Over the past few month I have been using a very well defined strategy to gauge lock/float opportunities.  The idea is to lock when mortgage backed securities approach their recent range's price highs, and float when MBS are near the bottom of their recent price range.   This "play the range" strategy has worked very well for my clients, with many locking in near historically low 30 year fixed mortgage rates.  On Friday, MBS closed at their best levels in several months which allowed lenders to issue aggressive rate sheets. In accordance with my strategy, I advised locking in rates on Friday. The week ahead is busy, so there will be plenty of motivation for movement in the rates market.

The busy week of data began this morning with the release of the Retail Sales report.  Since consumer spending drives our economy, market participants pay close attention to retail sales data. The U.S. Department of Commerce reported that retail sales were stronger than expected but still disappointingly low.  Overall retail sales for October increased by 1.4% vs estimates for a 1.0% gain. Last month's read of -1.5% was revised for the worse to a decline of 2.3%.  When excluding auto sales from the report, retail sales only rose 0.2%, worse than the 0.4% gain economists were expecting.  

Next out this morning was the Empire State Manufacturing Survey which measures the strength of manufacturing conditions in the New York region.  Approximately 175 manufacturing executives are surveyed each month regarding their views about the likely direction of their business over the next six months.   Last month’s report indicated a large jump from the prior month’s 18.88 reading to 34.57.  Economists surveyed for this month’s report expected a slight pull back to 29.0, however the report indicated a much larger pull back to 23.5.

At noon today, Federal Reserve Chairman Ben Bernanke will be speaking at the Economic Club of New York.  Anytime he speaks, market participants pay attention for any hint of future monetary policy and his outlook on the economy.  His words can move the markets.  If any surprise statements hit the wires, Matt and AQ will cover on the MBS Commentary blog. 

Tomorrow, the data starts with the Producer Price Index (PPI) which measures inflation on the producer level. Industrial Production data will also be released.  Wednesday brings us the Consumer Price Index(CPI) which measures inflation on the consumer level. Next comes Housing Starts.   Thursday we get the weekly jobless claims, leading indicators and the Philadelphia Fed survey, which measures the strength of business conditions in the Philadelphia region.   Additionally on Thursday we get the announcement from the Treasury Department on the size of next week’s auction cycle of 2 year, 5 year and 7 year notes.   Our week wraps up on a slow note with no economic reports to be released on Friday.

For more on the week ahead, check out the MND STORY

Reports from fellow mortgage professionals indicate mortgage rates are holding steady, near last week's aggressive closing levels.  The par 30 year conventional rate mortgage remains in the 4.625% to 4.875% 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 you are seeking a 15 year term, you should expect a par rate in the 4.25% to 4.50% range with similar costs. 

MBS prices continue to hold near the top of the recent trading range and mortgage rates are about as aggressive as lenders have let them get over the past few months. While Treasury rates have room to improve, MBS coupons are expensive and mortgage rates are near record lows. That said, I am still advising my clients to lock in their mortgage rates while they are holding steady below 5.00% (for well qualified consumers). Historically speaking we are only 0.125% away from the lowest rates in recent history, making locking a more attractive option than floating. There is MUCH more room for mortgage rates to rise than to fall.