Lock or Float?

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Mortgage Market Analysis

Wednesday's bond market has opened in negative territory following slightly stronger than expected economic data and a positive open for stocks. The stock markets are extending yesterday's afternoon rally, but to a much less degree. The Dow is currently up 22 points while the Nasdaq has gained 7 points. The bond market is currently down 34 basis points. Rates opened .125% higher (to points) than Tuesday's close, but we're in the process of raising points by .25% because of the deteriorating bond market.

This morning's first piece of economic data was January's Housing Starts. It revealed a larger than expected increase in starts and an upward revision to December's starts, hinting that the housing sector may be stronger than thought. Rising starts of new homes indicates more sales or stronger levels of optimism by builders. But, this data is not considered to be highly important to the markets or to mortgage rates. It is the week's least important data and has not had much of an influence on this morning's mortgage pricing.

Also posted this morning was January's Industrial Production data. It showed a 0.9% increase in output at U.S. factories, mines and utilities that exceeded forecasts. That indicates a level of manufacturing sector strength that is considered bad news for bonds and mortgage rates. However, this data is considered only moderately important, so it has not hurt mortgage rates this morning.

The third event of the day will be the release of the minutes from last FOMC meeting later today. Traders will be looking for any indication of the Fed's next move regarding monetary policy. They will be released at 2:00 PM ET, therefore, any reaction will come during afternoon trading. I am expecting some volatility in the markets after the minutes are released.

The Labor Department will post January's Producer Price Index (PPI) early tomorrow morning. It measures inflationary pressures at the producer level of the economy and is considered to be an important measurement of inflation. There are two portions of the report that analysts watch- the overall reading and the core data reading. The core data is more important to market participants because it excludes more volatile food and energy prices. It is expected to show an increase of 0.8% in the overall reading and a 0.1% rise in the core data. Good news for bonds would be a decline in both readings, particularly the core data.

Also tomorrow morning will be the release of the Leading Economic Indicators (LEI) for January. This Conference Board report attempts to predict economic activity over the next three to six months. It is expected to show a 0.5% increase, meaning that economic activity may rise in the near future. A smaller than expected rise would be good news for the bond market and mortgage rates.

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... Lock 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.

Market Snapshot

Thursday's bond market opened up sharply following an early sell-off in stocks. The stock markets are in selling mode as investors digest jobless claims numbers and look to tomorrow's jobs report. The Dow closed down 268, just above 10,000 and the Nasdaq closed down 65. The FNMA 30 year bond is currently up 47 points and now rests well above the 50 and 100 day moving averages.  Mortgage interest rates started the day .125% lower to discount points and around 2:30 PM improved by another .125%.

Lock or Float

The answer rests solely on your read of tomorrow's jobs report. Surveys reflect an estimated net jobs gain in January of 15K, but today's surprisingly high unemployment numbers have traders lowering their expectations. So if the number comes out at 15K and expectations are low, that will be seen as a positive. If the number is slightly below 15K many will still see any gain as positive.  And if there is an "up-side" surprise then surely stocks will react positively and bond prices will erode subsequently forcing mortgage interest rates higher. The only scenario that will likely be positive for bonds is a "down-side" surprise, which is possible - maybe even likely.

So because of today's gains and the gains of the past couple weeks I would advise floating. The 50 and 100 day moving averages have now become support and the bond has numerous other floors of support.

Mortgage Market News 

This morning's economic data gave us mixed results with the 4th quarter Employee Productivity and Costs data showing a 6.2% increase that fell short of expectations and December's Factory Order's data rising 1.0% compared to the 0.5% that was forecasted. Both of those can be considered negative for bonds and mortgage rates but neither is considered to be highly important.

The good economic news came from the Labor Department who reported that 480,000 new claims for unemployment claims were filed last week when analysts were expecting to see 455,000. While this data usually is not a major factor to the markets, it was enough of a variance from forecasts right before tomorrow's monthly figures that it caused selling in stocks. That led to bonds being in favor this morning and mortgage rates improving.

The Labor Department will be in the spot light again tomorrow morning when they post January's Employment data. This report will give us the U.S. unemployment rate and the number of jobs added or lost during the month among other related statistics. Analysts are expecting to see the unemployment rate remain at 10.0% and that approximately 15,000 new jobs were added to the economy. An increase in unemployment and a loss in payrolls would be great news for the bond market. It would probably create another bond market rally, leading to lower mortgage rates tomorrow morning. However, if the report reveals stronger than expected results, we can expect to see mortgage rates move higher tomorrow.

If I were considering financing/refinancing a home, I would.... Float if my closing was taking place within 7 days... Float if my closing was taking place between 8 and 20 days... Float 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.

Market Snapshot

Thursday's bond market opened in negative territory as yesterday's afternoon weakness continued into this morning's trading. Despite a lousy day for stocks - the Dow is currently down 122 points and the Nasdaq down 44 points - the Fannie Mae 30-year bond has been down as much as 12 basis points. In the last 30 minutes mortgage bonds have improved to flat on the day. The 200 day moving average has provided support, but in light of the Fed's reiteration yesterday that they indeed intend to put a stop to their mortgage-backed securities purchasing program in March, mortgage bonds have failed to gain momentum. Mortgage rates came out this morning at 11:00 AM .25% to .375% higher in points, but around 2:00 PM, as the bond market recovered, we posted a .125% improvement.

