What the Markets Are Doing Today:
Both the bond market and Mortgage Backed Securities (MBSs) opened down in price today as the government continues its sales of even more government debt that is expected later today. $22 billion in 7-year notes will be auctioned today. That will bring the total to a record $94 billion in bonds and notes that the Treasury Dept. has offered over the past three days. Meanwhile, stocks opened up after the President proposed providing as much as another $750 billion in aid for the financial industry.
- The Dow opened up 74 points from yesterday's close and is currently up 116 points
- NASDAQ opened up 10 points from yesterday's close and is currently up 16 points
- The 10 Year Treasury Bond opened down 19/32 from yesterday's close and is currently down 25/32
- FNMA 30 Year 4.5% coupon opened down 4/32 from yesterday's close and is currently down 13/32
Remember, on MBSs, as the price goes up, the yield goes down - and mortgage interest rates go down with it. Conversely, as the price goes down, the yield goes up - and so do mortgage interest rates. MBS closed down 15/32 from its opening yesterday morning, and is currently down another 4/32 this morning. I expect mortgage rates again will be a little more expensive today than yesterday by 0.125% to 0.250% in price.
Economic Reports Being Released Today:
- Durable Goods Orders for January - Orders for durable goods fell 5.2% in January - the 6th straight month orders fell - and is much worse than the 2.5% drop analysts were expecting. This follows a 4.6% drop in December. This data gives us an important measurement of manufacturing sector strength by tracking orders at U.S. factories for items expected to last three or more years. A decline that is larger than the 2.5% drop that is expected is considered good news for the bond market and mortgage rates. But it appears that this report is having no impact on the bond markets today.
- Jobless Claims - Initial claims for unemployment jumped to 667,000 last week, the highest level since 1983, and is 42,000 more than what analysts predicted. Continuing claims for jobless benefits rose by 170,000 to 4.987 million. With more and more people unemployed, the threat of wage based inflation is subdued. This is considered positive news for bonds and MBS as employers do not have to pay higher wages to attract new employees during periods of high unemployment. But, this data is not considered to be of high importance to the bond markets.
- New Home Sales - This report revealed that new home sales fell 10.2% in January to a much lower-than-expected annual rate of 309,000 units - a record low. The median price for a new home fell also fell sharply - new home prices dropped 9.9% in January to $201,100. This is good news for home buyers as home become more affordable.
However, according to Frank Nothaft, vice president and chief economist at Freddie Mac, "Lower house prices and affordable mortgage rates have yet to spur housing demand."
However, this data is also considered not to be of high importance to the bond markets.
- Fed's MBS Purchase Program - The results of this past week's purchases of Mortgage Backed Securities (MBSs) by the Feds will be released in the afternoon. To date, the Feds have purchased over $134 billion in MBSs. The Feds plan on purchasing up to $500 billion in MBSs through June 30th.
Important News of the Day:
The President is proposing $750 billion in new aid to the financial industry. This new aid will be on top of the $700 billion rescue package that was approved by Congress last October. In addition, he is seeking $635 billion in spending on the health care system. According to his budget proposal, the President says this will bring the budget deficit to $1.75 trillion by the end of the fiscal year which ends on September 30, 2009.
There are six economic reports to be released this week that could potentially affect mortgage rates. Look for more details on next week's economic data releases and events on my Weekly Mortgage Market Watch.
What Happening With Mortgage Rates Today:
High Volatility. Overall, I am expecting to see some movement in the markets, and there's additional downward pressure on MBS prices again today (meaning higher rates). Also, the supply of T-bills on the market to pay for the massive debt obligations continues to weigh heavily on the market. I expect the markets will be more volatile the next couple of days.
If you haven't locked in a rate yet, then you may want to continue floating. While floating continues to make sense right now, the ever increasing massive government debt could drive mortgage rates up. So, if you like the rate that you are being offered today, then there's nothing wrong with locking in.
My Interest Rate Lock Advice for Today:
If I were considering financing/refinancing a home, I would...
- Lock 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.
East Bridgewater, MA 02333
Lew Corcoran, ASP®, IAHSP, IAHSP-CB