Friday's bond market has opened slightly in positive territory after this morning's economic news eased inflation concerns. The stock markets are in negative territory again after yesterday's major sell-off. The Dow is currently down 90 points while the Nasdaq has lost 16 points. The bond market is currently up 2/32, which with yesterday's late strength should improve this morning's mortgage rates by approximately another .250 of a discount point.
The Commerce Department reported this morning that Gross Domestic Product (GDP) for the 2nd Quarter rose at a 3.4% annual pace. This was a little higher than the 3.2% that was expected, indicating economic activity was stronger than thought. However, a key inflation reading came in well below expectations, meaning that while activity was fairly strong, inflation remained calm. This is very good news for bonds and mortgage rates.
Also released this morning was the revision to July's University of Michigan Index of Consumer Sentiment. It showed a reading of 90.4, falling short of forecasts of a 91.5 reading. This is also good news for the bond market because waning consumer sentiment usually means lower level of consumer spending.
The huge rally in bonds this week is more or less a flight to safety from the volatility in stocks. While this is great news for mortgage shoppers, we need to be careful because once stocks stabilize those same funds may exit bonds fairly quickly. This could lead to a rapid increase in mortgage pricing. The question though is when will stocks stabilize? My guess is that we could see some stability in the very near future. Accordingly, I am recommending to lock at this afternoon's rates for immediate, short and mid-term periods. This doesn't mean that I think rates will rise right away, just that the risk of continuing to float outweighs the potential reward during those time frames.
Next week is packed with important economic news. There is no relevant data scheduled for release Monday, but there are three reports Tuesday and at least one piece of news each day after. The almighty Employment report will be posted Friday morning, but look for more details on next week's events in Sunday's weekly preview.
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... Lock 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 2007