Mortgage rates ended last week near the lows of 2010 as mortgage backed securities prices rallied higher in the first half of the day. This allowed most lenders to publish improved rate sheets. Unfortunately these gains didn't make it through the day, MBS prices fell late in the afternoon which forced some lenders to reprice for the worse. After all was said and done rates were just about the same as Thursday's levels.

We have a very busy week of data ahead with the highest impacting release scheduled for Friday morning: THE EMPLOYMENT SITUATION REPORT

This week began with Personal Income and Spending data.   This report gives us three readings on the health of consumers.  The first is personal income which shows the monthly change in income that households receive from all sources.  Next is consumer spending, which shows the monthly change in the amount of money consumers are spending on durable and non-durable goods and services.   The final reading is the Personal Consumption Expenditure, a gauge of inflation. 

The U.S. Department of Commerce reported Personal Income rose 0.1% in January, far short of the 0.4% increase that was expected.  Year over year, personal income was up 1.1%.  Outlays, also known as personal spending, increased 0.5%, higher than the 0.4% increase expected.   Year over year, spending is up 3.5%.  This makes for the fourth consecutive month that consumer spending rose.   Headline PCE posted a lower than expected year over year increase of 2.1% while the core rate indicated only a 1.4% year over year gain in prices, well within the Fed’s comfort zone and once again proving that inflation is not a concern today.   The savings rate fell by 0.9% to 3.3% due to the increase in spending but still holding much higher than in past years as consumers remain nervous about the state of the economy and jobs outlook.   For more on this report, check out AQ’s morning post on the MBS Commentary blog.

The next report to be released came from the Institute for Supply Management, the ISM Manufacturing Index.  This is a survey of more than 300 manufacturing firms on the strength of business conditions.  Readings above 50 indicate expanding or improving conditions while readings below 50 indicate contraction.   The ISM index has held above 50 for the last six releases, with last month’s report coming in higher than expected at 58.4.   Economists surveyed prior to the release expect a small pull back with this survey to 57.9.   The report indicated business conditions declined from last month and lower than expected to 56.5. The effect of bad winter weather was noted as a source of weakness. READ MORE

Our final report on the day was Construction Spending.  This data shows the monthly change in the amount of money spent on new construction for public and private residential, non-residential projects.  An increasing trend with construction spending is a positive economic indicator as it would lead to more construction jobs, increased spending on items to build and furnish new structures, plus builders would have to be pretty optimistic about the economic outlook to invest money in new construction.

Following a very disappointing 1.2% decline in construction spending last month, economists were expecting another decrease of 0.5% for January.    The report indicated construction spending fell more than expected by -0.6%. HERE IS THE MND STORY (with lots of interesting charts)

Here are the highlights for the rest of the week:

Wednesday

• MBA Applications Index(low impact)
• ADP Employment Report, not as important as Friday’s Employment Situation report but gaining momentum as an early  predictor of non-farm payrolls.   ADP forecasts a loss of 70,000 private payroll jobs.  (medium to high impact)
  
• ISM Non-Manufacturing Index(low to medium impact)
• Beige Book. This data outlines economic conditions around the United States and is used as a point of reference during FOMC meetings where our nation’s monetary policy is set. (medium impact)

Thursday

• Weekly Jobless Claims (medium impact)
• Productivity and Costs (medium impact)
• Factory Orders(medium impact)
• Pending Home Sales Index, many economists believe that until housing picks up our economic recovery will be slow which makes tracking home sales data of much more importance today than in prior years.(medium to high impact)
• Treasury Announcement of size of next week’s auction of 3 year notes, 10 year notes and 30 year bonds.  The additional supply of debt on the market will pressure treasury and MBS prices lower which increases yields and rates. (medium impact
  

Friday

• Employment Situation, this is the single most important report we get on a monthly basis. Early predictions call for a loss of 50,000 jobs and the unemployment rate moving higher to 9.8%. (HIGH IMPACT)
  

For deeper analysis of the week ahead, READ THIS POST

Reports from fellow mortgage professionals indicate rate sheets to be slightly worse than the repriced rate sheets of Friday afternoon.  The par 30 year conventional rate mortgage continues to hold in the 4.75% to 5.00% 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 closing costs, but you will have to accept a higher interest rate.

With mortgage rates holding at the lows of the year and once again unable to break below 4.75%, locking is the wise move.   If you are managing a pipeline of loans, I would lock up 80%.  I continue to believe lenders will not offer 30 year conventional rates below 4.75% in 2010 unless we start to get some very disappointing economic data or a surprise announcement from the Fed extending the MBS purchase program, which is set to expire at the end of the month.