The number of Americans who have used up their benefits and are now receiving extended benefits increased to 3.8 million from 3.79 million. Improving jobless claims are pointing to a better monthly jobs report which we get in a couple weeks. READ MND STORY
A read on inflation was released at 830AM. The Consumer Price Index measures the average price change of a fixed basket of goods and services purchased by consumers. The report indicated that inflation is still under control. The headline reading posted a monthly rise of 0.2% matching expectations while the core reading, which strips out food and energy due to their volatility, also came in at 0.2%, slightly higher than the 0.1% economists were expecting. On a year over year basis, overall consumer prices are down 1.3% indicating that inflation is still at bay which should allow the Fed to maintain their current accommodative stance with the Fed fund rate. READ MND STORY
The Federal Reserve Bank of New York released their monthly Empire State Manufacturing Survey. This report is a survey of 175 manufacturers in New York on their opinion of the strength of business conditions. The report shows that manufactures from the state of New York see conditions improving dramatically beating economists’ expectations. Last month’s report came in at 18.88 which was the highest reading since November of 2007 but this report blew that away coming in at 34.57 which is the best reading since 2004!! READ MND STORY
After the closing bell, Treasury Secretary Timothy Geithner will be participating in economic forum hosted by The Economist at PACE University. Any time he speaks market participants pay attention for any clues as to his opinion of future economic conditions and regulations.
Reports from fellow mortgage professionals indicate that mortgage rates are slightly higher today. The par 30 year conventional mortgage rate however remains in the 4.875% to 5.125% range for well qualified consumers. In order to secure a par rate you must have a FICO 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. As always, you can elect to pay less in fees and take a higher interest rate. That is a good option for consumers who dont plan on keeping their home for more than five years. (ask your loan officer to run a breakeven on points for you)
Floating remains risky. Lender rate sheets are not as ugly as we might have expected with the losses suffered today. Any further declines in MBS prices and lenders will likely reprice for the worse. Additionally, we have a couple economic reports tomorrow that have the potential to affect the markets, Industrial Production and Consumer Sentiment. Better than expected numbers will keep the pressure on MBS and increase the likelihood of higher mortgage rates.