Last week ended on positive note for mortgage backed securities and mortgage rates. As stock indexes fell, market participants re-allocated portfolios from risky assets to safer investments, resulting in added demand for government AAA rated fixed income securities. The benchmark 10 yr Treasury note moved back under 3.40% and MBS closed near their best levels in the past few weeks.  Most lenders repriced for the better.

This morning we had a several economic reports hit the news wires.  First out was a read on the manufacturing sector with the ISM Manufacturing Index.   The Institute for Supply Management surveys more than 300 manufacturering executives across the country on the strength of business conditions.   Readings above 50 indicate expansion while readings below 50 indicate contraction.    Since March of this year this report has consistently shown conditions improving with August's report moving above 50 for the first time since January 2008. Today's report indicates continued growth in the manufacturing sector, with a higher than expected reading of 55.7.

Next, the U.S. Department of Commerce released the monthly construction spending report which simply gives us a reading on whether construction spending increased or decreased. Construction spending for September (2 month lag) came in higher than expected, posting a monthly increase of 0.8% vs a 0.2% decline.   Offsetting this positive report was last month’s numbers were revised much worse from an initially reported 0.8% gain to a 0.1% decline.  Increased spending on construction should lead to additional construction jobs giving consumers more income that can be spent into the economy.  Secondly, when a new building, residential or non residential, is completed there are many items that need to be purchased such as flooring, window treatments and furniture.  This increased spending could lead to higher corporate profits, so the stock market likes to see stable growth in construction.

The final report of the day comes from the National Association of Realtors with the release of the Pending Home Sales Index.  This data totals the number of homes in which a contract has been signed but not yet closed.  This data is a good indicator of future economic momentum since the purchase of a new home leads to many other purchases. The report indicates that pending home sales for September  came in higher for the eighth consecutive month posting a month over month increase of 6.1% as home buyers rush to meet the deadline for the homebuyer tax credit. READ MORE

The rest of the week is filled with some high impacting reports and events.  To highlight a few of these items, first the Federal Open Market Committee meets on Tuesday for their 2 day meeting where they set our nation’s monetary policy and give an economic outlook.   It is widely expected that they will maintain the current accommodative stance keeping the Fed fund rate at 0 to .25%.    On Wednesday, we get the Fed statement which will be scoured by market participants for any hint at future monetary policy and the Fed’s outlook on the economy.   Additionally, we get the announcement from the U.S. Treasury of the size of the upcoming auctions next week.  And on Friday, we get the single most important economic report with the release of the Employment Situation.  It is expected to show the unemployment rate moving higher to 9.9% and a loss of 175,000 jobs from the prior month.   If this report comes in better than expected, mortgage rates can move higher very quickly.

READ MORE on the Week Ahead

Reports from fellow mortgage professionals indicate lender rate sheets to be better than what we had on Friday morning.  The par 30 year conventional rate mortgage remains in 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.

Following the release of today’s data, MBS have moved off their recent price highs but continue to hold near the high side of current trading range which I have used to recommend locking or floating.  Considering MBS prices are still close to recent highs and mortgage rates are holding near the aggressive side of their recent range, it makes more sense to lock  rather than float in the near term.