This is going to be a huge week for Mortgage Rates

This is going to be a huge week for mortgage rates.  The economic reports include consumer confidence tomorrow, the Fed meeting on Wednesday, PCE Thursday, and the Employment Report on Friday.  These are all ELEVATED market movers.  The Feds Cut Rate is expected to be lowered -.25% tomorrow.  It is also important to note that Traders will be anxiously deciphering the Feds statements to see if they hint to further Fed rate cuts.  The Feds rate cuts stimulate the economy and increase inflation, the enemy of mortgage bonds. 

Now would be a good time to lock in an interest rate ahead of all this upcoming volatility if the rate and program you want are available.  There is a good chance though that we see 30 fixed rates in the 5′s again by the end of this week.  In January, when rates dropped down to the low 5′s, they came and went quickly, so be prepared to lock.

Mortgage Rates for April 28th, 2008

30 Year Fixed/apr | 6.125%/6.225%

15 Year Fixed/apr | 5.625%/5.725%

3/1 Interest Only [1%]/apr | 5.125%/5.388%

5/1 Interest Only [1%]/apr | 5.375%/5.575%

7/1 Interest Only [1%]/apr | 5.625%/5.825%

Philly Fed Index dismal | Mortgage Backed Bonds still -16bp

Philly Fed Index | Reported -24.0 | Est -14.0 | Prior -17.4 | ELEVATED

The Philadelphia Fed Index is an important index that is current reflecting extreme contraction in the Manufacturing Sector.  For months almost every report has been signally a damaged economy.  This report unfortunately has not helped the bonds market.  Until the Stock Market steps into reality, I would still recommend LOCKING in this volatile market.

PPI strong and Mortgage Rates Suffer

Empire State Index | Reported 0.6% | Est -16.0 | Prior -22.2 | MODEST

Producer Price Index [PPI] | Reported 1.1% | Est 0.4% | Prior 0.3% | MODEST

Core PPI [CPPI] | Reported 0.2% | Est 0.2% | Prior 0.5% | MODEST

Relatively-Hot PPI numbers reported due to the highest fuel  and food prices in 17 years.  The Core-PPI was at expectations of .2%.  The Empire State Survey was still weak, but better than expectations… and as usually the Bond Market reacted negatively -53bp currently. 

Tomorrow the very important Consumer Price Index will be reported.  CPI and Core CPI are significant inflation measures that could force the Mortgage Bond market below the solid support of both the 50 and 100 day moving averages.  The next level of support is the 200 day moving average -133bp below.  This could push mortgage rates up to the mid 6′s again, even with perfect credit.  With this risk and the rumored continued tightening of mortgage insurance companies coming in the near future, if you have an approval, I’d lock it.

Grau Perspective | 30F 5.750% 7/1A[Int Only] 5.375%

Chicago PMI | Reported 48.2 | Est 46.7 | Prior 44.5 | ELEVATED

The Chicago Purchasing Managers Index for March reported above estimates.  The survey results signal more economic restraint and concern about the health of the economy.  Mortgage Bonds have not reacted much to the news, currently we are +3bp on the day.  Henry Paulson the Treasury Secretary is currently speaking about more mortgage reform and regulation requirements for our industry.   This week is full of ELEVATED economic reports.  Hold on to your hats!

ISM Index | Reported [Tue 4.1] | Est 48.2 | Prior 48.3 | ELEVATED

ADP Employment Report | Reported [Wed 4.2] | Est -23,000 | Prior -23,000 | ELEVATED

Crude Inventories | Reported [Wed 4.2] | Prior 88,000 | MODEST

Initial Jobless Claims | Reported [Thu 4.3] | Est 360,000 | Prior 366,000 | MODEST

ISM Services Index | Reported [Thu 4.3] | Est 49.2 | Prior 49.3 | MODEST

Unemployment Rate | Reported [Fri 4.4] | Est 5.0% | Prior 4.8% | ELEVATED

Hourly Earnings | Reported [Fri 4.4] | Est 0.3% | Prior 0.3% | ELEVATED

Average Work Week | Reported [Fri 4.4] | Est 33.7 | Prior 33.7 | ELEVATED

Non-Farm Payroll | Reported [Fri 4.4] | Est -40,000 | Prior -63,000 | ELEVATED

Economic Reports March 27, 2008 | 30F 6.000%

GDP | Reported 0.6%  | Est 0.6% | Prior 0.6% | MODEST

GPD Chain Deflator | Reported 2.5% | Est 2.7% | Prior 2.7% | MODEST

Initial Jobless Claims | Reported 366,000 | Est 371,000 | Prior 375,000 | MODEST

The GPD had no effect on the markets since it came in confirming earlier estimates.  Initial Jobless claims were slightly lower than last week and estimates.  The stock market has just been looking for any bit of “not bad” economic news to rally.  Movement in the stock market was at the expense of mortgage bonds, currently -41bp from open.  New home buyers and clients looking to refinance have more to consider than just the lowest mortgage rates quoted in the newspaper.  With uncertainty about RISK scaring investors, locking in your rate and program while they still exist are more important.

