What the Mortgage Backed Securities Market is Doing Today:
The FNMA 5.0 Coupon opened this morning down 2/32 from yesterday's close to 101.27, and was down as much as 4/32, on better than expected durable goods orders report.
The price of the FNMA 30-Year 5.0 coupon closed up 1/32 from its opening yesterday to 101.33 (as shown by the white line). MBS is currently trading down 4/32 to 101.20 (as shown by the blue line). Remember, on mortgage backed securities (MBSs), as the price goes down, the yield goes up - and so do mortgage interest rates. I expect that mortgage rates will be essentially be the same in price today as compared to yesterday, and are waiting for the FOMC announcement this afternoon.
Economic Reports Being Released Today:
- Durable Goods Orders Report for May - Orders for durable goods came in much better than expected with a 1.8% gain. Analysts were expecting a decline of 0.5% in new orders from April to May. This follows a 1.8% decline in April. Recently, orders for durable goods vary widely from month to month. Year-to-year, however, overall durable goods orders is still down 23.3%. This report provides an indication of the strength in the manufacturing sector of the economy. A larger than expected increase is yet another sign that the recession may be easing, and will drive bond prices down which in turn will lead to higher yields and higher mortgage interest rates.
- New Home Sales Report for May - Sales of new homes fell 0.6% from the previous month to an annualized rate of 342,000 which is 23,000 less than the 365,000 analysts were expecting. Meanwhile, the median price of new homes rose 4.2% to $221,600. There's still a 10.2 month supply of new homes on the market. Similar to the Existing Home Sales report, this report provides us with the sales volume of newly constructed homes. Like the Existing Home Sale Report yesterday, this report is not expected to have much of an impact on the bond market or mortgage interest rates.
- FOMC Meeting - The Federal Open Market Committee (FOMC) will adjourn this afternoon. It is widely expected that the Federal Reserve (the Fed) will emphasize that the economy is still weak, and that they will keep the key short-term interest rates at the current level of 0% - 0.25%. Analysts do not expect the Fed to increase its purchases of Treasuries and mortgage backed securities over the previously set commitments, which is $300 billion for Treasuries and $1.25 trillion for MBSs. The post meeting statement, to be released at 2:15pm today, could, however, create volatility in the markets.
Important News of the Day:
Demand for $40 billion in the 2-Year note came in very strong yesterday. The bid-to-cover ration, at 3.21, was the strongest in 2 years, but had minimal impact on mortgage rates. The Feds will be auctioning the 5-Year note today and the 7-Year note tomorrow. Mortgage rates will most likely be impacted by the auctions today and tomorrow. If they are met with a strong demand, bond prices could and mortgage rates fall during afternoon trading hours. But, if the auctions are met with lackluster demand, bond prices may fall and mortgage rates will rise in afternoon trading.
There are a number of economic reports scheduled for release this week that may influence mortgage pricing. Look for more details on this week's economic data releases and events on my Weekly Mortgage Market Watch at www.LewCorcoran.com/MyBlog.
What Happening With Mortgage Rates Today:
High Volatility. Overall, the busiest days of the week for bonds and mortgage rates will be today and tomorrow. Traders will be focusing on the minutes of the FOMC meeting this afternoon as well as the government's auctions of T-bills, notes and bonds. There is a pretty good possibility of seeing mortgage rates changing this afternoon, so please proceed cautiously if you're still floating an interest rate and maintain contact with your mortgage professional.
In addition, the spring and summer home buying season is upon us. Mortgage rates historically climb this time of year before peaking in July or August. If you haven't locked in a rate yet, then you may want to consider doing so. Floating is making more sense in the short term right now as the markets recover from the dramatic sell off the last couple of weeks, but the ever increasing massive government debt and fears of inflationary pressures could soon drive rates up again. So, if you like the rate that you are being offered today, then there's nothing wrong with locking in. Otherwise keep an eye on the markets and maintain contact with your mortgage professional. The markets can change at any moment.
My Interest Rate Lock Advice for Today:
If I were considering financing/refinancing a home, I would...
- Float if my closing was taking place within 7 days
- Float if my closing was taking place within 8 and 30 days
- Float if my closing was taking place between 31 and 60 days
- Float if my closing was taking place over 60 days from now
This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of any or all other borrowers. See today's mortgage rates at www.LewCorcoran.com/RateSheet.
East Bridgewater, MA 02333
Lew Corcoran, ASP®, IAHSP, IAHSP-CB