Mortgage rates bounced around a tight range for most of the week. There wasn't much in the way of news to motivate movement in the first three days of the week. Although we did get several key earnings releases, the economics calendar was essential empty and the market's general tone reflected a lack of conviction. Rates were unchanged on Monday, rose modestly on Tuesday then recovered from weakness on Wednesday only to give it back positive progress on Thursday after the Treasury announced the terms of next week's debt auctions. This left rates a few bps higher (vs. Monday) heading into today.

Our week wrapped up with two sets of economic data and some unexpected headline news.

The bond market arose this morning to news that Greece had asked the European Union and the IMF to activate their financial rescue package. This request was seen by stock markets as a good thing as it seemed to signal the beginning of the end of a long, drawn out debate over whether or not Greece would be able to raise the funds necessary to pay their creditors. As a result, both European and U.S. stock markets rallied. This had the opposite effect on the U.S. bond market, traders sold positions in risk averse Treasuries in favor of buying stocks which pushed benchmark yields higher. Consequently mortgage rates moved up before the day even began. READ MORE

To remind readers, as benchmark Treasury yields fall,  prices of mortgage-backed securities move higher, which allows lenders to offer lower mortgage rates. As Treasury yields rise, its forced mortgage-backed security prices lower, which forces lenders to push mortgage rates higher.

There was still hope for mortgage rates to recover from their early morning losses though. We still had two sets of economic data to digest: Durable Goods and New Home Sales

Durable Goods data measures the number of new orders placed at U.S. factories for products that are expected to last at least three years. This would include items such as computers, appliances, and electronics. This report tells economists how busy factories will be in the months ahead.   Increasing orders implies  there is more potential for higher corporate revenues and profits. It might also imply that firms would need to hire additional staff to ensure they keep up with growing orders. This is good for the overall economy and stocks...but a negative for the fixed income sector/interest rates.

Following three consecutive reports showing durable orders improving, today’s release gave us mixed results. 

Overall, the broadest measure of durable goods orders dropped 1.3% in March due to a decline in the transportation index. This was much worse than the expected rise of 0.3%. However when we remove this category, manufacturing extended its upward trend, rising 2.8% last month. This was much better than the 0.7% improvement economists had forecast. Excluding the volatile transportation index, durable goods orders saw their largest month over month improvement since December 2007.  

Unfortunately, the bond market did not benefit from this report. In fact interest rates moved even higher after the data was released at 8:30am. We still had one chance left for a reversal though: New Home Sales

The Department of Commerce released the March New Home Sales report at 10am.  A sale of the new house occurs with the signing of a sales contract or the acceptance of a deposit. The house can be in any stage of construction: not yet started, under construction, or already completed. Typically about 25% of the houses are sold at the time of completion. The remaining 75% are evenly split between those not yet started and those under construction.

To give some background, the market was fully anticipating an improvement in New Home Sales after we learned yesterday that existing home sales rose 6.8% last month.  After falling in 8 of the last 9 months, economists surveyed expected new home sales to increase from the 308,000 annualized pace last month to 330,000 in March. Boy were we all surprised when this data hit newswires at 10am, sales were way better than anticipated...

Sales of new single-family houses in March 2010 were seen at an annual rate of 411,000. This is 26.9% above the revised February rate of 324,000 and is 23.8% above the March 2009 estimate of 332,000. The increase is a factor of buyers rushing to beat the deadline for the home buyer tax credit (April 30). AQ did a full write-up with many charts. CHECK IT OUT

That was the third strike for mortgage rates today. We ended the day at the highest mortgage rates of the week.

Reports from fellow mortgage professionals indicate lender rate sheet pricing to be worse today. While consumer borrowing costs are slightly higher, the par 30 year conventional rate mortgage is holding in the 4.875% to 5.125% range for well qualified consumers.  Obtaining this rate may cost you a few basis points (discount points) at the closing table though. 4.75% is no longer on the table though. To secure a par interest rate on a conventional mortgage 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 an estimated one point loan origination/discount/broker fee. 

We are now above the best rate levels seen this month. If you are floating your loan and have more than a week to decide on whether or not to lock, I think you should continue floating over the weekend.  This is based on the fact that we feel our "LOCK AT THE RATE LOWS, FLOAT AT THE RATE HIGHS" strategy is still in effect. We have based lock/float decisions on this theory for many months now, and it has yet to prove wrong. We see no reason to change things up now. If you do not have more than a week to make a rate decision, lock your loan.

Have a great weekend everyone.