To describe yesterday’s action in a word...boring.  Mortgage backed securities and treasuries both traded in a very tight range.  On the day, MBS stayed in a 6 tick range while the benchmark 10 year note traded between a high yield of 3.50 and a low yield of 3.46.  With the ever so important employment situation report coming out Thursday, I suspect this trend to continue for at least today, but we must remain defensive (per AQ and MGs technical indicators).  MBS have posted some nice gains over the last few days, helping to lower mortgage rates a few basis points.

We do have some economic data hitting today that will affect the flow of money.   To remind readers, the general rule of thumb on economic data is better than expected data is usually good for the stock market while worse than expected data usually benefits MBS and lower mortgage rates.   As an example, let’s say that consumer spending is lower than expected.  With less consumer spending, corporate profits should drop so why would you want to buy a stock in a company if their profit will be dropping?  You typically wouldn’t, so you would sell the stock and move the money into the safe haven of lower yielding fixed income investments such as MBS and treasuries.  This is what we refer to as the flow of money between equities(stocks) and fixed income investments.  But onto the data…

The first piece of data this morning is the S&P/Case Shiller home price index.  This index gives a measure on the increase or decrease in the value of residential real estate.  Many economists have stated that our economy will not be able to recover until home prices stabilize and show signs of improving.   This report has a lag time of 2 months, so today’s report will indicate the monthly change in home prices for April.  Last month’s report indicated that home prices still have not found a bottom and they went further stating in the report that there is no evidence that a recovery in home prices is on the horizon but the rate of decline is easing.   Year over year, last month’s report indicated that home prices in March are down a record 18.7%!  One thing to remember is that many home sales now are foreclosures which exaggerate the downside in price declines.   With the release, the index has indicated that the year over year decline in home prices for April is 18.1% which is a marginal improvement over last month’s read.  Following the release of this slightly better report, MBS and treasuries both fell to their worst levels of the week.  Since housing is a key element to our economic recovery, this report is having a larger impact today than in past times. Here is a look at the city by city breakdown...

 Next comes the release of Chicago PMI which is a survey of business conditions around the Chicago area.   Improving business conditions would be positive for the equities market since improving conditions should lead to higher corporate profits.  Last month’s report came in weaker than expected at 34.9 which indicates a contraction in business conditions and expectations for this month’s report are for a improved reading of 40.0.  With the release, Chicago PMI came in slightly weaker than expected at 39.9 indicating further contraction in the Chicago area.  Readings above 50 indicate expansion while readings below 50 indicate contraction.  Following the release, there was not much reaction.

Our last piece of data today is the Consumer Confidence report.  This report is a survey of 5000 consumers on their attitudes on present economic conditions and their expectations on future conditions.  An optimistic consumer is more likely to spend, while a pessimistic consumer is more likely to save.  Since our economy is driven by consumer spending, MBS tend to benefit with a lower than expected reading.  Last month’s report moved higher for the 2^nd month in a row coming in at 54.9 from 40.8 in April.   Expectations for this month’s report are for continued improvement with a reading of 57.0.   The release has indicated a shift in consumer confidence coming in much lower than expected at 49.3.  Apparently high gas prices and an increasing unemployment rate is having an effect on consumer attitudes.   There has been much talk about green shoots and our economy starting to recover from the current recession.  I would love to hear your opinion on the economy.  If you  were contacted for this survey, what would be your opinion of the present economic conditions and your outlook on the future?

That’s it for economic data but we do have a few Fed governors on the speaking circuit today.  Any time they give a speech, they have the ability to move the markets.  If anything relevant comes from their speeches, we will let you know.

Following the release of all the economic data, MBS and treasuries have both stopped moving lower.  It appears that MBS will continue to take their direction from treasuries, which appear to be taking their leadership from stocks.  The benchmark 10 year note moved to a high yield today of 3.57 but following the release of consumer confidence has turned and is moving lower to currently trade at 3.53 after closing at 3.48 yesterday.  For MBS to continue to move higher, we will need treasuries to continue to move lower in yield. 

Early reports from fellow mortgage professionals are indicating that the par 30 year fixed rate mortgage remains in the 5.0% to 5.25% range for the best qualified consumers. To qualify 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 1 point loan origination/discount/broker fee.  Many readers do email me regarding the range I quote for par rates.  I quote a range as rates do vary from state to state.  States such as Texas where I do loans get the best rates available.  Also, these rates are for conventional loans while jumbo loans have higher mortgage rates.  Check with your loan professional on the conforming limit in your area, in Texas conventional loans go up to $417,000.

If you would like to track the intraday price movements of MBS, check out Mortgage News Daily’s Mortgage Rates page.   You will be hard pressed to find another site that offers free MBS pricing as I only know of one other and their pricing is extremely delayed.  The team at Mortgage News Daily updates pricing about every 15 minutes and you can see the time of the last update on the bottom of the chart.