A much better than expected read on New Home Sales helped the stock market post strong gains yesterday. Typically, when stocks advance, their gains come at the expense of interest rates. While benchmark Treasury yields have risen over the last week, mortgage-backed securities have managed to retain their “flight to safety” bid. MBS prices are holding steady near record highs and mortgage rates are holding steady near record lows.
A "flight to safety" occurs when investors are nervous about owning risky assets like stocks but do not want to miss out on earning returns on their funds, so they move their money into risk-free U.S Treasury debt and agency MBS to provide a safe-haven AND an investment return. To remind readers, as benchmark Treasury yields fall, prices of mortgage-backed securities move higher, which allows lenders to offer lower mortgage rates. As Treasury yields rise, mortgage-backed security prices are pressured lower, which forces lenders to push mortgage rates higher.
The combination of two economic reports and a Treasury debt auction created a bit more volatility in the bond market today. First out was home price data: the S&P/Case-Shiller Home Price Index
This data tracks the monthly change in the value of residential real estate. During periods of rising housing values, homeowners are more likely to spend money because the value of their largest asset is increasing. In contrast, when housing values are falling, homeowners are more likely to save money to offset losses in home equity/wealth. This report has a two month lag, so the data released today covered the change in home value for May.
The data offered semi good news (not more bad news). On an unadjusted basis, which is how the market reads this report, the 20-city home price index rose 1.3% in May and the 10-city index improved 1.2%. 19 of 20 cities recorded month over month gains in home prices. Year over year, the 20-city index is up 4.6% and the 10 city index is up 5.4%. Only, 12 of 20 cities reported year over year home price growth. READ MORE. SEE CHARTS
The other headline economic news release of the day: Consumer Confidence. This is a survey
conducted by the Conference Board. They ask consumers questions about
their present economic attitude and their expectations for future economic activity. Since our economy is driven by consumer spending, market
participants track consumer confidence to gauge how consumers are feeling. An optimistic consumer is more likely to
spend money, which benefits the stock market, while a pessimistic consumer
is more likely to save or pay off debt, which is supportive of low
interest rates.
After dropping almost 10 points in June, the Conference Board says survey data for July was disappointing. The Consumer Confidence Index dropped nearly four points to 50.4. This was worse than expected. The major concern of
consumers continues to be a lack of job growth.
Stocks rallied after S&P/Case-Shiller data, but sold off after Consumer Confidence flashed. This created a bit more volatility in the bond market. Both benchmark Treasuries and mortgage-backed securities traded in a wide range. While Treasury yields ended up closing higher on the day, MBS managed to keep it together, closing the session basically unchanged. A few lenders who published loan pricing early in the morning, ended up repricing for the better after MBS coupons recovered from their price lows. Overall, this left rate sheets unchanged vs. yesterday...
The best 30 year fixed mortgage rates remain in the 4.375% to 4.625% range. The "best execution" rate for a well-qualified borrower is still 4.50%, for both conventional and FHA/VA. No borrower should be quoted a rate over 5.25%.
Nothing seems to be moving mortgage rates from recent lows. How much longer can this last? If you are within 30 days of closing, I recommend locking. READ MORE