Mortgage rates improved to the best levels of the year last Friday as declines in stocks and the value of the Euro continued to drag down U.S. investor sentiment.
Even though EU officials, the IMF, and global central bankers officially addressed the European fiscal crisis, market pariticipants have not yet been convinced that the worst is behind and instead chose to continue to allocate funds into risk-averse assets like government guaranteed U.S. Treasuries. This "flight to safety" led benchmark borrowing costs lower.
A flight to safety occurs when investors are nervous about owning risky assets like stocks, but do not want to miss out on earning a return on their funds, so they allocate money into risk-free U.S Treasury debt to provide a safe-haven AND an investment return.
To remind readers, as benchmark Treasury yields fall, prices of mortgage-backed securities move higher, which allows lenders to offer lower mortgage rates. As Treasury yields rise, mortgage-backed security prices are led lower, which forces lenders to push mortgage rates higher.
The week ahead does not offer a busy schedule, but the planned events we do get have the potential to move markets.
Here are the key events of the week and how influential they might be over mortgage rates:
- Housing Starts(medium impact). Since many believe that until housing picks up, our economy will continue to struggle which makes tracking home sales data of more importance today than in past times.
- Producer Price Index(medium impact) This data gives us a reading of inflation on the producer level. During periods of higher unemployment, producers find it difficult to pass along higher prices to the end consumer which makes this data of less importance than consumer inflation data.
- Mortgage Bankers Association’s (MBA) Application Index (low impact)
- MBA Q1 2010 Delinquency Report. (medium impact)
- Consumer Price Index(high impact) This data gives us a reading on inflation at the consumer level.
- Federal Open Market Committee releases the minutes from the last FOMC meeting (medium to high impact)
- Jobless Claims(medium impact)
- Leading Indicators(low impact)
- Philadelphia Fed survey(medium impact) This data gives us a measure of the strength of manufacturing in the Philadelphia region.
- Announcement of the size of next week’s debt offering of 2 year, 5 year and 7 year treasury notes. The Department of Treasury is expected to offer $43billion of 2 year notes, $41billion of 5 year notes and $32billion of 7 year notes.
- No data
HERE is the full economic schedule with commentary and expectations. HERE are strategic considerations for the week ahead.
Reports from fellow mortgage professionals indicate lender rate sheets to be marginally better today. The par 30 year conventional mortgage rate is in the 4.75% to 5.00% range for well qualified consumers. More or less mortgage rates are unchanged from Friday, but more lenders have moved into the lower side of that range today. We even have a couple lenders offering 4.625% as par! Again. Only the most well-qualified borrowers have access to funds at these rates. 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.
I advised locking all last week and continue to do so today. What is the opinion of fellow professionals who read the blog? Do you feel mortgage rates have room to improve or do you advising locking at current market?