Following a global sell in equities yesterday, prices of mortgage backed securities rose into a range not visited since late July. The rally in secondary markets helped mortgage rates fall to monthly lows. When this happens rates tend to drop as they did yesterday.
But will it last?
Although mortgage rates fell to previous August lows yesterday, it may not last long if stocks decide pessimism was unwarranted. There has however been a change in market sentiment. Fundamental economic releases, mainly consumer related data, should soon start to have more of an effect on mortgage rates.
Data Releases of the Day...
First out this morning from the U.S Department of Commerce was the monthly Housing Starts report. This data provides investors the monthly change in the number of new homes that have started construction. The number is reported on an annualized pace and recent reports have shown housing starts to be improving. This month economists’ expected this trend to continue.
The data shows that housing starts in July declined by 1% to an annualized pace of 581,000 following last month’s 6.5% increase. This is the first monthly decline in 3 months. On a yearly basis, housing starts are still down a whopping 37.7%! To give you a perspective on how far the new housing sector has fallen, during the peak of the housing boom housing starts was on an annualized pace of over 2 million units! This report does provide evidence of the housing sector to be bottoming but does not indicate an improving sector.
The final piece of economic data was the Producer Price Index which tracks the monthly change in the average price of a fixed basket of goods received by producers. If the costs of products purchased by producers are increasing, they tend to pass along that higher cost to the end consumer resulting in inflation. The report shows that inflation on the producer level declined sharply from last month further providing evidence that inflation is not a concern. Headline PPI declined by 0.9% while the core rate declined 0.1% both beating economists’ expectations.
After the data was released Treasury futures prices shot higher and MBS price followed suit. However, once again, it appears there is not much motivation in the market to drive MBS prices higher as trader's quickly took profits following the rapid price appreciation. It appears that we will continue yesterday’s trend of moving sideways in a range as the markets wait for confirmation of a new trend or correction back to previous price levels. ..we refer to this as "wait and see mode".
I mention often to my customers that each time rates have approached the current levels they don't remain there very long. If you can lock today under 5.25%, you should consider doing so as any indication of positive economic news can result in a quick and sudden move higher in mortgage rates.
Reports from fellow mortgage professionals indicate mortgage rates are mostly unchanged from yesterday (slightly higher). This places the par 30 year conventional rate mortgage in the 4.875% to 5.125% range for the most qualified consumer. In order to qualify you must have a FICO credit score of 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 secure a higher mortgage rate or you can pay additional fees to buy the rate lower.
As I've mentioned before good economic news is not good for Mortgage Rates. If you have a loan application that is unlocked now would be a great time to lock in!
Sorry I have been off the blog for a few days. Please contact me if you are ready to lock in your rate!!!
- MortgageAlli
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