Following the completion of the Treasury Department's most recent fundraising event (all three auctions done), mortgage backed securities rode a rally wave towards lower mortgage rates yesterday. The rally across the yield curve yesterday helped MBS prices move marketedly higher in price and lower in yield, allowing lenders to pass along improved mortgage rates. Many lenders repriced several times and by days end, borrowing costs decreased by .625 in discount points which lowered the par interest rate on conventional 30 year fixed mortgages by 0.125%.
Enough about yesterday, lets see what is going to move the markets today. First out this morning is a report that gives us a measure on inflation. Import and Export prices was released and came in pretty much in line with economists expectations. Import prices, the price of items that we import into the country, posted a month over month increase of 1.3% following last months increase of 1.6%. However, year over year, prices for products we import are still down 17.6%. Export prices, the price of products we send to other countries also posted a month over month increase of 0.6% following last months 0.5% rise. Year over year, export prices are still down 6.5%. Following the release, not much reaction to this report but we do get more inflation reports next week which are much more closely watched, the producer price index and the consumer price index. Any hint of inflation will apply pressure on mortgage rates to move higher.
The only other piece of economic data today is Consumer Sentiment. This is a survey of 500 households each month on their own personal financial outlook and attitude about the economy. An optimistic consumer is more likely to spend while a pessimistic consumer is more likely to save. One factor contributing to the recent optimism that the worst is behind us is consumer confidence. It has posted some nice gains recently and since consumer spending accounts for 2/3rds of our economy, investors have grasped to this report and others as a sign to move money away from fixed income, MBS and Treasuries, over to equities for their higher yield. Economist's suveyed expected this report to continue to show optimism with an expected reading of 69.5, the actual reading came in slighly lower at 69.0. This is an improvment from the prior month's reading of 68.7, but maybe higher gasoline prices is starting to impact the consumer. How are higher gasoline prices affecting you and your opinion on the economy?
So far this morning, MBS continue to move higher. Early reports from fellow mortgage professionals are indicating that rates have moved about a .25% lower from yesterday. This places the par 30 year fixed rate mortgage in the 5.25% to 5.625% range for the best qualified consumers.
Float or lock? Tough call, we have had a nice improvement over the last 2 days. If you are closing in the near term, you might want to lock and take advantage of the recent improvement. Longer term closings, might be safe for floating but you must evaluate at the end of each day. Always remember, rates move higher much quicker than they move lower. The most important question to ask yourself when debating this issue, "What would hurt you the most, locking and rates move lower, or floating and rates move higher?". Your answer to that question should help you decide your stance on lock/float. Looking deeper into the financial markets, AQ and MG tell me the MBS market remains very volatile and susceptible to a selloff as short term trading strategies moderate long term momentum.
On a side note, my apologies to any Yankee fan that might be upset about the drubbing placed upon their team this entire year by the Red Sox. There can only be one first place team. :-D