As I stated in my blog yesterday, my public duty is calling as I have been selected for jury duty.(Don't you envy me?)  This will require me to do things a little different with my blog.  Instead of waiting until economic data is released to post, I will be forced to post the blog before the data sets.  I will recap the prior day's data, and let you know what other reports are due out and how they may affect the markets.  I highly encourage you to read the MBS Commentary blog throughout the day for updates.  Matt and Adam will keep you updated on what is happening in the markets and how it relates to mortgage rates.  

Mortgage backed securities(MBS) had a strong day yesterday improving in price by .50 basis points.  As MBS improve in price, lenders can offer more attractive mortgage rates.  Helping to spark the rally was a global sell off in equities.  Stock markets around the world sold off resulting in the flow of money leaving equities and moving into the fixed income markets(MBS and treasuries).   By days end, the par 30 year fixed rate mortgage had fallen to 5.125% for the best qualified consumers.   Matt and Adam tell me that technical indicators are pointing to a supportive week for MBS, but we must remain defensive.  If you can recall, on "Black Wednesday"(5/27) mortgage rates increased by 1/2 percent in one day!

Helping to spark the rally was a worse than expected reading on the Empire State Manufacturing survey.  This survey of approximately 175 manufacturing executives from across New York gives investors a gauge into the strength of manufacturing.  The stock market prefers a strong rapidly growing manufacturing base which leads to higher profits while the MBS market prefers slower growth which results in less inflationary pressures.  After a strong improvement with last month's survey(-14.7 to -4.6), economists were expecting continued improvement with a reading of -2.0.  The actual survey came in considerably worse than expectations at -9.4!!  Once this report was released at 8:30am est, the rally in MBS started to pick up momentum.  Check out this GRAPH that Matt posted and you can see how the rally began following this data(time is on bottom axis and MBS price is on verticle axis).  Granted, the global selloff in equites had already begun, so odds were on our side for a postive day for MBS but sure looks like this data helped things along.

Today, the economic data picks up with Producer Price Index(PPI), Housing starts and Industrial Production.  You can read my blog from yesterday by scrolling down or CLICK HERE for an explanation of each of these data sets and their potential impact on mortgage rates. 

Hot off the presses this morning is the release of housing starts.  Last month's report showed that construction of new homes fell 12.8% to an annualized pace of 458,000 which is the lowest pace since 1959!  To put this number into perspective, in January of 2006 the annualized pace was over 2 million units per year!   Economists are expecting this report to show new home starts increasing to an annualized pace of 500,000.  The report has shown a sharp increase in housing starts of 17.2% to an annualized pace of 532,000.  This is positive for stocks and somewhat negative for MBS.

Also out this morning is the Producer Price Index(PPI) which measures inflation on the producer level.  Since inflation is the mortal enemy to mortgage rates, any hint of inflation can cause MBS to sell off increasing consumer borrowing costs.  This report gives 2 readings, the headline and the core.  The core reading strips out food and energy due to their volatility.  Expectations call for the headline PPI to come in at a month over month increase of 0.7% following last month's 0.3% increase.  The expected increase can be attributed to increasing oil prices.  The core reading is expected to show an increase in producer prices of 0.1% matching last month's reading.   The release has shown that both the overall and core reading are lower than expected at a 0.2% increase for the overall and a -0.1% decline for the core rate.  This is positive for MBS. 

Lenders did not pass along all the improvements from yesterday. Today, the most aggressive lenders should be offering 5.125% to 5.375% as the par 30 year fixed mortgage rate for the best qualified consumers.  In order to qualify, you must have a FICO credit score 740 or higher, a loan to value of 80% or less and pay all closing costs including one point loan origination/discount/broker fee.  As always, you can elect to pay less in fees and accept a higher interest rate.  This option is best suited for a homeowner not planning on keeping their home for more than 3 years.