Mortgage rates improved a few basis points yesterday, but only enough to recover loan pricing losses that occurred the previous day. A lack of meaningful economics data combined with a generally slow trading environment have kept mortgage rates in a tight range this week. Although benchmark Treasury yields rallied, mortgages haven't been able to keep pace.
To remind readers, as benchmark Treasury yields fall, prices of mortgage-backed securities move higher, which allows lenders to offer lower mortgage rates. MBS prices have moved higher lately, but have not kept up with improvements in the Treasury market, which is why mortgage rates have generally held to a stable range lately.
Our lackluster week of economic data came to an end today with several economic releases. First to discuss was a report on inflation, the Producer Price Index.
The PPI measures the changes in prices that manufacturers and wholesalers pay for goods during different stages of production. If businesses have to pay more for the materials they use to produce their widgets …they may be forced to pass along those additional costs to you…the consumer. During periods of bad economic conditions and high unemployment, producers find it difficult to pass along the higher prices to the end consumer. This makes consumer inflation reports of more importance than producer inflation. However; as stated before, inflation is one of the largest enemies of low interest rates so we must pay attention to any report on inflation as it can impact the markets.
This data provides three measures on the health of the labor market:
- Initial Jobless Claims: totals the number of Americans who filed for first time unemployment benefits
- Continued Claims: totals the number of Americans who continue to file for benefits due to an inability to find a new job
- Extended and Emergency Benefit: totals the number of Americans who have exhausted their traditional benefits and are now receiving extended and emergency benefits
Initial claims for unemployment insurance fell 24,000 to 456,000 in the week ending April 17. Economists were expecting initial claims to fall to 450,000. Last week’s initial claims were revised better from the first reported 484,000 to 480,000. Continued claims fell 40,000 from a revised 4.686 million to 4.646 million. The number of Americans who have used up their traditional benefits and are now collecting emergency extended benefits also fell by 480,000 to 5.49 million. The data continues to indicate that unemployed Americans are still finding it difficult to land a job.
Our final report on the day provides reading on the strength of the housing sector. The National Association of Realtors(NAR) released their monthly Existing Home Sales report.
This data totals the number of existing homes, not new construction, in which a sale closed in the prior month. Many believe that until housing rebounds, it will be very difficult for our economy to sustain acceptable growth, this makes tracking home sales data much more important today than in past economic downturns. We have had three consecutive reports from the NAR indicating existing home sales declining. December’s report indicated a decline of -16.2%, January’s indicate a decline of -7.2% and last month’s report fell another -0.6%. This was quite troubling as the home buyer tax credit is still in effect and mortgage rates have been holding near historic lows. Economists surveyed prior to the release of March’s numbers expected this trend to end with an increase from last month’s 5.02 million annualized pace to 5.28 million.
The NAR reported existing home sales increased at a rate of 6.8% in March to a better than expected annualized pace of 5.35 million. The available supply of homes fell to an 8.0 months supply from February’s 8.5 month total and the median home price increased 3.7% to $170,700. If you have been hoping for an extension of the home buyer tax credit, that seems very unlikely. This was a strong report, all around. The NAR thinks this is the beginning of a broad based stabilization in housing.
Finally, the Department of Treasury announced the terms of next week’s debt offering. They will sell $44 billion 2 year notes, $42 billion 5 year notes, $32 billion 7 year notes, and $11billion 5 year TIPS notes for a total of $129 billion. All auctions amounts were as expected with exception of the 5 year TIPS offering, that was $1bn larger than the previous auction. The added supply of debt on the market pressured both treasury and mortgage yields higher. The Treasury rally that helped mortgage rates recover from the previous day's marginal weakness reversed course today. Once again we have taken one step forward only to immediately take one step back.
Reports from fellow mortgage professionals indicate lender rate sheet pricing to be worse today. Mortgage rates are slightly higher as a result. The par 30 year conventional mortgage rate does remain in the 4.875% to 5.125% range for well qualified consumers. There are a couple lenders offering 4.75% today. To secure a par rate on a conventional mortgage you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs including an estimated one point loan origination/discount/broker fee. If you are seeking a 15 year term, you should expect par in the 4.25% to 4.50% range with similar costs but lower FICO score requirements.
Following the strategy of “lock the price highs, float the price lows”, I favor locking all loans closing and funding within 30 days.
