Mortgage rates opened just above record lows yesterday. Many lenders were seen offering mortgage rates below the 4.25% threshold.  However as the day progressed, mortgage-backed securities (MBS) prices were pressured lower and lenders had to reprice for the worse, which pushed consumer closing costs higher by about 0.25% (of the loan amount) on the day.

The economic data calendar was empty yesterday but we received several reports today. First out was the final revision to second quarter Gross Domestic Product.

GDP is the broadest measure of total economic activity.  It reports on the output of every economic sector.  It's basically our economic report card.  A rapidly growing economy can lead to price inflation, one of the main enemies of low rates.  The bond market prefers stable growth while stocks generally enjoy a faster pace of economic expansion. 

The final report on Q2 GDP (of 3) indicated our economy grew at a rate of 1.7% between April and June, this was slightly better than forecast. Published at the same time were weekly initial jobless claims.  This economic  release provides three timely metrics on the health of the labor market:

1. Initial Jobless Claims:  totals the number of Americans who filed for first time unemployment benefits in the previous week
2. Continued Claims:  totals the number of Americans who continue to file for benefits due to an inability to find a new job 
3. Extended and Emergency Benefits: totals the number of Americans who have exhausted their traditional benefits and are now receiving extended and emergency benefits

Since our economy is driven by consumer spending, market participants track employment data to get a sense of economic momentum to come.  Higher jobless claims imply less consumers have jobs and therefore less money to spend.  This is a negative for the economy but generally helpful in keeping consumer borrowing costs down.

Here are the results:

1. Initial Jobless Claims: -16,000 to 453,000 vs. estimates for a read of 460,000.  This was the fourth consecutive week of declining claims.  The prior week’s claims were revised worse to show 4,000 additional claims.  Better Than Expected
2. Continued Claims: -83,000 to 4.457million vs. estimates for a read of 4.480 million.  Better Than Expected
3. Extended and Emergency Benefits: -293,000 to 4.88million.

After these two reports MBS prices began to move lower, putting the pressure on lenders to push consumer borrowing costs higher again. But there was a chance for a turnaround at 9:45 when the Chicago Purchasing Managers Index was released.  This data provides a peek into the strength of the manufacturing sector of our economy.   It measures the strength of business conditions in the Chicagoland region. Index values over 50 imply the sector is growing. Index values below 50 imply the sector is contracting. In August, the Chicago PMI fell to from 62.3 to 56.7.  Today’s release, which covered September, showed the Chicago PMI had improved much more than expected to an index of 60.7 (economists expected 56.0). AQ recapped this data HERE

This better than expected economic report was the straw that broke the camel's back.  When this data hit newswires, stocks rallied to the highs of the day and MBS prices fell to the lows. Lender rate sheets were considerably worse vs. yesterday. However, month-end portfolio activities in bonds and quarter-end profit taking in stocks helped MBS prices recover from the session lows. This allowed some lenders to reprice for the better. It was a volatile day!

The par 30 year conventional rate mortgage is in the 4.25% to 4.50% range for well qualified consumers. A few lenders are offering 4.125% still but most have priced this rate out of the market (closing costs higher).

If you've been reading the blog and are closing in the next 10 days, you should be locked up already.  If you are still floating, we must revisit our "Float at the MBS Price Lows, Lock at the MBS Price Highs" strategy. Currently MBS prices are directly in the middle of our range. That doesn't help us does it? We feel there is high potential that rates could rise in the next few days. From that perspective, if you do not have time wait for rates to correct (if they rise), you should lock. Although consumer borrowing costs have risen over the past two days, mortgage rates are still priced near record lows. If you have some time to wait, we feel there will be another chance for you to lock at current pricing or maybe even better sometime down the road.