Our Real Estate Blog

Mortgage Rates (12/2/2010)

December 4th, 2010 9:31 AM by Lehel S.

Thursday’s bond market has opened in negative territory as yesterday’s selling extends into this morning’s session. The stock markets are posting solid gains again with the Dow up 99 points and the Nasdaq up 22 points. The bond market is currently down 6/32, but we will see a sizable increase in this morning’s mortgage rates due mostly to yesterday’s sell-off. This morning’s rates should reflect an increase of approximately 1.00 discount point if comparing to yesterday’s morning pricing.

Today’s only semi-relevant data came from the Labor Department who reported that 436,000 new claims for unemployment benefits were filed last week. This was a larger total than the 422,000 that was expected, hinting that the labor market was not as strong last week as many had thought. That should be good news for the bond market, but this report does not carry the significance to heavily influence trading or mortgage rates because it gives us only a single week’s worth of new claims.

Yesterday’s afternoon release of the Fed Beige Book showed economic growth in more regions than the previous report did. Actually, 10 of the 12 Fed regions reported overall economic growth, giving the bulls of the market a bit more fuel for yesterday’s stock rally and bond sell-off. 

On that note, let’s take a moment to address yesterday’s disaster. I am sure many are scratching their heads and asking "what the heck happened?" Unfortunately, there is no clear-cut answer. Despite what some of the perpetual bull pundits want us to believe, the economy is not improving significantly or turned corner as some have said. Yesterday’s bond sell-off cannot be reasonably justified, at least not with a straight face. We had some encouraging news from China, a little bit of "not disappointing" economic data here and a tad of good news from the extremely volatile auto industry and now we are expected to believe that all is well in Economicville. 





My question is this: when did "not bad" news turn into great news? Yes, there are some signs that the economy is showing potential, but not in key economic data. It appears that some are in so much need of good news that they are latching onto a mere crumb or two and looking at the big picture through extremely thick rose-colored glasses. I just don’t see it and it appears that Mr. Bernanke and friends are on the same side of the debate as I am. It was just weeks ago that they were so concerned about economic growth that they announced another Quantitative Easing program of purchasing government debt and revised economic growth figures lower for next year while raising unemployment projections. And let’s not forget about the new and renewed concerns about the global economy and financial issues of foreign countries. Also, with Congress opting not to extend unemployment benefits again, an estimated 2 million people will lose their sole source of income sometime this month. Maximum amount of benefits vary per state, but if using a guess of an average of $250 per week, there is some significant consumer spending removed from the economy. Unemployed workers do not save, so consider every one of those dollars as lost revenue for U.S. companies if benefits are not extended.

I guess we are supposed to believe that market traders have a better understanding of the economic situation than the Fed does. I am not buying into it. I believe that yesterday’s stock rally, bond selling and spike in mortgage rates was not based on realistically supportive data. Normally, those results would have had minor implications on trading and mortgage rates. It looks to me that it was based on maybe 10% data, 50% wishful thinking and 40% speculation about tomorrow’s monthly Employment report. Words like "marke t manipulation" and "dream land" come to mind at the moment. That said, with today bringing little to contradict the PR campaign of yesterday, we are seeing further losses this morning. 

The Labor Department will post November’s Employment report early tomorrow morning. This is arguably the most important monthly report we see. It is comprised of many statistics and readings, but the biggest ones are the unemployment rate, the number of news jobs added or lost during the month and average hourly earnings. Current forecasts call for no change in the unemployment rate of 9.6% while 130,000 new jobs were added to the economy. The income reading is forecasted to show an increase of 0.1%. An ideal scenario for mortgage shoppers would be a higher unemployment rate than 9.6%, a smaller increase in payrolls and no change in the earnings reading. If we are fortunate enough to hit the trifecta with all three, we should see the stock markets fall hard, bonds recover a good part of this week’s losses and mortgage rates move much lower tomorrow. There are many traders that are betting on a strong Employment report tomorrow. Because of this, I believe that we will need to see much better than forecasted numbers for this stock rally and bond selling to continue. Just meeting forecasts would be disappointing to many.





Also scheduled for release tomorrow is October’s Factory Orders. This report is similar to last week’s Durable Goods Orders release by giving us a measurement of manufacturing sector strength, except this one includes orders for both durable and non-durable goods. This data usually isn’t a major influence on bond trading, but there is little chance of it impacting mortgage rates tomorrow because the Employment report is an extremely important report. Analysts are expecting to see a decline in new orders of approximately 1.3%.

If I were considering financing/ref inancing 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 4th, 2010 9:31 AM

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