Wholesale inventories nominal; Investors seek to hedge positions going into busy week; Next week's preview; New Feature: The Rumor Mill - Rate Lock Report for Friday, July 9th, 2010
In spite of the relative lack of data this week, mortgage pricing has still been a little more volatile that might have been expected, but most of that was caused by the stock lever from several straight days of higher than usual stock market gains. More than anything else, those stock market gains were driven by bargain hunting. Next week is a different animal altogether though, as we'll review below.
Today, the Commerce Department reported that wholesale inventories rose by 0.5% in May, while sales that month fell 0.3%. Businesses have drawn down their inventories over the past two years in anticipation of lower demand, and economists hope that they will turn up their purchasing, as that will indicate more economic activity to come. Unfortunately that required demand just hasn't turned up.
Next week is about as busy as they come with a number of mortgage-rate-influential events and announcements. The most important events will be announcements about wholesale and retail inflation through the Producer and Consumer Price Indexes, PPI and CPI. Inflation is highly relevant to mortgage pricing because the Federal Reserve's interest rate policy is limited by inflation; if inflation rises too much, the Fed will be forced to raise interest rates. Fortunately, inflation has been very tame lately. There are also significant reports about industrial production and retail sales next week, as well as $69 billion in Treasury security auctions.
There will also be some influence from the stock market next week. Aluminum giant Alcoa starts the quarterly earnings season, a 6-week or so period during which companies make required reports on their quarterly results. As always, Wall St. is viewing this upcoming release with some apprehension, and this is reflected in today's trading. So far, stock prices, and prices for other assets like mortgages and treasuries, have wobbled around unchanged from yesterday.
I'd like to bring up my pet research project, the Friday Affect. I have a hypothesis that we can expect better mortgage pricing towards the end of the day on Fridays, as investors seek to take more defensive positions going into the weekend. In a market that can change based on global events, there is some fear that Saturday's or Sunday's news may ruin the fun on Monday morning when the US markets open, and, because of this, I believe that traders will tend to favor more secure assets, like mortgage-backed securities and US Treasuries going into the weekend. I hope to gather enough data about this over the summer to present some more detailed data in September or October.
Volatility is still somewhat high in mortgage pricing, and prices are still very close to all-time highs. I suggest a slight bias for originators to consider locking deals that are in process. I believe that next week's data will continue to support current pricing levels, however, it won't take much to break through lower, as mortgages have benefited from very strong demand recently. If the stock market continues to run, it will pull up interest rates from all-time lows around 4.57%.
I'm incorporating a new feature into today's report, the Rumor Mill. Here I'll discuss one or more of the more off-the-wall ideas I've seen this week in the mortgage world. Today, I want to highlight an idea that Brian and Frank of the TBWS Daily found yesterday: FHA loans for mobile homes. Mobile home financing has always been challenging because of the possibility that the owner could very easily pick up the home and move it elsewhere, making the collateral tough to track. Most lenders don't have any provision to lend on these properties, however, Brian and Frank point out that around 25% of homes under $200,000 are mobile homes. They point to a New York Times article as their basis. What do you think? Would and FHA loan make a mobile home more attractive to you as a home buyer? As a loan originator or real estate agent, would you be able to do more business with this option? Leave your comments below.
Finally, I want to let you know that this blog will have a new home as of Monday. My main articles will appear on the all-new www.provincemai.com, the online home of Province Mortgage Associates. I will post a summary of those articles here, as well. Thank you very much for reading; I hope you will join me at my new home. If you have questions regarding Rhode Island Refinance Rates, or whether or not to lock your loan, please don't hesitate to contact me by cell at (401) 263-8655, or by commenting on this post. Have a great day!
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Dan Hartman is a Senior Mortgage Advisor with Province Mortgage Associates, and serves as an Adjunct Professor of Finance and Economics at Roger Williams University and the University of New Haven. He has been helping homeowners and homebuyers with their mortgage questions for over 10 years.
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