Mortgage rates  rose yesterday after a better than expected advance read on third quarter GDP sent benchmark yields higher early in the trading session. Making matters worse for the fixed income sector was a recovery rally in stocks and a 1pm Treasury auction. As explained in previous posts, added supply of Treasury debt can have negative effects on yields as traders look for any reason to force rates higher in an effort to earn greater returns. Its the old econ 101 principle: if supply is greater than demand, then prices must fall enough to entice demand. Well...when Treasury prices fall, yields rise, and so do mortgage rates. Yesterday the deck was stacked against the rates market...better than expected econ data, a Treasury auction, and rallying stocks! That's why mortgage rates moved higher....

This morning we had quite a few economic reports hit the wires.  First out was Personal Income and Outlays report, then Chicago PMI data, followed by Consumer Sentiment at 10AM.

Personal Income and Outlays tracks the monthly change in consumer income, spending, and savings rate of consumers.  If consumers are making more money, they may have more to spend, thus market participants track changes because it is a forward looking indicator of consumer spending.  The outlays portion of the data provides a look into whether consumers are spending more or less.  The savings rate tells us if consumers are...SAVING MORE. :-D  Also included is the Fed’s favorite gauge of inflation with the Personal Consumption Expenditure.

The release of the report by the U.S. Department of Commerce shows income and outlays coming in right on expectations.  Income was unchanged from last month while spending declined 0.5%. The savings rate was 0.5% higher at 3.3%  The inflation component of this report continues to show that inflation is not a concern today.  Headline PCE increased a modest 0.1% and the core reading, which strips out food and energy prices due to their volatility, also moved higher by 0.1% matching last month’s increase.   On a year over year basis, the core PCE is up only 1.3% well within the Fed’s comfort zone for price increases. 

Next came a report on the strength of business conditions in the Chicagoland area with the Chicago PMI survey.   This survey of both manufacturing and non manufacturing companies lets us know whether business conditions are improving or contracting in the Chicago region.  Readings above 50 indicate expansion while readings below 50 indicate contraction.   September’s reading fell to 46.1 from 50.0 in August breaking a run of several months in a row of improving conditions.   Economists surveyed for this month’s report expect conditions to improve to 48.5.  Today's release indicates that business conditions in the Chicago region improved much more than expected to a 54.2 reading.   We get a reading on the national strength of business conditions next week with the ISM index which is much more important than this regional report. 

The final report on the day provided a reading on how you, the consumer is feeling: The Consumer Sentiment report.  The University of Michigan’s Consumer Survey Center questions 500 households each month on their personal financial conditions and attitudes about the overall economy.  An optimistic consumer is more likely to spend money while a pessimistic consumer is more likely to save.   Last month’s report showed consumers were becoming less optimistic as the survey fell more than 4 points from the prior month to 69.4.   Economists surveyed for this month’s report are expecting a small increase to 70.0.The survey says…consumers are more optimistic than expected, the print was 70.6. Not much surface level reaction in the marketplace.

Reports from fellow mortgage professionals indicate lender rate sheets are similar to yesterday morning's.  The par 30 year conventional rate mortgage remains in the 4.75% to 5.00% range for well qualified consumers.  To secure a par 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 one point loan origination/discount/broker fee. 

After the release of all the data today, MBS have regained yesterday's losses, putting prices back in the middle of trading range.   Following the strategy of lock at the price highs and float the lows, I am going to recommend cautiously floating your rate over the weekend, if your loan is closing in more than a week.  For consumers closing within the next week, time to cash in and take advantage of the lower rates.  This strategy has worked well for gauging lock float decisions over the past few months.

Everyone have a great weekend.