11/22/09
Mortgage pricing improved slightly last week as the Conforming 30-year fixed rate holds steadily under 5% reaching 2009 lows, while the Conforming 15-year fixed hit an all-time record low according to Freddie Mac.
This is happening even as data continues to suggest of an economic recovery, which would traditionally have a negative impact on mortgage pricing. This just shows you how cautious investors are going to be and they are taking safer bets with their money sending it to bonds.
Fed Stays The Course: Fed Chairman Ben Bernanke spoke early last week and reiterated the Feds position to keep interest rates noting no immediate concerns over inflation. Although, by mid-week, we did get some data in the CPI (Consumer Price Index) that showed some slightly higher inflation than was expected, but nothing that has sparked any fears that the Fed would be raising rates anytime soon. In fact, many now believe the Fed will leave interest rates at current levels through 2010.
Slow Home Building: While the National Association of Home Builder Index of member sentiment held steady in November, housing starts were weaker in October than expected and permits for future building activity fell back to the lowest level since mid-Spring.
Improving Employment? Weekly Jobless Claims continued to hang above the 500k market, but most suspect we will crack that number as early as this week.
The Week Ahead:
Overall, we believe that it is going to be an active week for the mortgage market, particularly the first half. Friday will be the least important day of the week and either Tuesday or Wednesday will be the most important. We expect to see plenty of movement in rates the first couple of days, so please be careful and maintain contact with your mortgage professional if you have not locked an interest rate yet.
This holiday-shortened week brings us the release of seven relevant economic reports for the markets to digest. All of the week's data is being posted over just three days and we also have $44 billion of Treasury auctions in 2-year, 5-year, and 7-year notes to absorb.
The bond markets will be open for a full day of trading on Wednesday, closed on Thursday, and will have a shortened trading day on Friday.
MONDAY:
October's Existing Home Sales data was posted this morning and much better than expected, indicating that the housing sector may be strengthening. We get the 2-year note auction at 1:00 ET and it is expected to go well- supporting current bond and mortgage prices.
TUESDAY:
GDP: The first important data comes early Tuesday morning when the first revision to the 3rd Quarter Gross Domestic Product (GDP) will be posted. The GDP revision is expected to show a downward revision from last month's preliminary reading of a 3.5% annual rate of expansion. Current forecasts call for a reading of approximately 2.9%, meaning that there was less economic growth during the third quarter than previously thought. This would be good news for the bond market and mortgage rates and has already been priced in. However, if we come in even lower than 2.9% it could bring more positive movement in mortgage pricing.
Consumer Confidence: November's Consumer Confidence Index (CCI) will be released by the Conference Board late Tuesday morning. It gives us a measurement of consumer willingness to spend. If consumer confidence is rising, analysts believe that consumers are more apt to make larger purchases, essentially fueling economic growth. This raises inflation concerns and usually pushes mortgage rates higher. Analysts are expecting to see little change from last month's 47.7 reading, meaning consumer were just as concerned about their own financial situations as they were last month. A weaker than expected reading should be good news for mortgage rates, but a stronger than expected reading could push mortgage rates higher Tuesday.
WEDNESDAY:
Durable Goods: There are four reports scheduled to be posted Wednesday morning. October's Durable Goods Orders is the first and will be posted early morning. This data helps us measure manufacturing strength by tracking orders for big-ticket items, but is known to be quite volatile from month-to-month. It is expected to show a 0.5% increase in new orders. A smaller than expected rise would be considered good news for the bond market and mortgage rates.
Personal Income and Outlays: The second is October's Personal Income and Outlays data. This data is thought to measure consumers' ability to spend and their current spending habits. This is important because consumer spending makes up two-thirds of the U.S. economy. It is expected to show that income rose 0.2% and that spending increases 0.5%. Smaller than expected readings would be good news for bonds and could lead to improvements in mortgage rates.
Consumer Confidence: The revised November reading to the University of Michigan Index of Consumer Sentiment will also be posted late Wednesday morning. Analysts are expecting to see an upward revision to the preliminary reading of 66.0. Unless we see a significant variance from the forecasted reading, I don't think this data will cause much movement in mortgage rates Wednesday.
New Home Sales: October's New Home Sales is the last report, but it is the least important. I don't think this data will influence mortgage rates unless it varies greatly from forecasts and the rest of the day's news matches forecasts.
Two-Month Rate Forecast:
With rates at multi-year or near historic and all-time lows, it's tough to expect that they have considerable room to decline much from here, especially in the face of a modestly improving economic climate and improving corporate earnings picture.
Rates that were lower earlier this year were fueled by an apocalyptic economic state and near-term view forward. While this has improved, investor lack of appetite to take risk, weak economic growth, and the low near-term prospects for inflation should serve to keep a lid on any serious increases, too.
We expect mortgage rates to likely wander in a range from about 4.875% to 5.375% on the Conv. 30-year fixed over the next 60 days, but to be choppy in that range as the stock and bond markets search for new trend line.
* Rates posted are subject to change without notice and may not be available at closing. Sufficient equity may be required - certain conditions apply. Ex. $100,000 loan at 6.25% = $615.71 (P.I.) monthly payment. 30 yr fixed rate APR = 6.45%.
