Yesterday, mortgage backed securities (MBS) started off a little choppy but managed to hold a stable price level in the afternoon. The direction mortgages are moving is being dictated by the stock market and its relation to money flows in the Treasury market...which we refer to as the "stock lever".   Around noon, MBS moved higher as the stock market sold off.  A little later, investors feeling optimistic rallied the dow taking the wind out of MBS which took away the gains for the day.   In the last hour of trading, the stock market sold off closing in negative territory but no money flowed over to MBS which closed at the same level at which they opened.  If you would like to see a graph of the day’s action, CLICK HERE.   The big loser yesterday was US Treasuries.  The benchmark 10 yr treasury, which was trading at 2.80 just a few days, touched a high yield of 2.97 yesterday.  Added supply of treasuries is placing a lot of pressure on rates to move higher which will place added pressure on MBS to follow.

So far this morning MBS are holding near the same levels of yesterday's close.   This should allow most lenders to continue to offer 4.625% to 4.875% as the par rate for a 30 year conventional mortgage for the best qualified consumers.  For consumers looking for a 15 year fixed rate mortgage, you should expect a rate from 4.25% to 4.50%.  As always, to qualify for the best rates you must have a FICO credit score of 740 or above, a loan to value of 80% or less and be willing to pay all closing costs and 1 point loan origination/discount/broker fee.

We just got the release of the weekly jobless report from the Labor Department.  This report measures the amount of people who file for unemployment insurance for the first time on a weekly basis.  First time jobless claims rose last week by 27,000 to 640,000 which was slightly higher than expectations of 636,000.  The continuing claims which measure the amount of people who continue to file for unemployment insurance due to a lack of finding a new job set another all time high record of 6.137 million which is 117,000 more than the prior week.   This is the 12^th consecutive record!  So, the jobs outlook remains troubled which is a positive for MBS.  Since the release, MBS have moved slightly higher.   

Also out today is existing home sales for March.  This report totals the number of existing homes, not new built homes, which sold in the prior month.  We get new home sales tomorrow.  February posted a 5.1% increase from the prior month to an annualized pace of 4.72 million.  The average price of an existing home sale in February was down 14.8% from the prior year to $165,400 but that was 0.4% higher than the previous month.  Economists had expected a slight decline to an annualized pace of 4.7 million, but the official number came in considerably lower at an annual pace of 4.57 million.  In some good news, the average home price increased from last month to $175,200 which is still down over 12.4% from last year but up 4.2% from last month.   Immediately following the release of this report, the stock market has started to sell off and MBS have moved to the highs of the day.  So, we have our second month in a row showing month over month increases to home prices.  Could that be a sign of the bottoming out of home prices?  What do you think?  Do you feel home prices have further to decline, or is now the beginning of home appreciation?  What do you think?

Later today we also get news from the US Treasury department announcing the amount of US Treasuries to be auctioned off next week.  The added supply of debt, expected to be $100billion, will place pressure on treasuries to move lower in price and higher in yield.  Since treasuries and MBS are both fixed income investments, they do tend to trend in the same direction.  So, as treasuries sell off it applies pressure on MBS to follow which results in higher mortgage rates.  Our government sells US Treasuries to raise money when they don’t have any money to spend, so this is how our country borrows money.  Just like when you need money to buy a home, you seek out a mortgage.  When our government needs money, they sell treasuries. 

Early reports from fellow mortgage professionals are indicating that lenders rate sheets are basically the same today as we had yesterday.   The direction of MBS today will more than likely be driven by the stock market and treasuries.  If the stock market gets in rally mode and starts to move higher, it will place pressure on MBS to sell off resulting in higher borrowing costs.  However, always remember that we still have a wild card, the Fed.  If MBS start to move lower, the Fed will step in and increase buying which should prevent a big sell off.

For intraday updates, check out the MBS Commentary blog.