Lock or Float

My bias is toward locking, but it may be advisable for the remainder of the day to see if the 200 day moving average springboards bonds higher with help from slumping stocks - then lock at day's end. Bonds are in a "overbought" position and this is a great time to lock and take advantage of recent gains.

Market News

December's Durable Goods Orders was posted this morning, giving us an indication of manufacturing sector strength. It revealed a 0.3% increase in new orders for big-ticket products, which fell well short of analysts' forecasts of a 2.0% increase. However, if more volatile transportation related orders are excluded, such as orders for new aircraft, we saw a larger than expected increase of 0.9%. Therefore, this report basically gives us mixed results, but should be considered slightly negative for bonds and mortgage rates.

In a bit of positive news, the Labor Department reported that 470,000 new claims for unemployment benefits were filed last week. This was a decline from the previous week, but was much higher than the 450,000 that were expected. This is good news for bonds but its impact on trading and mortgage pricing is minimal because it is not considered to be very important news due to its single-week tracking.

There are three relevant reports scheduled for release tomorrow morning. The first is arguably the single most important report that we see regularly. The initial reading of the 4th Quarter Gross Domestic Product (GDP) will be posted early tomorrow. This data is so important because it is considered to be the best measurement of economic growth. The GDP itself is the total sum of all goods and services produced in the United States. Its' results usually have a major impact on the financial markets and can cause significant changes in mortgage rates. There are three readings to each quarter's activity, each released approximately one month apart. The first, which usually carries the most volatility, is expected to be an increase of 4.6%. A noticeably weaker reading would be great news for the bond market, questioning the pace of the economic recovery. That would likely fuel stock selling and a rally in bonds that would push mortgage rates lower tomorrow morning.

The 4th Quarter Employment Cost Index (ECI) is also scheduled for release early tomorrow morning. It measures employer costs for employee wages and benefits, giving us an indication of the threat of wage inflation. Current forecasts are showing an increase of 0.4%. A lower than expected reading would be favorable to bonds and mortgage rates, but the GDP reading will be the biggest influence on trading and rates tomorrow.

The last report of the week is the revised reading to the University of Michigan's Index of Consumer Sentiment. This index measures consumer confidence, which is thought to indicate consumer willingness to spend. I don't see this data having much of an impact on the markets or mortgage rates due to the importance of the employment index and GDP figures. It is expected to show a slight upward revision from the previous estimate of 72.8.

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.

Market Snapshot

Friday's bond market has opened down slightly despite another round of stock selling. The stock markets are showing losses again, but they are well above earlier lows. The Dow is currently down 46 points after losing as much as 92 points earlier this morning. The Nasdaq's rebound has been much less noticeable with it currently down 17 points and only 9 points off its earlier low. The bond market is currently down 9 basis points, but due to yesterday's gain of 25 basis points, rates came out this morning .125% lower (to discount points) than Thursday's close on 30 and 15 year fixed. 5/1 adjustable rates were substantially better.

Lock or Float

As I've said numerous times on the past several weeks as bonds have been pressured higher, mostly by the inevitability of inflation and the Fed's curtailing of its mortgage backed securities purchase program, the trend for mortgage interest rates is HIGHER. With that said there are the normal ebbs and flows of stocks and bonds and currently the Fannie Mae (FNMA) bond is enjoying a run higher. Remember, higher bond prices equate to lower rates. But take a look at the bond chart. You'll see that bond prices have stepped higher, but have run into a dual level of resistance at the 100 and 50 day moving averages. That's of particular interest because stocks have slumped for three consecutive days on the news of the Obama Big Bank tax proposal. In general stocks and bonds compete for investment capital so when stocks go down investors move the money from the sale of stocks to bonds, in safekeeping if you will. 

So my advice is to lock because of the overarching trend in bond prices, but very cautiously float in the immediate term (today) to see if the bond can break through the 50 & 100 day moving averages. If they do we will likely change our bias to floating.

Market News:

There is no relevant economic news scheduled for release today. We saw bond prices rise during afternoon trading yesterday as the major stock indexes continued to move lower throughout the day. The stock selling created a shift in funds from stocks to bonds as investors sought safety from the volatility. This led some lenders to revise pricing lower during afternoon hours, but many may have opted until this morning's rates to reflect that change.

With no data or significant events scheduled for today, expect to see the stock markets be the biggest influence on changes to bond prices and mortgage rates this afternoon. If the major stock indexes continue their upward move from this morning's lows, we will likely see those funds that were moved into bonds yesterday shifted back into stocks. The end result may be a small upward revision to mortgage rates this afternoon, if this morning's trend continues.

Next week looks to be fairly active with the release of a couple of important reports and another FOMC meeting scheduled. One of them is an extremely important quarterly release that gives us a key measurement of economic activity. There is data scheduled for Monday morning when the National Association of Realtors posts December's home resale figures, which is expected show a decline in sales. Look for more information and 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... Float 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.