Mortgage rates rose yesterday morning after optimism in equities led bond investors to sell their flight to safety positions in risk free U.S. Treasuries. This led mortgage-backed security prices lower and forced consumer borrowing costs higher. While the S&P failed to maintain momentum all the way into the close, which helped MBS prices close flat on the day, no lenders repriced for the better and mortgage rates went out a few basis points above what lenders were offering on Tuesday.

To remind readers, as benchmark Treasury yields are pressured higher, mortgage rates tend to follow.  

Onto the data…

This morning the Commerce Department released the first revision to 1st Quarter Gross Domestic Product.  GDP is the broadest measure of total economic activity. It reports on output in every sector.   It is basically our economic scorecard.  A rapidly growing economy usually leads to inflation, so the bond market prefers stable growth while stock traders generally enjoy a faster pace of expansion.  We receive three different assessments of GDP: the Advance Read, the Preliminary Release, and the Final Report.  Last month we got the Advance Read which indicated our economy grew at a rate of 3.2%. Today we got the Preliminary Release.

The Preliminary Release came in at +3.0% this morning, WORSE THAN EXPECTED (the consensus estimate was +3.4%).   Included in this data is one of the Fed’s favored gauges of inflation, the Personal Consumption Expenditure (PCE).   This metric provided no surprises, inflation remains no concern today.  The overall PCE index rose +1.5% while the more important core rate, which strips out food and energy cost, increased 0.6%. The 0.6% rise in the core rate was the smallest year over year price increase since 1959. This allows the Federal Reserve to maintain its currently accommodative stance on monetary policy.

Released at the same time was Weekly Jobless Claims.  This report provides three measures of the health of the labor market:  


  1. Initial Jobless Claims:  totals the number of Americans who filed for first time unemployment benefits
  2. Continued Claims:  totals the number of Americans who continue to file for benefits due to an inability to find a new job
  3. 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, market participants 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 consumer borrowing costs low. Below are the results...

Initial Jobless Claims:  -14,000 to 460,000 vs. forecast for  455,000. Previous week revised to 474,000 from 471,000. WORSE THAN EXPECTED

Continued Claims: -49,000 to 4,607,000 vs. forecast for 4,620,000. Previous week revised to 4,656,000 from 4,625,000. WORSE THAN EXPECTED

Extended Benefits:+38,693 to 278,953 from 240,260

Emergency Claims: -41,403 to 5,059,843 from 5,101,246

Last but not least we had our final Treasury auction of the week at 1pm. $31 billion of 7-year notes were offered by the Treasury. Investor demand was above average but like the previous two auctions of the week, the yield demanded by the market was higher than expected. READ MORE. This did not have a negative effect on mortgage rates though, the damage was done prior to the auction....

Even though economic data was WORSE THAN EXPECTED this morning,  which usually benefits the fixed income sector and mortgages, interest rates continue to take their directional guidance from stocks. Specifically, when stocks rise, mortgage rates rise. When stocks fall, mortgage rates fall. Well stocks rallied big time today, lenders repriced for the worse, and mortgage rates rose for the second day in a row.

Reports from fellow mortgage professionals indicate lender rate sheets to be worse than yesterday by about .25 in discount.  That means if a mortgage rate was costing you 1 point yesterday, it will now cost you 1.25 points today.  This pushed the par 30 year fixed conventional mortgage rate back into the 4.75% to 5.00% range range for well qualified consumers.   To qualify for a par 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.  You may elect to pay less in costs but you will have to accept a higher interest rate.

If you are still floating and within 60 days of closing, get your loan locked ASAP. If stocks continue to rally, mortgage rates will move higher...and stocks are looking ripe for a rebound rally.There is very little to gain by floating, and a lot to lose.