Mortgage rates continue to hold steady as prices of mortgage backed securities keep to a confined range. Economic data yesterday was as expected and had no impact on trading. The Treasury Department completed the third leg of the August 2s/5s/7s auction cycle, raising $90 billion dollars this week. Although yesterday's the 7 year note auction saw above average demand, MBS prices didnt budge from their current range. Seasonal effects are obvious on Wall Street as slow summer trading has provided some irrational price behavior lately.
This morning the U.S. Department of Commerce published Personal Income and Outlays data. This report provides three economic indicators. The first being personal income which represents the total dollar value of income received from all sources. Next is personal outlays which measures the monthly change in how much money consumers are spending. The final measure is the Fed’s favorite gauge for inflation, the Personal Consumption Expenditure(PCE). Since our economy is driven by consumer spending, market participants are very interested in consumer income and spending. A trend of increasing consumer income should lead to more spending and a more optimistic economic outlook.
The report shows that personal income in July was flat from last month after posting a large decline in June. On a yearly basis, personal income is down 2.4% which is improved over last month’s reading of -3.4%. Economists surveyed prior to this report expected to see a small increase in personal income. The consumer spending component of this report indicates that spending came in right on expectations, marking the second month in a row of increasing spending. The small move higher in spending is partly being attributed to the cash for clunkers program which helped to spark an increase in auto sales. With this government incentive now over, it will be interesting to see whether consumer spending will post a third consecutive increase next month. How about you? Are you out spending money or are you continuing to boost your balance sheet with savings?
As expected, the inflation part of this report continues to affirm that inflation is not a concern. Year over year, the core PCE index shows an increase in prices of 1.4% which is better than last month’s 1.5% reading. The fed’s comfort zone for core PCE is 1% to 2%, so we continue to see no signs of inflationary pressures. Since this report has come in basically in line with expectations, it is having no impact on the markets. If you would like to read more on this report. MND STORY
The final report of the week is a measure on consumer sentiment. A optimistic consumer is more likely to spend money while a pessimistic consumer is more likely to save. The Reuter’s/University of Michigan’s Consumer Sentiment index is a survey of 500 households each month on their financial conditions and attitudes about the economy. The last two surveys showed the consumer becoming more pessimistic after a few months in a row of increasing optimism. The report indicates that the consumer sentiment improved from last reading and came in higher than expected but still below the recent highs of a couple months ago.
Early reports from fellow mortgage professionals are showing slightly worse rate sheets this morning. The par 30 year conventional rate mortgage remains in the 4.875% to 5.125% range for the best qualified consumers. In order to secure a par interest rate you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs associated with the loan including one point loan origination/discount/broker fee.
As I have pointed out in prior posts, rates will always move higher quicker than they move loweR. Although stocks are due for a sell off which would be a positive for mortgage rates, one cannot rely on that assumption when deciding whether to lock or float. That said, as mortgage rates remain near two month lows....floating is risky.
If you have any questions regarding your particular loan situation, feel free to ask in the comments section. Many professionals read this blog and are willing to give you free advice. I would also like to thank the many readers who do comment and send me emails. I hope everyone has a great weekend!!