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Mortgage Rates (12/14/2010)

December 14th, 2010 4:05 PM by Lehel S.

Tuesday’s bond market has opened in negative territory following much stronger than expected economic data. The stock markets have reacted favorably to the data, but not by as much as I would have expected after seeing the data. The Dow is currently up 55 points while the Nasdaq has gained 9 points. The bond market is currently down 12/32, which will likely push this morning’s mortgage rates slightly higher than yesterday’s morning pricing. Preventing more of an increase was strength in trading late yesterday.

The first of this morning’s two highly important reports was November's Retail Sales. It revealed a 0.8% increase in retail-level sales last month, exceeding forecasts by a pretty good margin. Analysts were expecting to see a 0.5% rise, meaning consumers spent more in November than many had thought. Even a secondary reading within the report that tracks sales excluding more volatile auto transactions showed strength. That reading rose 1.2% when it was expected to increase 0.6%. The problem with this data is that consumer spending makes up two-thirds of the U.S. economy. Therefore, strength in consumer spending helps fuel economic growth and makes long-term securities such as mortgage-related bonds, less attractive to investors.

November’s Producer Price Index (PPI) was the morning’s second report, giving us a key measurement of inflation. The Labor Department said this morning that the overall index rose 0.8% last month while the core data reading rose 0.3%. Analysts were expecting increases of 0.5% and 0.2% respectively, meaning that inflationary pressures were stronger at the producer level of the economy than what was forecasted. This is also negative news for bonds and mortgage rates because rising inflation erodes the value of the fixed interest payments on long-term securities, making them less appealing to investors.

I think the bond market has do ne fairly well this morning considering the importance of the day’s economic reports and their unfavorable results. Market participants may be waiting for the Fed’s words this afternoon before making any further moves.

This afternoon brings us the last FOMC meeting of the year. It is a single day meeting and will adjourn at 2:15 PM ET. There is not much debate about what the Fed will do at this meeting with no chance of them raising key short-term interest rates. Therefore, the post meeting statement will likely be the sole source of a market reaction. This statement has the potential to have a significant influence on the markets and mortgage rates as investors look for any indication of what and when the Fed may do next. We are hoping that Mr. Bernanke and friends will take the opportunity to remind the markets that the economy still has significant hurdles to overcome and that inflation is still not a concern. A properly worded post-meeting st atement could cause stock selling and an improvement in bond prices, leading to improvements to mortgage rates this afternoon.

Look for an update to this report shortly after the markets have an opportunity to react to the FOMC meeting.

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. 
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Posted by Lehel S. on December 14th, 2010 4:05 PM

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