Our Real Estate Blog

Mortgage Rates (10/15/2010)

October 15th, 2010 9:53 AM by Lehel S.

Friday's bond market has opened in negative territory as yesterday afternoon's selling extends into this morning's trading. The stock markets are mixed with the Dow down 25 points and the Nasdaq up 17 points. The bond market is currently down 6/32, which will likely push this morning's mortgage rates higher by approximately .125 - .250 of a discount point.

Today's economic data came in favorable for the most part, but one the more important reports we see each month showed stronger than expected results. The bad news came in the Commerce Department's Retail Sales report for September that measures consumer spending. It showed a 0.6% increase in retail levels sales, exceeding analysts' forecast of a 0.4% rise. Today's release also revised sales from up 0.4% to up 0.7%, indicating that consumers spent more in August and September than many had thought. This is bad news for the bond market and mortgage rates because consumer spending makes up two-thirds of t he U.S. economy. Consumers spending more money each month fuels economic growth that makes long-term securities such as mortgage bonds less attractive to investors.

Now it is time for the good news of the day. The Labor Department said this morning that September's Consumer Price Index (CPI) rose 0.1% last month, while the core data was unchanged from August's level. Both of these readings fell short of forecasts, meaning prices remained flat at the consumer level of the economy. This is very good news for the bond market since inflation devalues long-term securities. However, the fact that inflation remains subdued should be of no surprise to the markets with all of the recent data and Fed comments on the topic. 

The third report of the day and the final piece of data for the week was the preliminary reading to the University of Michigan's Index of Consumer Sentiment for October late this morning. They announced a reading of 67.9 that fell short of forecasts and was a decline from September's final reading. This means that surveyed consumers were less optimistic about their own financial situations than analysts had expected. That is also good news for the bond market and mortgage rates because waning confidence usually means consumers are less likely to make large purchases in the immediate future, limiting fuel for economic growth.

Yesterday's 30-year Bond auction did not go very well. Investor interest was pretty weak and not nearly what market participants had hoped for. As I had suspected, the result was selling in the broader bond market yesterday afternoon. And despite this morning's generally favorable economic data, the tone in the bond market is still somewhat negative or cautious. This does not bode well for mortgage rates if it continues next week. 

Next week brings us a couple of relevant economic reports for the markets to digest, but none of them are nearly as important as s ome of this week's data was. Unlike many Mondays, there is data being posted this Monday that could nudge mortgage pricing. September's Industrial Production will be released mid-morning Monday and is considered moderately important to the financial and mortgage markets. Look for more details on it and the rest of the 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... 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. 
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Posted by Lehel S. on October 15th, 2010 9:53 AM

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