What the Mortgage Backed Securities Market is Doing Today:
The FNMA 30-Year 4.5% MBS opened down 8/32 this morning to 99.52 despite a worse than expected ADP employment report.
The MBS was down as much as 9/32 this morning before reversing course on weaker pending home sales and constructions spending. MBS is currently trading down just 7/32 to 99.55 (as shown by the blue line). Remember, on mortgage backed securities (MBSs), as the price goes down, the yield goes up - and so do mortgage interest rates. I expect that mortgage rates will be 0.125% - 0.25% worse in price this morning as compared to yesterday.
Economic Report Being Released Today:
- Institute of Supply Management (ISM) Manufacturing Index for June - The index rose 2 points to 44.8, the highest level in 10 months, and is slightly less than expectations. Analysts were expecting a reading of 45.0. The index is up from 40.1 in April and 42.9 in May. This index measures manufacturer sentiment by surveying trade executives on current business conditions. The rising index indicates that the contraction in manufacturing is slowing, and that the recession is slowly easing. However, a reading below 50 means that the majority of the executives surveyed feel that business activity is contracting. A continued contraction in business is considered good news for bonds (prices rise) and mortgage rates (rates fall).
Important News of the Day:
ADP Employment Report indicates that 473,000 private (non-government) jobs were lost in June, more than the 355,000 job loss that analysts had predicted, but is down slightly from the revised loss of 485,000 jobs in May. This indicates that the unemployment situation may not improve anytime soon. However, this typically has little to no impact on mortgage backed securities and mortgage rates.
Value of bank stocks plunged 23% since May while stocks of new home builders lost 26% in value.
The Pending Home Sales Report indicated that pending sales of existing homes is up just 0.1%, far shy of the 1.1% increase that was expected. Pending sales are for signed agreements to purchase homes that have not yet made settlement. In addition, construction spending fell 0.9% in May, indicating that the housing market is not yet improving.
"If housing and credit led us into all this, they will have to stabilize," said Mark Demos, a money manager at Fifth Third Asset Management. "There's a growing concern that they're not out of the woods. Less bad does not equal good."
In a speech on the economy to the Commonwealth Club of California in San Francisco yesterday. Janet Yellen, President of Federal Reserve Bank in San Francisco, said she expects "... the pace of the recovery will be frustratingly slow." She also stated that "... it often takes a long time to recover from downturns caused by financial crises" and added that there is no real threat of high inflation in the current situation. You can expect the Federal Funds rate to stay near zero for some time. The Fed Funds rate is the interest rate at which private depository institutions (mostly banks) lend balances (federal funds) at the Federal Reserve to other depository institutions, usually overnight. It is the interest rate banks charge each other for loans.
There are five economic reports scheduled for release this holiday shortened week, but four of them are considered only fairly important. And of those four reports, the employment situation report, to be released Thursday morning, is considered the most important. The markets are closed on Friday. Look for more details on this week's economic data releases and events on my Weekly Mortgage Market Watch at www.LewCorcoran.com/MyBlog.
What's Happening With Mortgage Rates Today:
High Volatility. Overall, we can expect to see some volatility in the markets and in mortgage rates today and tomorrow. However, we could see the highest volatility tomorrow. The reasons are: 1) the report on the rate of unemployment will be released in the morning; and 2) trading in afternoon will probably be light as traders leave early for the long weekend. I recommend that you maintain contact with your mortgage professional this week if you're still floating an interest rate and are getting close to settlement.
In addition, the spring and summer home buying season is upon us. Mortgage rates historically climb this time of year before peaking in July or August. If you haven't locked in a rate yet, then you may want to consider doing so. Locking is making more sense in the short term right now as the markets position themselves for the next wave of government debt auctions next week. The ever increasing massive government debt and fears of inflationary pressures could soon drive mortgage rates up again. So, if you like the rate that you are being offered today, then there's nothing wrong with locking in. Otherwise keep an eye on the markets and maintain contact with your mortgage professional. The markets can change at any moment.
My Interest Rate Lock Advice for Today:
If I were considering financing/refinancing a home, I would...
- Lock if my closing was taking place within 7 days
- Float if my closing was taking place within 8 and 30 days
- Float if my closing was taking place between 31 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 any or all other borrowers. See today's mortgage rates at www.LewCorcoran.com/RateSheet.
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