The Mortgage Interest Rate Lock Advisory for August 14, 2009
Here are some of the events affecting mortgage interest rates today in Massachusetts, Maine, and New Hampshire.
What the Mortgage Backed Securities Market is Doing Today:
The price of the FNMA 30-Year 4.5% MBS coupon opened up 1/32 this morning to 99.75.
The price of the FNMA 30-Year 4.5% MBS coupon closed up 18/32 yesterday to 99.73 (as shown by the white line). MBS is currently trading up 12/32 at 100.09 (as shown by the blue line). Remember, on mortgage backed securities (MBSs), as the price goes up, the yield comes down - and mortgage interest rates come down with it. I expect that mortgage interest rates will be 0.125% - 0.375% better in price this morning as compared to yesterday.
Economic Reports Affecting Mortgage Interest Rates Today:
- Consumer Price Index (CPI) for July - the CPI came in flat in the overall index, and increased 0.1% in the core data - slightly less than expected. Analysts expected to see a 0.1% increase in the overall index, and a 0.2% increase in the core data reading. In the previous month, we saw a 0.7% increase in the overall index, and a 0.2% increase in the core data reading. Year-over-year, the CPI dropped 2.1% - the largest decline since January 1950. The CPI is one of the most important reports we see each month as it measures inflation at the consumer level of the economy. As the readings came in slightly less than expected reading and is down from the previous month, there's less inflationary pressure at the consumer level. The report was favorable to the mortgage backed securities market and led to lower mortgage interest rates this morning.
- Industrial Production Report for July - The report revealed a 0.5% increase in production last month - the first increase in 9 months - is slightly less than the 0.6% increase that was expected, and follows a 0.4% decline in June. The biggest gainers were auto manufacturers who have finished retooling for the new model year and are now making up for declining inventories. The federal government's "cash for clinkers" program has also helped spur auto sales. As this report came in essentially as expected, it did not add much to the movement in mortgage interest rates.
- University of Michigan's Index of Consumer Sentiment for August - We saw a reading of 63.2 this morning, the lowest level since March, is much lower than the 68.5 reading analysts were expecting, and is a decrease over the 66.0 reading in July. This index gives us a measurement of consumer willingness to spend. If confidence is rising, then consumers are more apt to make large purchases which in turns fuels economic growth. The lower reading indicates that consumer confidence is falling, and spending is likely to decrease. This reading also helped bring about lower mortgage interest rates this morning.
News and Events That Could Affect Mortgage Interest Rates Today:
The 30-year Bond auction went fairly well yesterday, which led to lower mortgage interest rates yesterday afternoon.
The Feds also reported yesterday that they have purchase $741.6 billion in mortgage backed securities so far this year. They are almost 60% of their way through the $1.25 trillion that they've allocated for the program.
In other news, Mohammad El Arian, the CEO of PIMCO, a leading global investment management firm, appeared on CNBC this morning warning that the recent rally in the stock markets has outpaced the economy. He believes that consumers and the increasing problems in the residential and commercial real estate markets are still major drags on the economy.
David Tice, the chief portfolio strategist for bear markets at Federated Investors Inc., said that U.S. stocks are "dramatically overpriced." In an interview with Bloomberg Television. Tice said "I'd love for prosperity to return. Unfortunately, I think you need to be realistic, and it takes time to work off these excesses from a bubble in credit markets."
Charles Knott, chief investment officer at Knott Capital Management in Exton, Pennsylvania, added that "a lot of people think the market has come up more than enough and it needs to rest. We've got a pretty sobering outlook and are concerned about the economy on a long-term basis. We think there's neither the willpower nor the means to fully finance that type of V-shape recovery."
There are only a few economic reports scheduled for release next week. We'll have the Producer Price Index and Housing Starts reports on Tuesday, and the Existing Home Sales report on Friday. Look for more details on next week's economic data releases and events on my Weekly Mortgage Market Watch at www.LewCorcoran.com/MyBlog on Monday.
What's Happening With Mortgage Interest Rates Today:
Moderate to High Volatility. Overall, look for the most movement in bond prices and mortgage interest rates today. If you're still floating your rate, please act accordingly and maintain contact with your mortgage professional.
If you're waiting and hoping the 30 year fixed mortgage interest rate will dip below 5.0% (at no points) again, I want you to know that, while not impossible, and as the past few weeks have proven, it's becoming increasingly unlikely. The apparent theme indicates the recession is over (or at least has hit bottom), and markets are reacting accordingly.
You can expect mortgage interest rates to generally move higher in the coming weeks and months. The primary reasons are 1) the recession appears to be bottoming out; 2) the housing market, while still declining, appears to be stabilizing; 3) the jobless rate is slowing; and 4) corporate earnings reports show that companies are beginning to earn bigger profits. So, ask yourself this question: Will it hurt me more to lock in now and watch rates drop another eighth or a quarter point, or will it hurt me more to keep floating and watch mortgage interest rates turn for the worse?
If you're refinancing and have tired of the roller coaster ride, then I suggest you consider locking in now and being done with it. If you're willing to take the risk and continue watching mortgage interest rates, then keep a wary eye on the markets and maintain contact with your mortgage professional, because the markets can change at any moment.
My Mortgage Interest Rate Lock Advice for Today:
If I were considering financing/refinancing a home, I would...
- Lock if my closing was taking place within the next 7 days
- Lock if my closing was taking place between 8 and 30 days
- Float if my closing was taking place between 31 and 45 days
- Float if my closing was taking place between 46 and 60 days
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 interest rates for Massachusetts, Maine and New Hampshire at www.LewCorcoran.com/RateSheet.
East Bridgewater, MA 02333
Lew Corcoran, ASP®, IAHSP, IAHSP-CB