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Mortgage Rates (11/16/2010)

November 16th, 2010 11:11 AM by Lehel S.

Tuesday’s bond market has opened well in positive territory following the release of some quite favorable economic data. The stock markets have reacted as we would have expected, showing early losses. The Dow is currently down 130 points while the Nasdaq has fallen 24 points. The bond market is currently up 16/32, but unfortunately we will likely not see an improvement in this morning’s mortgage rates due to fairly significant weakness late yesterday. With yesterday’s late selling, I am expecting to see this morning’s mortgage rates to be approximately .375 of a discount point higher than yesterday’s morning rates.

Both of this morning’s economic releases gave us results that were extremely favorable to the bond market and mortgage rates. The first was October's Producer Price Index (PPI) that showed a 0.4% increase in the overall reading and a 0.6% DECLINE in the more important core reading. This was well below foreca sts for each, meaning that inflationary pressures were nowhere near as strong as many had thought, at least not at the producer level of the economy. This is extremely good news for the bond market and mortgage rates because inflation is the number one nemesis of the bond market. It erodes the value of a bond’s future fixed interest payments, making them much less attractive to investors. The end result is falling bond prices and higher mortgage rates.

The second report of the day showed that manufacturing activity was not as strong as expected at U.S. factories, mines and utilities. Today’s release of October’s Industrial Production revealed no change from September’s level of output when a 0.3% increase was forecasted. That is good news for the bond market also because a strengthening manufacturing sector is needed for a broader economic rebound to take place. And since signs of economic weakness make stocks less appealing to investo rs and long-term securities such as mortgage-related bonds more attractive, this is good news for rates.

Tomorrow also have two relevant reports scheduled for posting. October's Consumer Price Index (CPI) will be released at 8:30 AM ET tomorrow morning. This index is very similar to today’s PPI, except it measures inflationary pressures at the more important consumer level of the economy. The overall reading is expected to show an increase of 0.3% while the core data is expected to rise 0.1%. If we see surprisingly weak readings like today’s PPI showed, we should see another positive day in the bond market and an improvement to mortgage rates.

October’s Housing Starts is the second report scheduled for release tomorrow. This data gives us an indication of housing sector strength, but usually does not have a noticeable impact on mortgage rates. I don’t expect this month’s version to be any different unless it varies greatly from analysts’ forecasts and the CPI matches expectations. It is expected to show a small decline in starts of new homes.

If I were considering financing/refinancing a home, I would.... Lock 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. 
Posted in:General
Posted by Lehel S. on November 16th, 2010 11:11 AM

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