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Mortgage Rates (1/13/2011)

January 13th, 2011 3:10 PM by Lehel S.

THURSDAY AFTERNOON UPDATE:


The bond market has improved from earlier levels, possibly leading to improvements in mortgage pricing this afternoon. The stock markets are close to earlier levels with the Dow down 30 points and the Nasdaq up 1 point. Today’s 30-year Bond auction did not go as well as yesterday’s 10-year Note sale did. Yesterday’s auction went very well compared to recent sales, meaning that there was a decent demand for longer-term securities and mortgage-related bonds. Still, now that the sales have been completed, more funds are moving into bonds and should lead to an improvement of approximately .250 of a discount point from this morning’s pricing and .375 - .500 of a discount point better from yesterday’s morning rates.

This morning’s economic data gave us mixed results with the Producer Price Index coming in with an increase of 1.1% that exceeded forecasts and hinted that inflationa ry pressures were rapidly rising at the producer level of the economy. However, the more important core data reading that excludes more volatile food and energy prices matched forecasts with a 0.2% increase. Generally speaking, this report can be considered neutral to a little negative for bonds.

November’s Goods and Services Trade Balance was also release this morning, revealing a $38.3 billion trade deficit that was well short of expectations. This data is not considered to be highly important, especially on a day that we get key inflation readings, so its impact on this morning’s trading and mortgage pricing has been minimal.

Also posted this morning were last week’s unemployment figures. The Labor Department announced that 445,000 new claims for unemployment benefits were filed last week. This was a much larger number than the 415,000 that was expected and further indicates that the surprise drop in claims of a few weeks ago w as either a fluke or artificially influenced by weather and holiday closures of government offices. Even though this data is also not one of the more important reports we see, this is still good news for the bond market and mortgage rates because the sudden decline in claims last month fueled speculation about an improving labor market and strengthening economy.

Tomorrow has four reports scheduled that are relevant to mortgage rates. The first is December’s Retail Sales data is one of two highly important reports on the day, both of which will be released at 8:30 AM ET. This Commerce Department report measures consumer spending by tracking sales at retail establishments in the U.S. Since consumer spending makes up two-thirds of the U.S. economy, any related data is watched closely. Current forecasts are calling for an increase in sales of approximately 0.7%. A smaller than expected increase in sales would indicate consumers did not spend as much as thought , helping to prevent rapid economic growth. That would be considered good news for the bond market and mortgage rates.





The second is December’s Consumer Price Index (CPI) at 8:30 AM. This is also one of the most important monthly reports that we see each month since it measures inflationary pressures at the consumer level of the economy. The overall index is expected to rise 0.4% while the core data is expected to increase 0.1%. Weaker than expected readings should lead to bond improvements and lower mortgage rates tomorrow morning. 

December’s Industrial Production report is next with a release time of 9:15 AM ET. This data measures output at U.S. factories, mines and utilities, giving us a good indication of manufacturing sector strength or weakness. Current forecasts are calling for an increase in production of 0.4% from November’s level. A smaller than expected increase would be considered good news for bonds an d could help lower mortgage rates, but the Retail Sales data and CPI are by far the most important data of the day and will have the biggest impact on tomorrow’s mortgage pricing.




The final report of the week is January’s preliminary reading to the University of Michigan’s Index of Consumer Sentiment. This index measures consumer willingness to spend and often has enough of an impact on the financial markets to slightly change mortgage rates, but it usually is not released the same day as two highly important reports. Therefore, I don’t believe this month’s reading will cause movement in mortgage rates. Good news would be if it shows a reading weaker than the 75.5 that is expected. December’s final reading was 74.5, indicating that consumer sentiment likely rose this month. The bond market prefers to see waning confidence because if consumers are less optimistic about their own financial situations, they are less apt to make large purchases in the near future. Slowing spending levels limits fuel for economic growth, making long-term securities such as mortgage bonds more attractive to investors.

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. 
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Posted by Lehel S. on January 13th, 2011 3:10 PM

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