Mortgage rates rallied to new all-time lows yesterday following a few disappointing housing headlines. While it has been no secret to housing industry professionals, the post-homebuyer tax credit hangover appears to have caught some folks on Wall Street off-guard. Stocks sold off, interest rates rallied and lender rate sheets were the most aggressive we've ever seen them. I locked all the loans in my pipeline.
Did the consumer borrowing cost rally extend another day?
We have two economic reports to discuss first...
First up: Weekly Jobless Claims. Released by the Department of Labor, this report provides three timely metrics on 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. This is a negative for the economy...but generally helpful in keeping consumer borrowing costs down.
Here are the results:
- Initial Jobless Claims: -19,000 to 457,000 vs. estimates for a read of 460,000. Better Than Expected
- Continued Claims: -45,000 to 4.55million vs. estimates for a read of 4.60 million. Better Than Expected
- Extended and Emergency Benefits: +45,000 to 5.3million
While this data is not bad news, jobless claims are holding at stubbornly high levels.
Released at the same time was the Durable Goods Orders report. This data measures the number of new orders placed at U.S. factories for products that are expected to last at least three years. This would include items such as computers, appliances, and electronics. This report tells economists how busy factories will be in the months ahead. Increasing orders implies there is more potential for higher corporate revenues and profits. It could also imply that firms would need to hire additional staff to ensure they keep up with growing orders. This is a positive for the overall economy and stocks...but a negative for the fixed income sector/interest rates.
The report indicated Durable Goods Orders in May fell 1.1%. This was much worse than what economists had forecast. However, when excluding transportation orders, orders rose 0.9%. This was better than expected and the third time in the last four months that the ex-transportation orders read increased.
HERE is a deeper look at the economic data that was released today.
At 1pm, the Treasury announced the results of the $30 billion 7-year note auction. Tuesday’s 2-year note auction went very well but the 5-year note auction that took place yesterday went horribly. The 7-year auction today went well, demand was strong. Regardless of the successful fundraiser, benchmark Treasury yields rose after the auction and lenders repriced for the worse.
We've had a great run over the past few days. MBS prices hit new all-time highs yesterday. Loan pricing was the most aggressive we've ever seen it. Lenders were practically begging for borrowers to lock their loans. Unfortunately the rally lost some steam today. Nothing seems to have caused it, but lenders repriced for the worse and mortgage rates increased this afternoon. I think the best way to describe the move higher is "rally exhaustion". Prices were just too high and profits were taken.
Reports from fellow mortgage professionals indicate lender rate sheets to be worse than yesterday after lenders repriced for the worse today. Higher mortgage borrowing costs will most noticeable via an increase in discount points. The par 30 year conventional rate mortgage remains in the 4.375% to 4.625% 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 one point loan origination/discount/broker fee. If you plan to stay in your home for less than 3 years, you should consider a no cost refinance which offers a rate of around 4.875% today. You pay no upfront fees and no fees are rolled into the mortgage. The loan originator pays your closing costs for you by giving you a higher interest rate which pays the loan originator on the back side.
Mortgage rates are ridiculously aggressive right now. I favor locking all loans.