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Mortgage Rates (11/24/2010)

November 24th, 2010 9:12 PM by Lehel S.

Wednesday’s bond market has opened in negative territory following the release of mixed economic data and a strong open in stocks. The stock markets are reacting favorably to the data, pushing the Dow up 126 points and the Nasdaq up 44 points. The bond market is currently down 22/32, which will likely increase this morning’s mortgage rates by approximately 

.500 of a discount point over yesterday’s morning pricing.

We had four monthly reports posted this morning in addition to weekly unemployment figures that are normally released Thursday mornings. They certainly failed to give a consensus about which direction the economy is heading. The first piece of data was October’s Durable Goods Orders early this morning. The Commerce Department said that new orders for big-ticket items, or products that are expected to last three or more years, fell 3.3% last month. This was good news for the bond market because it was much weaker than the 0.3% decline that was expected and the largest monthly drop since January 2009. Even a secondary reading that excludes more volatile transportation-related orders such as airplanes and autos fell well short of forecasts. That indicates weakness in the manufacturing sector that makes a broader economic recovery less likely anytime soon.

October’s Personal Income and Outlays data was also released early this morning. It showed that personal income rose 0.5% last month while spending rose 0.4%. The income reading exceeded forecasts by 0.1%, meaning consumers had a little more money to spend than thought. That is considered negative for bonds because the ability to spend often means more will be spent. However, the data also showed that spending did not rise as much as many had thought during the month. The increase that we did see was below the 0.6% increase that was expected, meaning that consumers were not as active as predic ted. Weaker than expected spending is always good news for the bond market and mortgage rates because consumer spending makes up two-thirds of our economy. These mixed readings make this report fairly neutral towards mortgage rates.

The Labor Department said early this morning that only 407,000 new claims for unemployment benefits were filed last week. This was a large decline from the previous week’s revised total of 441,000 new claims and the lowest number since July 2008, indicating an improving labor market. Hopefully this was just a temporary drop because it was not good news for the bond market or mortgage rates. A weak labor market has been a significant cause of the slow economic recovery. If it starts to gain strength at a quicker pace than we have seen, we could see mortgage rates rise quickly in the near future. This data usually has little influence on mortgage rates because it tracks only a single week’s worth of new claims, but thi s was enough of a surprise to negatively impact rates this morning.





The revised November reading to the University of Michigan Index of Consumer Sentiment was the day’s third monthly report and the first of the two late morning releases. It revealed a 71.6 reading that was an upward revision to the initial 69.3. This means that more surveyed consumers felt better about their own financial situations than was previously thought. That is considered negative news for the bond market because consumers that are more optimistic about their finances are more likely to make a large purchase in the near future, thus fueling economic growth.

The last piece of relevant economic data was October’s New Home Sales that showed a sizable drop in sales of newly constructed homes, contradicting forecasts of a small increase. This is another sign of housing sector weakness, making this data favorable for bonds and mortgage rates. Unfort unately though, this was the least important report of the week because it tracks such a small portion of all home sales in the U.S.





We also have today’s 7-year Treasury Note sale to watch. Yesterday’s 5-year Note auction did not go well. It can easily be considered a weak sale, meaning investor demand was not good. That gives us little to be optimistic about for today’s auction. The 7-year Note is tied closer to mortgage rates than the 5-year Note, so another weak demand will likely cause some pressure in rates. However, after yesterday’s sale, a lackluster interest from investors is pretty much expected today and should prevent a reaction this afternoon. Results of the sale will be posted at 1:00 PM ET, so if there is a move as a result of the auction, it will come during afternoon hours.

Yesterday’s release of the FOMC minutes didn’t give us many surprises, but did indicate the Fed has low ered their predictions for economic growth next year and increased unemployment expectations. If accurate, it would be good news for the bond market and should help keep mortgage pricing low next year.





The financial markets will be closed tomorrow in observance of the Thanksgiving Day holiday. They will technically be open regular hours today, but I am expecting a quiet afternoon as many traders head home early for the holiday. The markets will be open Friday, but they will close early and reopen next Monday morning. I suspect that Friday will be a very quiet day in bond trading as many market participants will be home and there is no relevant economic data on tap.

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 November 24th, 2010 9:12 PM

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