Worldwide economic optimism has led investors to liquidate their risk averse fixed income positions (ie mortgage backed securities and treasuries) to fund a global stock market rally consequently pushing mortgage rates a few basis points higher.  In what has become a consistent pattern, Treasury buying and selling is providing directional guidance for MBS....stocks go higher, Treasuries sell, and MBS move a little lower (not as much as Treasuries though), etc etc.   To remind readers, when MBS sell off, or move lower in price, consumer borrowing costs and mortgage rates move higher.   Yesterday, the benchmark 10 year US treasury sold off near a full point while MBS only lost ¼ a point and consumer borrowing costs increased by .125-.250 discount points after many lenders repriced for the worse yesterday.   To see a graph of yesterday’s MBS trading action, Click here. 

There are several factors that are leading many to believe the economy is on the verge of turning the corner.  Retail store Lowes, posted better than expected numbers and gave a optimistic outlook for the future as did Treasury Secretary Tim Geithner.  Morgan Stanley, JPMorgan, Goldman are planning to pay back the government loans that were given to them late last year.  Many companies are successfully raising money in the corporate bond market (to pay back TARP).  Currently, they are working with the government to determine how and when to pay the funds back.  The National Association of Home Builders index came in higher than expected leading many to believe that the worst of the housing slump is behind us.    German investor confidence came in higher posting a 3 year high in the confidence index. The 3 month LIBOR rate, which is a key rate that lenders borrow money from each other, has seen dramatically declines over the past few weeks.   At the height of the financial meltdown, the 3 month LIBOR was over 4%...it currently sits at .75%. 

Today is a light day for economic data but we do have 2 reports which might give investors a dose of reality.   The first economic report of the day is the ICSC-Goldman Store Sales which shows the percentage increase/decrease in same store sales on a weekly basis.   This report is not a market mover but in light of the optimism currently displayed by investors, it does give us data to support that the consumer is not spending.  Same store sales for the week of May 16^th fell by- 1.2% and year over year down -0.3%  Since consumer spending makes up the vast majority of our economic growth, this might change the outlook by investors. 

Next, the US Department of Commerce gave us a disappointing report on housing starts...disappointing depending on your point of view.    Expectations were for housing starts to post an annual pace of 520,000, but the actual number came in considerably lower at 458,000, a 12.8% drop from last month’s 510,000 pace.   Housing permits also posted worse than expected numbers at 494,000.  Following the release of this report, stock market futures went from a positive number into the red and MBS followed treasuries higher in price.  Poor housing starts is generally bad for the economy but in this case we are glad this data set isn’t growing....isn’t there already enough supply of homes on the market?

There are many people who continue to sit on the sidelines regarding refinancing and home buying.   If our economy is truly on the recovery path, mortgage rates even with the massive amount of Fed support, will have a difficult time holding levels under 5%.  To remind readers, the Fed has set aside $1.25 trillion to purchase MBS and to date they have only spent $450billion.  Fed support will continue but they cannot do it all.  It might be time for all fence sitters, in the words of Dan Marino pitching diet food, to get in the game.   If you have been watching the market waiting to buy or refinance, please let us know what you are waiting on?  Do you think mortgage rates will move lower?  Do you feel home prices have further to fall?   Do you think our economy is on the path to recovery or is the current optimism a bear market rally? Either way getting an application submitted doesn’t mean you are locking in a mortgage rate.  Submit an application so you are ready to lock when rates move lower because as we have seen over and over again this year....low rates come and go quickly...be ready when/if they go lower!

Early reports from fellow mortgage professionals are indicating lenders rate sheets are about .375 worse in discount from what we received yesterday morning.   This places the par 30 year conventional rate mortgage in the 4.625% to 4.875% for the best qualified consumers.   To qualify for a par interest rate, you must have a FICO credit score 740 or higher, a loan to value at 80% or less and pay all closing costs associated with loan including 1 point loan origination/discount/broker fee.