Mortgage borrowing costs moved higher yesterday morning as stocks rallied and investors sold their flight to safety positions in Treasuries. Rising benchmark yields pushed mortgage-backed securities prices lower and forced lenders to increase consumer borrowing costs by a few basis points. However things turned around for us shortly after the 10-year Treasury note auction. Stocks fell to the lows of the day which helped MBS prices recovery their losses and allowed lenders to reprice for the better. Mortgage rates were back to the lows of the year after new rate sheets were issued.
We have a few economic data releases to discuss. First out today were Weekly Jobless Claims.
Released by the Department of Labor, this report provides three measures of the health of the job market:
- Initial Jobless Claims: totals the number of Americans who filed for first time unemployment benefits in the previous week
- Continued Claims: totals the number of Americans who continue to file for benefits due to an inability to find a new job in the previous week
- Extended and Emergency Benefits: totals the number of Americans who have exhausted their traditional benefits and are now receiving extended and emergency benefits, in the previous week
Since our economy is driven by consumer spending, market participants track employment data to get a sense of future economic momentum. Higher jobless claims imply less consumers have jobs and therefore less money to spend, which is bad for the overall economy...but generally helpful in keeping consumer borrowing costs low.
Here are the results...
- Initial Jobless Claims: -3,000 to 456,000 vs forecasts for a print of 448,000. Last week's report was revised higher from 453,000 to 459,000. WORSE THAN EXPECTED
- Continued Claims: -255,000 to 4.462million vs. forecasts for a read of 4.640 million. This was the lowest number of continued claims since late 2008. BETTER THAN EXPECTED
- Extended and Emergency Benefits: +69,000 to 5.39million
It looks like the reduction in continued claims was a factor of normal unemployment benefits expiring and rolling over to extended benefits. Overall this report provided no new information about the health of the job market.
The only other economic report to hit wires this morning was Balance of Goods and Services Trade or as it is commonly known, the International Trade Report. Trade balance data reports the difference between the monetary value of a country's exports and imports. A positive balance, or trade surplus, means exports exceed imports and illustrates that a country's economy is globally competitive. A negative balance of trade is known as a trade deficit or trade gap. The US currently runs a trade deficit.
A globally competitive economy creates more jobs for Americans because U.S. companies must work to satisfy several sources of demand, from domestic and foreign consumers. Greater production translates into faster growth of local economies and a stronger consumer balance sheet, ultimately leading to increased corporate profits and higher stock prices. However, an over dependence on foreign demand for US goods and services implies the domestic economy is vulnerable to foreign economic disruptions.
This report has a two month lag, so today’s data covered April Trade Balance. The report indicated our trade deficit widened from $40.0 billion in March to $40.3billion in April. While this was BETTER THAN EXPECTED, the trade gap has not been this wide since December 2008. Weaker demand for U.S. products caused exports to decline 0.7% while imports fell by 0.4%. Debt concerns in Europe may continue to weigh heavy on the value of the U.S. dollar which will make American made products more expensive for overseas buyers (exports). This is a negative for our jobs sector.
The Treasury conducted their last auction of the week today. The sale of $13 billion 30 year bonds went well. Demand was strong, albeit at a higher cost to the U.S. government, but demand was still strong. Unfortunately this firm Treasury auction was no help to MBS prices today...
Stocks rallied all day long before closing at the highs of the session. This resulted in another investor exodus from risk averse assets which sent benchmark debt yields higher and drove mortgage-backed security prices lower....and lower...and lower. Lenders repriced for the worse and mortgage borrowing costs took one on the chin. MBS prices are now well-below recently hit record highs.
While the par 30 year fixed rate mortgage remains in the 4.50% to 4.75% range for well qualified consumers, it will cost borrowers a few more basis points (as a % of your loan amount) to be offered these rates. Total borrowing costs have risen. 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.
While the par 30 year fixed mortgage rate has rallied down to 4.50% since last Friday, total consumer borrowing costs haven't improved to the same extent. Most loans are still being written at 4.75-5.00% depending on the credit characteristics of the borrower. THIS POST EXPLAINS WHY...it is a must read for consumers.
Same recommendation as yesterday. I continue to favor locking all loans as pricing is still extremely aggressive. The only loans you should consider floating are those that are a day or two away from a shorter lock periods, which offers better pricing.