Rate Lock Advisory - Thursday Jun. 17th



Thursday's bond market has opened in positive territory after this morning's economic data gave us favorable news and the stock markets are showing early losses. The Dow is currently down 58 points while the Nasdaq has lost 11 points. The bond market is currently up 12/32, which should improve this morning's mortgage rates by approximately .250 of a discount point over yesterday's morning rates.

May's Consumer Price Index (CPI) was this morning's big news. It revealed a 0.2% decline in the overall index and a 0.1% increase in the more important core data. The overall reading was weaker than expected but the core reading matched forecasts. This means inflationary pressures at the consumer level of the economy were not stronger than expected. That is good news for bonds and mortgage rates.

May's Leading Economic Indicators (LEI) was posted late this morning, showing a 0.4% increase. This was slightly below forecasts, indicating that economic activity may not expand quite as much as many had thought over the next several months. This is also good news for bonds and rate because rapid economic growth usually raises inflation concerns that make bonds less attractive to investors and leads to higher mortgage rates. However, this data is considered to be only moderately important to the markets and its impact on today's rate has been minimal.

Also posted this morning were weekly unemployment figures from the Labor Department. They announced that 472,000 new claims for unemployment benefits were filed last week. This exceeded forecasts and hints that the labor market is still far from a recovery. Unfortunately for mortgage rates, this data is not considered to be highly important because it tracks only a single week's worth of claims.

There is no relevant economic data scheduled for release tomorrow, but it is a fairly important day for stocks. Tomorrow is ?quadruple witching? which has to do with stock option expirations that must be executed by tomorrow. It really has no direct relation to the bond market, but the higher than normal volatility in stocks on these days can influence the broader markets. Sometimes that may lead to funds being moved into or out of bonds, however, it usually does not affect mortgage rates unless the swings in the major indexes are significant.

If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Lock if my closing was taking place between 8 and 20 days... Float if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.

©Mortgage Commentary 2010

Rate Lock Advisory - Wednesday Jun. 16th



Wednesday's bond market has opened in positive territory despite the release of generally unfavorable economic data. The stock markets are helping somewhat with the Dow down 40 points and the Nasdaq down 10 points. The bond market is currently up 9/32, but we should still see a small increase in this morning's mortgage rates due to weakness in bonds late yesterday. Yesterday's stock rally helped push bond prices lower during afternoon trading yesterday.

This morning brought us the release of three relevant economic reports. The results were mixed amongst them, but the more important ones showed stronger than expected results. The first was the least important and gave us favorable news. This was May's Housing starts that revealed a 10% decline in starts of new homes last month. That was a much larger drop than expected and the pushed starts to their lowest level in five months, indicating that the housing sector may be weakening once the tax credits expire. This is basically godo news for the bond market because a weak housing sector makes a broader economic recovery more difficult.

The second was May's Producer Price Index (PPI) that measures inflationary pressures at the producer level of the economy. Today's release showed a 0.3% decline in the overall index and a 0.2% increase in the more important core reading. These readings hint that inflationary pressures were a little stronger than many had thought, which is negative for bonds and mortgage rates. This is because inflation at the producer level of the economy will likely carry into the consumer level, making long-term securities such as mortgage-related bonds less attractive to investors. The result is binds prices falling and mortgage rates rising.

The third report was May's Industrial Production. It showed a 1.2% rise in output at U.S. factories, mines and utilities when forecasts were calling for a 0.8% increase. This means that manufacturing activity was stronger than thought and is another negative for bonds.

There are two reports scheduled for release tomorrow, but one of them is the week's most important and arguably the single most important report we see each month. That is May's Consumer Price Index (CPI). It is very similar to today's PPI, but measures inflationary pressures at the more important consumer level of the economy. It is expected to show a 0.1% drop in the overall reading and a 0.1% increase in the core data. A larger than expected increase in the core reading would most likely lead to a noticeable upward change to mortgage rates tomorrow.

May's Leading Economic Indicators (LEI) will be posted late tomorrow morning. The Conference Board, who is a New York-based business research group, will post this data. It attempts to predict economic activity over the next three to six months. Good news for mortgage rates would a decline in this index, but the CPI is much more important to the markets than this index. Therefore, if the CPI reveals any surprises, this data will likely have little impact on Thursday's mortgage rates. It is expected to show a 0.5% increase.

If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Lock if my closing was taking place between 8 and 20 days... Float if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.

©Mortgage Commentary 2010