It's TAX DAY!!!! Make sure you have your returns or extension requests stamped by midnight.
Mortgage rates moved higher for the second day in a row yesterday. Strength in the stock market and a better than expected retail sales data both contributed to rising mortgage rates. Helping stocks extend their winning steak to five straight sessions were several strong earnings releases from big name corporations like JP Morgan and Intel. As funds flowed into stocks, bond investors sold their lower yielding Treasury notes which forced MBS prices lower. Lower MBS prices resulted in higher mortgage rates. While price losses were not substantial, many lenders did reprice for the worse. This again proves that lenders are much quicker to take than to give.
We had a barrage of data hit news wires this morning.
First to discuss is Weekly Claims for Unemployment Insurance, or as they are more widely referred to: jobless claims. This data provides three measures on the health of the labor market:
- Initial Jobless Claims: totals the number of Americans who filed for first time unemployment benefits
- Continued Claims: totals the number of Americans who continue to file for benefits due to an inability to find a new job
- Extended and Emergency Benefits: totals the number of Americans who have exhausted their traditional benefits and are now receiving extended and emergency benefits
Since our economy is driven by consumer spending, economists track employment data to get a sense of future economic momentum. Higher jobless claims lead to less consumer spending, which is bad for the overall economy but generally helpful in keeping mortgage rates from rising.
Initial Claims for Unemployment Insurance rose by 24,000 to 484,000 in the week ending April 10. This was much worse than economists expected. Continued Claims increased from 4.566 million to 4.639 million. This was also much worse than economist forecasts. The amount of Americans utilizing extended unemployment benefits fell by 99,716 to 114,711. However, the number of jobless folks needing emergency unemployment benefits grew from 5,593,484 to 5,855,301. That is an increase of 261,817.
The largest increases in initial claims for the week ending April 3 were in Pennsylvania (+5,314), New Jersey (+3,582), Illinois (+2,250), Ohio (+1,769), and Washington (+1,673), while the largest decreases were in Texas (-3,138), California (-2,973), Florida (-2,646), North Carolina (-1,839), and Puerto Rico
Overall, this data indicates the labor market is having a hard time creating new jobs. It is worrying that so many Americans have been unemployed for longer than six months.
Released at the same time was the New York Federal Reserve'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. This data has indicated steady improvements since August of 2009.
Today's release, which reports on the April survey, came in much higher than expected with a reading of 31.8. This is a big improvement from last month’s 22.9 It appears that manufacturing continues to improve adding momentum to our economic recovery. As our economy recovers from the worst economic downturn since the Great Depression, mortgage rates will come under pressure to rise.
Next, came the release of the Industrial Production report. This report gives Federal Reserve economists a measure of the strength of the national manufacturing sector by measuring output at U.S. factories, utilities and mines. Higher industrial production would be a positive economic indicator which would benefit the stock market at the expense of the fixed income sector and mortgage rates. Economists expected today’s release to show industrial production increasing +0.7% but the report was much worse than anticipated, registering a +0.1% month over month gain. Offsetting some of the negative news was a revision to the prior month’s data from the first reported month over month gain of +0.1% to +0.3%. Despite this worse than expected report, Industrial Production has still improved for nine consecutive months.
Benchmark Treasury yields rose and mortgage-backed security prices fell after the market received mostly positive economic data on the manufacturing sector. Consequently lenders pushed mortgage rates a few basis points higher this morning. However, as the day progressed both Treasuries and MBS recovered from their weakest levels. This allowed a few lenders to erase early morning rate sheet pricing reductions.
Reports from fellow mortgage professionals indicate lender rate sheets to be about the same as yesterday. The par 30 year conventional rate mortgage is holding in the 4.875% to 5.125% range for well qualified consumers. The lenders that were offering 4.75% yesterday have increased to 4.875%. 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. If you have FICO scores under 700 and higher loan to values, you should look into an FHA loan which can offer the same rates as a conventional loan with lower FICO score requirements but higher costs.
If you missed out on my lock advice over the last couple of days, it's ok. You can still get very similar pricing today. While we are comfortable with floating day by day, mortgage rates have made a strong comeback since they began to rise in late March. Almost all of the move higher as been recovered. With that in mind, there is good reason to lock in your loan. However, if you are looking to wait to lock in your mortgage rate until you get closer to closing, we are OK with floating on a day by day basis. Just remember: mortgage rates rise faster than they fall!