Continued confidence from eager equity investors  sparked a rally in stock markets forcing fixed income investors to liquidate their holdings of mortgage-backed securities.  After a healthy "Black Wednesday" rebound late last week, MBS gave back all of the gains yesterday, closing at  Thursday's 5pm "going out" marks.  All lenders repriced for the worse as MBS prices moved lower into the close.    Helping to create the optimism was better than expected economic reports.  Construction spending came in higher, personal income higher, spending was not as bad as predicted(still negative month over month) and the ISM index is showing continued improvement in the manufacturing sector of our economy. 


To remind current blog followers and for any new readers, market participants generally invest in equities (stocks) or debt (MBS, Treasuries, Agencies, Corporates). There is only so much money to invest so in times of economic woes, investors move their cash to the safer assets like MBS and Treasuries.  In times of economic growth, investors want to move their investment positions  from the low yielding safe havens in order to secure higher yielding returns from stocks.   So as a general rule, when the stock market has a large rally it is usually at the expense of MBS and treasuries but when the stock market sells off, MBS and treasuries usually benefit thus the term flow of money. Well... mortgage rates are set by the trading action of mortgage backed securities.  As investors buy MBS and prices move higher  (yields lower) lenders are able to sell their loans for more dollar income. So when market participants are feeling nervous it generally helps lead MBS prices higher which allows lenders to offer lower mortgage rates.    


Onto the data...


Today is the lightest day of the week for economic data to digest. The only impacting morning report was the National Association of Realtor's Pending Home Sales index.   This report provides a gauge on housing demand by tracking the increase or decrease in pending home sales.  A pending home sale is one in which a contract has been signed but the loan has not closed yet.   Since a consumer would have to feel fairly confident about their job security and financial position to buy a home, an increasing trend suggests a growing economy which usually results in the flow of money away from MBS and into equities.   The last two Pending Home Sales index releases have shown improvement in the demand for housing which was most likely sparked by historic low mortgage rates and very affordable home prices.  The home affordability index which gives a measure of the affordability of housing is at an all time high.  Last month, the NAR reported pending home sales up 3.2% in March and economists are looking for a 3rd month in a row of improvements with a 0.5% increase expected for April.  The report continues to show improvement coming in much higher than expectations with a 6.7% increase.  Immediately following the release, the stock market rallied higher and MBS prices moved considerably lower. 


I would like to hear from readers on your view of the economy.  Many recent reports are pointing to light at the end of the tunnel, but consumer spending is still contracting, home prices continue to drop and unemployment is approaching 10%.  Do you feel the economy is in recovery or just stabilized? 


Early reports from fellow mortgage professionals are indicating the par 30 year fixed rate mortgage to be in the 5.125% to 5.375% range.  In order to qualify, you must have a FICO credit score 740 or higher, a loan to value 80% or less and be willing to pay all costs associated with your loan including 1 point loan origination/discount/broker fee. 


For intraday updates to the movement of MBS, click over to the MBS Commentary blog.