Mortgage rates looked like they were headed higher yesterday morning after the stock market opened the week in good spirits, however a mid-day "tapebomb" helped alleviate pressure and mortgage rates stabilized near the same pricing seen on Friday. No economic data was offered to markets yesterday but Greece had their credit rating cut by Moody's Investor Services right after lunch. Although this was not a surprise, stocks sold off and investors re-routed their funds into risk averse U.S. Treasury debt. The flight to safety helped mortgage-backed security prices recover from early session losses and even allowed some lenders to reprice for the better.
We had several economic releases this morning…
First out was the New York Fed's Empire State Manufacturing Survey. Each month, the New York Federal Reserve conducts a survey of approximately 175 manufacturing executives in New York. Participants are asked to state the direction they expect several business condition indicators to head in the upcoming months. Readings above 0 indicate expanding or improving conditions while readings below 0 indicate contraction. Economists surveyed prior to today’s release expected the index to improve to 21 from 19.11 in May. The actual report came in below expectations at 19.57. While this was worse than forecast, it is still an improvement from the prior month, indicating the manufacturing sector continued to grow in June. On a negative note, the employment gauge fell to 12.35 in June from 22.37 in May.
Released at the same time was the Import and Export Prices report. This data gives the markets a look into inflationary pressures. The report indicated prices of items we export rose 0.7% in May while prices of imported items decreased 0.6%. This was the largest drop in the last 10 months, mostly thanks to a dip in petroleum prices. Keep in mind, the value of the dollar has greatly benefited from sovereign debt concerns in Europe. A strong dollar makes the products we export seem more expensive to overseas buyers. If this continues it will likely weaken demand for our products, which is not good for our overall economic recovery. While today’s release continues to imply inflation is not a major concern, we get two more inflation reports this week that will be more influential. Tomorrow we get the Producer Price index which measures inflation on the producer level and Thursday we get the more important Consumer Price index which measures inflation at the consumer level.
Our final data release on the day was the National Association of Home Builder's Confidence Index. The National Association of Home Builders produces a housing index based on a survey in which builders rate the general economy and housing market conditions. This report basically shows if home builders are optimistic or pessimistic about future housing demand which is crucial for our overall economic recovery. May’s report showed home builders were feeling more confident as the index rose 3 points to 22. Today’s survey indicated that home builder confidence began to fade in June as the index fell 5 points to 17. The homebuyer tax credit boosted housing demand and gave home builders hope for the year ahead, however a larger than expected decline in home buying activity after the expiration of the tax credit seems to have surprised many builders. READ MORE
Stocks began the day the same way they began the week, with a rally. There was one exception today though, interest rates didn't really react to continued optimism in equities. Instead, even though stocks were improving, interest rates held steady for the first half of the session. However, unlike yesterday, stocks didn't sell off after lunch and benchmark Treasuries were unable to maintain their composure in the face of fire. As stocks extended positive progress, Treasury yields began to rise as investors exited "flight to safety" positions. This pressured mortgage-backed security prices lower and forced many lenders to reprice for the worse.
Reprices for the worse pushed total consumer borrowing costs a few basis points higher.
The par 30 year fixed conventional mortgage rate is still in the 4.50% to 4.75% range though (for well qualified consumers), it will however cost consumers about 25 more basis points (as a percentage of your loan amount) to lock at these rates. To qualify for a par 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. Consumers with lower FICO scores and higher loan to values should consider a FHA loan which offers similar rates but higher costs.
Floating your loan is getting more risky as stocks have broken an important level of resistance and investor optimism is improving. If stocks do extend recent gain, mortgage loan pricing will suffer. With that in mind I continue to favor locking loans as mortgage rates are still above the best offers of 2010.