Prices of mortgage backed securities posted modest gains yesterday in an uneventful trading session. Intraday gains didn’t warrant reprices for the better from lenders, however because the rally has carried over into today, mortgage rates are better this morning!
This morning we got a read on the health of the housing market with the Housing Starts report. This data totals the number of homes in which new construction has begun. A trend of increasing home construction can help create jobs and increase purchases of goods that go into building a home and furnishing it. Recent reports have shown housing data improving, this month economists were expecting that trend to continue with an annualized pace of 615,000 Housing Starts. However the report came in much lower than expected, posting an annualized pace of only 590,000! Additionally, last month’s numbers were revised lower from an initial reading of 598,000 to 587,000 units.
The final report of the day provided another look into inflation with the Producer Price Index. Recent readings on inflation show it to be of no concern today and this report confirms that fact. Inflation on the producer level posted larger declines than expected. The headline number posted a decline of -0.6% (-0.3% expected) while the core reading, which strips out food and energy due to their volatility, posted a -0.1% decline(0.1% increase expected). With inflation in check, the Fed should be able to maintain their current accommodative stance on interest rates.
Following the release of economic data, MBS prices ticked higher which has allowed lenders to pass along better mortgage rates. Reports from fellow mortgage professionals indicate the par 30 year conventional mortgage rate has dipped back into the 4.75% to 5.00% range for well qualified consumers. To secure a par interest rate 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 your FICO score is lower, you can still secure a par rate but you will be required to pay additional fees.
The first time home buyer tax credit has been extended for veterans of our military that served overseas for at least 90 days in 2009. Do you think this program will get extended for anyone else? And if it is not extended, what effect do you think it will have on the housing recovery? The National Association of Home Builders as well as the National Association of Realtors are urging Congress to extend this tax credit
I am advising my clients to lock their rate today. I am basing that recommendation on several factors.
First, while we get no economic data tomorrow, the market will continue to digest corporate earnings reports. The broad majority of companies to report so far have beat expectations which has made it possible for stocks to continue their relentless rally. I suspect the trend of better corporate profits will continue which will make it difficult for MBS prices to move much higher.
Next, on Thursday we get two items of significance both of which are not expected to be friendly to MBS. We get jobless claims which has consistently pointed to improving conditions in the jobs sector. Additionally, we get the announcement from the Treasury Department on the terms of next week's Treasury auctions. More debt supply will create an opportunity for traders to force benchmark yields higher.
Lastly, after touching 5 month lows before moving higher last week, mortgage rates are almost as aggressive as they were two weeks ago. If you have been floating your rate, you can secure better terms today...take advantage of the gains. I go back to the saying, lock at the MBS price highs, float at the MBS price lows. Currently, we are near the highs of the recent range...it is time to lock!