Mortgage rates rose yesterday after the European Union announced over the weekend an official plan to address growing debt problems in their member countries, specifically Greece, Portugal, Italy, and Spain. The long awaited move helped calm the market's fears that a localized fiscal shortage abroad would evolve into a global economic downturn. This shifted investor sentiment on Wall Street which led to correction in stock valuations, Unfortunately the stock market rally forced benchmark Treasury yields higher as traders sold their "flight to safety" positions in government guaranteed Treasuries to fund their purchase of riskier equities. The uptick in Treasury yields led mortgage-backed security prices lower which caused lenders to increase mortgage rates.
The economic calendar was basically empty today. We did have one item on the schedule though. Monthly Wholesale Trade: Sales and Inventories
This data reports on the dollar value of sales made and inventories held by merchant wholesalers. Wholesale trade historically has very little impact on mortgage rates because it has a two month lag. Market participants prefer forward looking reports as opposed to data that is two months behind.
From the release...
SALES: The U.S. Census Bureau announced today that March 2010 sales of merchant wholesalers, except manufacturers’ sales branches and offices, after adjustment for seasonal variations and trading-day differences but not for price changes, were $348.0 billion, up 2.4 percent from the revised February level and were up 15.8 percent from the March 2009 level.
INVENTORIES: Total inventories of merchant wholesalers, except manufacturers’ sales branches and offices, after adjustment for seasonal variations but not for price changes, were $394.8 billion at the end of March, up 0.4 percent from the revised February level, but were down 5.3 percent from a year ago
This was exactly what the market was expecting, thus interest rates really didn't react to the data. While this backward looking release was viewed as a non-event, there may have been a forward looking hint embedded in the sales side of the data: Sales of lumber and other construction
materials were up 16.3 percent from last month. This could be a sign that homebuilders are gearing up to start breaking ground on projects. The construction industry, especially out of work laborers, would benefit from an increase in housing starts.
The only other scheduled mortgage rate relevant event of the day was a Treasury auction of $38 billion 3 year notes. While this debt maturity (3 years) is not as influential on mortgage rates as the 10 year Treasury auction that will take place tomorrow, it is still important that we pay attention to demand for all of our nation's debt. Strong and stable demand for U.S. government debt is one of several factors that have contributed to record low mortgage rates over the last sixteen months. Even though Treasuries have gotten much more expensive over the past week, auction demand was very strong today. This indicates investors are still confident that the U.S. will continue to lead the global economy out of recession. READ MORE about the auction.
Mortgage rates continue to take their directional guidance from headline news and stocks. Today stocks opened lower which helped Treasuries and MBS rally. However stocks regained their losses by mid-day and benchmark rates began to rise from the lows of the day. While MBS prices managed to hold their own against rising benchmark yields, prices still moved slightly lower on the day. This left mortgage rates priced very similar to where they were yesterday.
Reports from fellow mortgage professionals indicate the par 30 year conventional rate mortgage remains in the 4.75% to 5.00% range for well qualified consumers. 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 1 point loan origination/discount/broker fee. For consumers with lower FICO scores and higher loan to values, you should consider an FHA loan which offers similar rates but with higher costs.
With mortgage rates holding near the best levels of the year, I continue to favor locking all loans closing in the next 30 days. Consumers closing in more than 30 days should consider paying the extra costs to secure a longer term lock. Most lenders will charge a 0.25% to .375% fee (based on your loan amount) to lock in your loan for more than 45 days. On a $200,000 loan, that is an extra cost of $500 to $750 which is a small price to pay over the life of your loan if rates do increase in the next 45 days.