The Mortgage Interest Rate Lock Advisory for August 18, 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 down 5/32 this morning to 100.03 as European stocks and U.S. futures rallied on a better than expected consumer confidence report in Germany.
The price of the FNMA 30-Year 4.5% MBS coupon closed up 8/32 yesterday to 100.22 (as shown by the white line). MBS is currently down 1/32 to 100.16. 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 interest rates will be 0.0% - 0.125% worse in price this morning as compared to yesterday.
Economic Reports Affecting Mortgage Interest Rates Today:
- Housing Starts for July - Housing starts tumbled 1.0% last month to an annualized rate of 581,000. Analysts were expecting the report to show a 2.8% annualized increase in the construction starts of new homes to 605,000. In June, housing starts increased at an annualized rate of 3.6%, and followed a huge annualized increase of 17.3% in May. This report gives us an indication of housing sector strength and mortgage credit demand. The lower the number of starts indicates the housing sector is still struggling. However, this report isn't considered to be of high importance to the mortgage market.
- Producer Price Index (PPI) for July - Producer's wholesale prices fell 0.9% last month, while core data prices fell 0.1%. Analysts expected to see a 0.3% decline in the overall index and a 0.1% increase in the core data reading. The decline in July was due primary to decreases in food prices (down 1.5%) and energy costs (overall down 2.4%). The price of home heating oil fell 10.2% while gasoline prices rose 3.3%. As a comparison, the overall index was up 1.8% in June due to higher energy costs, and followed a 0.2% increase in May. The core data increased 0.5% in June.
The report gives us an indication of inflation at the producer level of the economy. There are two readings in the report- the overall index and the core data reading. The core data is more important because it excludes more volatile food and energy prices that can change significantly from month to month. A smaller than expected increase in the core data is considered good news for the mortgage market, but because of this morning's consumer confidence report in Germany, it didn't cause much movement in mortgage interest rates.
News and Events That Could Affect Mortgage Interest Rates Today:
Global stocks are improving today on news of growing consumer confidence in Germany. The ZEW Center for European Economic Research index rose to 56.1 in August from 39.5 in July, exceeding analyst expectations of a reading of 45.0.
Home Depot Inc. and Target Corp. reported better than expected earnings for the 2nd quarter.
Recent talk that China will retreat as the largest foreign holder of US debt seems to be premature. China has recently purchased a small amount of mortgage backed securities, thus adding to the consensus that the US housing sector is about to recover. More importantly, however, the quality of new mortgages is the best we've seen in years, and their rates are better than that of US Treasuries. In addition, mortgage backed securities are essentially guaranteed by the US government.
There are only a few economic reports scheduled for release this week. We'll have the the Existing Home Sales report on Friday. 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's Happening With Mortgage Interest Rates Today:
Moderate to High Volatility. Overall, look for Tuesday to be the busiest day of the week with the release of the Producer Price Index. The rest of the week will likely be influenced more by stock prices than anything else, which may be quite volatile. So, if you're floating your mortgage interest rate, please keep an eye on the markets 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.
It appears that mortgage interest rates are stabilizing and are heading lower - at least for now - as investors begin to realize the recession is not yet over. However, you can expect mortgage interest rates to generally move higher in the coming weeks and months. The primary reasons are 1) the recession, while not over, appears to be bottoming out; 2) the housing market, while still declining in some areas, appears to be stabilizing; 3) the rate of job loss has stabilized and may be 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