Grau Perspective | 3/20 | 30F 5.625% 15F 5.125%

 

Yesterday, Fannie and Freddie were given the OK to lend out another $200 billion in mortgages.  This is a good thing for the mortgage market.  With the Fed giving $200 billion of liquidity last week to ”upgrage” mortgage backed securities and $200 billion to the largest buyers of mortgages yesterday, hopefully some of the mortgage liquidity concerns will be eased.  Now we need investors to figure out how much risk premium really needs to be charged for average credit scores, low equity, adjustable rates, jumbo loan amounts, 2nd liens, or limited documentation.  Until home values stabilize I expect to see continued additional tightening in any “risk” category.

Today the Initial Jobless Claims, LEI, and Philadelphia Fed Index were reported.  The Jobless Claims came in at 378,000 implying that a recession may already be here.  The Philly Fed Index was -17.4.  That’s not good, but better than expectations.  The LEI met expectations at -0.3%.  LEI is an Index of Indexes and not really a market mover.  The bond market closed at 2:00pm today and is closed tomorrow for Good Friday.  It should be nice to take a breather and prepare for next week.  This market is not for the faint of heart. 

Upcoming Economic Reports for March 24 – 28th

Existing Home Sales | Reported [3.24] | Est 4,860,000 | Prior 4,900,000 | MODEST

Consumer Confidence | Reported [3.25] | Est 75.0 | Prior 75.0 | MODEST

Durable Goods | Reported [3.26] | Est 1.0% | Prior -5.3% | MODEST

New Home Sales | Reported [3.26] | Est 580,000 | Prior 588,000 | MODEST

Crude Inventories | Reported [3.26] | MODEST

GDP | Reported [3.27] | Est 0.6% | Prior 0.6% | MODEST

GPD Chain Deflator | Reported [3.27] | Est 2.7% | Prior 2.7% | MODEST

Initial Jobless Claims | Reported [3.27] | MODEST

Personal Consumption YOY | Reported [3.28] | Prior 2.2% | ELEVATED

Personal Income | Reported [3.28] | Est 0.3% | Prior 0.3% | MODEST

Personal Spending | Reported [3.28] | Est 0.2% | Prior 0.4% | MODEST

Personal Consumption FEB | Reported [3.28] | Est 0.3% | Prior 0.2% | ELEVATED

Consumer Sentiment | Reported [3.28] | Est 71.0 | Prior 70.5 | MODEST

Mortgage Rates Predictions

 

Can I make accurate Mortgage Rates Predictions?  On a day to day basis, the answer is yes.  Since I track movement in the FNMA Mortgage Backed Bond Market and every basis point the market moves correlates directly with the interest rate I am able to offer, I can confidently provide mortgage rates predictions.  When deciding whether to float or lock a loan, tracking trends in the Mortgage Bond market and paying constant attention to daily movements has saved my clients thousands of dollars. 

There is always a degree of speculation involved anytime someone does long term mortgage rates predictions.  That being said, I will speculate that we will at least have one more rally on long term fixed mortgages.  The last few months of economic reports and the real estate market disaster give me no confidence that the economy is healthy.  Later this week when the Retail Sales, CPI, and Consumer Sentiment reports are released I would expect to see even more proof that the economy is hurting. 

Unfortunately, there are a few more factors to be considered than just the Bond Market in today’s mortgage environment.  As I always say, “It’s all about RISK.”  Investors are not yet confident that Mortgage Backed Securities are as good of an investment as the previously were viewed.  In an effort to clean up the industry and encourage investors, credit requirements and loan level price adjustments [penalties that increase the mortgage rates based on credit scores or other layers of risk] have become exorbitant.  This is still stalling the real estate market because the number of people that used to be able to qualify for mortgages has been cut in half.  If your mortgage has any layers of risk to it, I would lock in on at least a 3 year arm while you can.  The mortgage products like 100% financing, stated income, jumbo mortgages, second mortgages, and high LTV investment properties have been disappearing daily.  Lenders have also cracked down on seasoning on title, appraisal seasoning, and loans in declining markets.  Until this flight to quality is completed and the real estate market has life breathed back to it, I think we are in for more volatile hard times. 

On the brighter side, the FED did basically upgrade Mortgage Backed Securities today.  This should encourage foreign investors to put their money in Mortgage Backed Securities as a safe haven.  I would love it if this was the spark that drives long term fixed rates back down to the low 5′s again.

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