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Mortgage Rates (10/28/2010)

October 28th, 2010 9:06 PM by Lehel S.

Thursday’s bond market has opened in positive territory despite a bit of employment data that was unfavorable to the bond market. The stock markets initially opened with modest gains as a result of the news, but have since given up those gains. The Dow is currently down 31 points while the Nasdaq has lost 7 points. The bond market is currently up 13/32, which should improve this morning’s mortgage rates by approximately .125 - .250 of a discount point.

Today’s only economic data came from the Labor Department who said that 434,000 new claims for unemployment benefits were filed last week. This was well below forecasts, indicating that the labor market was stronger than many had thought. That is bad news for the bond market and mortgage rates because the high rate of unemployment has been a major concern of the Fed. It is difficult for the economy to grow at a decent pace unless unemployment improves, so any data that points toward this ha ppening is considered good for stocks and negative for bonds. Fortunately, this data tracks only a single week’s worth of new claims or we could have seen mortgage rates spike higher.

Also today is the 7-year Treasury Note auction that has the potential to influence mortgage rates. Yesterday’s 5-year Note sale went a little better than I had expected it to. It was met with an average demand from investors, making it more likely that today’s sale may not be so bad. If today’s auction does draw an average or better interest from investors, we may see bond prices rise during afternoon trading. That could lead to slightly lower mortgage rates. The results of the auction will be posted at 1:00 PM ET, so any reaction will come during afternoon hours.

There are three relevant economic reports scheduled for release tomorrow, one of which is extremely important to the markets. That one is the preliminary reading of the 3rd Quarter G ross Domestic Product (GDP) early tomorrow morning. The GDP is considered to be the benchmark measurement of economic growth because it is the sum of all goods and services produced in the U.S. and therefore is likely to have a major impact on the financial markets and mortgage pricing. There are three versions of this report, each a month apart. Friday’s release is the first and usually has the biggest impact on the markets. Current forecasts call for an increase of approximately 2.0% in the GDP, which would mean that the economy grew at a quicker pace than the 2nd quarter. If this report does show a much smaller increase, I am expecting to see the bond market rally and mortgage rates to fall. However, a larger than expected rise would mean the economy grew faster than expected and could lead to a sizable increase in mortgage pricing tomorrow.

The second report of the day is the 3rd Quarter Employment Cost Index (ECI), which tracks employer costs for salari es and benefits. Rapidly rising costs raises wage inflation concerns and may hurt bond prices. It is expected to show an increase in costs of 0.5%. A smaller than expected increase would be good news for bonds and mortgage rates, but the GDP will draw much more attention than this data will.

The third release of the day will be posted at 10:00 AM ET when the University of Michigan updates their Index of Consumer Sentiment for this month. Current forecasts show this index remaining nearly unchanged from the preliminary reading of 67.9. It is moderately important because it helps us measure consumer confidence, which is believed to indicate consumers’ willingness to spend. Since consumer spending makes up two-thirds of the U.S. economy, any related data is considered to be relevant. However, the GDP is considered to be much more important than this data, so it is not expected to have much of an impact on tomorrow’ 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... 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 October 28th, 2010 9:06 PM

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