Mortgage rates ticked higher yesterday as prices of mortgage backed securities were pressured lower by a selloff in the long end of the Treasury yield curve. To remind readers, as prices of MBS and Treasuries fall, their yields or rate increase…price and yield have an inverse relationship. No major report or headline caused the moved lower, AQ and MG point out that it was a function of Friday's bond market rally being unwound before today's Treasury auction announcement and the FOMC meeting which was ignited by a "Build America Bond" issuance pricing in California. Their brains are complicated but we make a good team! Whatever the reason was, price losses held into the close and the majority of lenders repriced for the worse.
This morning the Mortgage Bankers’ Association released the Weekly Mortgage Applications index. This data which tracks the weekly change in the amount of mortgage applications for refinance and purchase loans. An increasing trend in applications is a positive economic indicator. First, the purchase of a new home shows that the consumer feels comfortable enough with their own job security and finances to make a major purchase. Additionally, it will lead to many other purchases such as flooring, furniture, appliances, etc… to fill the home. Next, an increase in refinance activity should give consumers additional cash each month as they refinance to a lower interest rate and payment. With this increased cash flow, the consumer will have more funds to buy items which should increase future consumer spending and corporate profits. For these reasons, market participants track the applications index for signs of future economic momentum.
The report shows that the refinance activity moved higher by 14.5% last week as mortgage rates fell; however, the purchase activity posted a 1.8% decline. The decline in purchase activity is an indication of weaker home sales in the future. READ MND STORY
Next we got a peek into the employment situation with the release of the ADP Employment report. This data is similar to the official government report we get on Friday with a couple key differences. First, the ADP report is compiled by a private company, Automatic Data Processing, not the government. Next, it only counts private payrolls and does not take into account government jobs. Historically, this report has varied greatly from the official report but it’s accuracy has been improving. Since jobs are so crucial to any economy, market participants track this report to get a gauge on economic momentum but it continues to be of much less significance than Friday’s official Employment Situation report.
Expectations called for a loss of 195,000 jobs, but the ADP reports that our economy lost only 203,000 jobs last month (ONLY HAHA). The prior months figures were revised from an initially reported loss of 254,000 to -227,000.
The final data release today was the ISM Non-Manufacturing Index. This data is a survey of 400 non manufacturing firms across the country regarding the strength of their business conditions. Readings above 50 indicate expansion while reading below 50 indicate contraction. Recent reports have shown that non-manufacturing business conditions have been improving with last month’s report moving above 50 for the first time since the summer of 2008. Economists surveyed had expected to see continued improvement with a 51.6 reading but the actual reading came in lower at 50.6. With the Fed statement in a few hours, there was no reaction to this report.
Helping to keep the pressure on the fixed income sector to move lower is the announcement from the U.S. Department of Treasury regarding the size of the upcoming auctions next week. The announcement shows that they will offer $40billion of 3 year notes, $25billion of 10 year notes and $16billion of 30 year bonds which is basically in line with expectations. READ MORE
The big news of the day will be the Fed statement at 2:15est. Today is the conclusion of the Federal Open Market Committee’s 2 day meeting which occurs 8 times a year. At these meetings, our nation’s monetary policy is set. It is widely expected that they will maintain the current Fed fund rate of 0 to .25%. As always with these meetings, the statement that is released is scoured by market participants for any hint at future monetary policy and their outlook on the economy. I suspect today’s statement will be very similar to the last one. They will maintain the current rate “for an extended period” and caution about a slow and but steady economic improvement. AQ and MG will cover the release of the statement in detail on the MBS Commentary blog.
What are your thoughts on the FOMC statement?
Reports from fellow mortgage professionals indicate that mortgage rates have moved higher this morning. The par 30 year conventional rate mortgage is now in the 4.875% to 5.125% range for well qualified consumers. To secure a par 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 including one point loan origination/discount/broker fee. You can elect to pay less upfront fees but your interest rate will be higher.
On Monday and Tuesday we advised that locking your rate was the best strategy. Did you lock in?