There isn’t too much to report from yesterday.   After a weak open, prices of mortgage backed securities moved sideways before eventually closing the day where they began.  While there were no reports of lenders repricing for the worse, mortgage rates did move higher compared to last Friday's levels. 

Today is day one of the Federal Open Market Committee’s two day meeting where our nation’s monetary policy is set.   These meetings occur approximately every six weeks and are considered one the most influential events for all markets.   At these meetings, the Fed sets the federal funds rate which serves as a benchmark for all other rates.  Currently, the fed fund rate sits in a range of 0% to 0.25%, it is widely accepted that there will be no change to that rate.     On day one, nothing much happens publically,  but tomorrow we will get the Fed statement at 2:15pm eastern where they will announce any change to the fed fund rate, give an economic outlook and announce any changes to Fed policies such as the MBS purchase program, which is set to end in a couple months. 

S&P/Case Shiller released their monthly Home Price Index this morning. This data tracks the monthly change in the value of residential real estate across the United States.   Many economists believe that until home prices start to stabilize and rise, it will be extremely difficult for our economy to sustain acceptable growth. This makes tracking home sales data much more important than usual.   During periods of declining home values, consumers are much more likely to save money and pay off debt as they watch the value of the largest investment depreciate. Rising home values encourages new construction, remodeling, etc… which increases consumer spending and benefits the overall economy.   Recent reports from Case Shiller have shown home price depreciation easing with some cities posting positive monthly gains.

The report indicated home prices in November rose for the sixth consecutive month but less than expectations.  Home prices increased on a seasonally adjusted basis by 0.2% following a 0.3% increase in October.   In the 20 metropolitan regions, 14 showed an increase while only 6 had a decline.  Year over year, home prices registered a 5.3% decline which is the smallest year over year reading in two years.  The biggest monthly gain was in Phoenix which increased by 1.1% while Chicago registered the largest decline at 1.1%.  

The Conference Board released their Consumer Confidence survey which tells market participants how consumers are feeling.  An optimistic consumer is much more likely to spend money while a pessimistic consumer is more likely to save.   Five thousand consumers are surveyed each month on their attitudes about the present economic conditions and their expectations of future conditions.   Recent surveys have shown consumers becoming more optimistic with last month’s report registering a 52.9 reading.  Economists surveyed prior to this month’s report expected further improvement with a reading of 53.5.  The report showed consumers are more optimistic than expected coming in at 55.9.  Following the release, MBS have moved off the highs of the morning, while the stock market has moved from negative to positive. 

At 1:00pm eastern, the U.S. Department of Treasury will auction $44billion of 2 year notes.  Since the supply is already known, market participants will look at the demand for our nation’s debt to gauge its success.  Strong demand, especially from foreign bidders is one of many factors that have contributed to mortgage rates holding near record low levels despite record amounts of government borrowing.   Weak demand can pressure mortgage rates higher today while strong demand can benefit mortgage rates.  Matt and AQ will cover the auction once it is complete on the MBS Commentary blog.

Reports from fellow mortgage professionals indicate lenders have passed along better rates this morning.  The par 30 year conventional rate mortgage has once again fallen to the 4.75% to 5.00% range for well qualified consumers.  To secure a par interest 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 an estimated one point loan origination/discount/broker fee.  For consumers with lower scores to secure a par rate, they will be required to pay higher fees. 

With a busy week ahead and the Fed statement due out tomorrow, I still favor locking over floating. To be more specific on timing, if you have not locked I think you should strongly consider taking this morning's improvements before the Treasury releases auction results at 1pm.   If you are a risk taker and want to continue to float keep an eye on the stock market.  It has had a higher impact on interet rates lately, we refer to this relationship as the stock lever.  If stocks move higher, mortgage rates will likely increase.