Despite mixed economic reports last week, mortgage rates held near four month lows as prices of mortgage-backed securities approached four month highs. General weakness in stock markets contributed to the rally in fixed income and mortgage rates. As stock sold, Treasuries rallied, MBS moved higher in price, and lenders were able to pass along better mortgage rates...bringing the par 30 year fixed rate mortgage to 4.75% by week’s end.
The week ahead is busy! The highest impacting report comes on Friday with the release of the Employment Situation report. Today is the only day with no scheduled data. On Tuesday we get a couple second tier reports with the release of the Case/Shiller Home Price Index and Consumer Confidence. In addition to the scheduled reports, Federal Reserve Bank Presidents giving speeches. Anytime voting members of the Fed speak, market participants will pay attention for any hints at future policy strategies and outlooks on the economy.
Wednesday brings us several data points beginning with the weekly Mortgage Bankers’ Association Applications index which tracks the weekly change in the number of mortgage applications at major lenders. This report will be followed by the ADP Employment report which will give us a sneak preview of the jobs outlook. The last report of the day will be the release of the Gross Domestic Product(GDP) for second quarter. This will be the final revised numbers for quarter two and expectations call for the numbers to be revised down to -1.2% from -1.0%. However, since this report is looking backwards I do not expect it to be a major market mover unless it varies greatly from expectations.
The busiest day of the week for economic data will be Thursday. The highest impacting report will be the Personal Income and Outlays report which gives us a read on the strength of consumer balance sheets. This data provides us information on whether consumers are making more or less money and how much they are spending. Since our economy is driven by consumer spending, investors pay close attention to how much money the consumer is earning. If personal income is rising, it should lead to more spending which would benefit the stock market at the expense of the fixed income sector. Personal income is expected to post a very small increase while spending is expected to post a healthy month over month gain of 1.1%. Other scheduled releases include the weekly jobless claims, construction spending and a read on the strength of manufacturing with the ISM Manufacturing index. Also of note will be the announcement from the U.S. Department of Treasury of the upcoming supply of Treasuries to be auctioned next week. The added supply of debt available will pressure treasury yields to move higher which will also apply pressure on mortgage rates to follow. It is expected that the upcoming supply will be $40billion in 3year notes, $20billion in 10 year notes and $12billion in 30 year bonds.
The week wraps up with the release of probably the single most important piece of economic data, the Employment Situation report. This report gives us four different reads on employment. The first being the number of jobs lost or created from the prior month. Economists surveyed expect a loss of 170,000 from the prior months loss of 216,000. This would be a large improvement over early this year when our economy was shedding jobs at a pace over 500,000 a month. Next is the official unemployment rate which is expected to move higher to 9.8% from 9.7%. The final two measures are a measure on income with hours worked and average hourly wages. Wages are expected to post a increase of 0.2% while the average work week is expected to hold steady at 33.1 hours.
For more on the week ahead, check out the MND story.
Reports from fellow mortgage professionals indicate that the par 30 year conventional rate mortgage remains in the 4.75% to 5.00% range for the best qualified consumers. In order to secure a par interest rate you must have a FICO score of 740 or higher, a loan to value at 80% or less and pay all closing costs including one point loan origination/discount/broker fee. You can elect to pay less fees or even no fees but your interest rate will be higher. If you are seeking a 15 year term, expect a par rate in the 4.25% to 4.50% range with the same closing costs.
To remind readers that are considering becoming first time home buyers, the clock continues to tick. The first time home buyer tax credit of up to $8000 is set to expire on November 30th. Your loan must close on or before that date for you to qualify for the credit. If for whatever reason your loan closes after that date, you will not get the stimulus money. I suspect that turn times at lenders will increase as many people slam in mortgage applications to beat the deadline. If you are looking to take advantage of this benefit, I suggest that you get moving sooner than later. Many things can happen that delay closings and cause you to lose out. For example, the person you are buying the home from might be buying another home. Maybe there is a problem with that transaction which could delay or prevent your loan from closing. The point being is that there are many moving pieces when buying a home of which many are outside of your control.