Mortgage rates were flat on Monday, they improved on Tuesday and Wednesday after the FOMC meeting, and then started to inch higher yesterday.
Our week came to a close with two economic reports. First out were Durable Goods Orders for August. This data measures the number of new orders placed at U.S. factories for products that are expected to last at least three years. This would include goods such as computers, appliances, and electronics. This report tells economists how busy factories will be in the months ahead and also provides a view into business spending. Increasing orders implies businesses are spending on inventory to fill demand for their own products. It is also implies factories will be able to keep their workers busy and pay them for work! A positive for the labor market. When Durable Goods Orders are improving or come in better than expected, we can generally assume it will pressure mortgage rates higher.
The August report indicated Durable Goods Orders for August fell 1.3%, a larger decline than expected. Offsetting the headline miss was a revision to last month’s report from +0.4% to +0.7%. Also helping calm concerns was the fact that majority of the report's weakness was in one category. When excluding transportation orders, the report came in much better than expected at +2.0%, the largest increase in Durable Goods Orders (ex-transportation) since March. The ex-transportation number in July was also revised for the better, from -3.7% to -2.8%. Adding a little bit more optimism to the marketplace were the inner components of the report, which indicated businesses ramped up spending on new technology .
THIS POST explains why increased business spending is important to the bond market. Following this report, stock futures have moved much higher and bonds yield rose.
Our final economic release of the week was New Home Sales. The Census Bureau considers a new home to have been sold when the buyers sign a sales contract. The house can be in any stage of construction: not yet started, under construction, or already completed. Typically about 25% of the houses are sold at the time of completion. The remaining 75% are evenly split between those not yet started and those under construction. Since the end of the home buyer tax credit, home sales data has been quite disappointing. In July, New Home Sales fell to a record low of 276,000 units on an annualized basis.
Today’s release indicated New Home Sales in August rose to an annualized pace of 288,000, just short of the 290,000 that was expected by economists. This is the second lowest level on record. The median New Home price fell 1.2% from August 2009 to $204,700, and the supply of homes on the market fell to a 8.6 month supply from 8.7 months in July. The total supply of new homes on the market is 206,000 units, the fewest since August 1968.
HERE are charts and more commentary on New Home Sales. This mixed read on New Home SAles didn't do much to help out mortgage rates. Stocks held onto their gains and bonds didn't budge from the session highs.
Lender rate sheets are worse again today. The par 30 year conventional rate mortgage remains in the 4.25% to 4.50% range. The lenders offering 4.125% earlier this week are no longer doing so, at least not without additional costs. To secure a par interest rate on a conventional mortgage you must have a 740 or higher FICO score, a loan to value at 80% or less and pay all the closing costs including an estimated one point loan origination/discount/broker fee.
The best day to lock was Wednesday. Although rates rose heading into the weekend (for the third week in a row), consumer borrowing costs are lower than they were last Friday. READ MORE
Our strategy for locking, which has been very successful, is to lock at the MBS price highs and float the MBS price lows. Currently, mortgage backed security prices are closer to the bottom of the lock/float range than the top, this means we should wait it out for a technical turn around in prices. Unless you are closing in the next week, floating is acceptable.
Have a great weekend!