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Mortgage Rates (12/22/2010)

December 22nd, 2010 1:59 PM by Lehel S.

Wednesday’s bond market has opened in negative territory following the release of mixed economic data and a calm open in stocks. The stock markets are posting minor gains of 10 points in the Dow and 3 points in the Nasdaq. The bond market is currently down 10/32, but we still will likely see a slight improvement in this morning’s mortgage rates due to strength late yesterday. Unfortunately, if the bond market falls any further we may see a small upward revision to mortgage pricing later today.

The final revision to the 3rd Quarter Gross Domestic Product (GDP) was released early this morning. It showed that the economy grew at a 2.6% annual rate last quarter, up 0.1% from previous estimates. This was just shy of forecasts of a 2.7% rate, meaning that economic activity increased slightly more than previously thought but less than analysts had predicted. That can technically be good news for the bond market, but due to the age of this data at th is time and only a slight variance from expectations, it has had little impact on this morning’s trading and mortgage pricing.

November’s Existing Home Sales report was posted late this morning. The National Association of Realtors announced a 5.6% increase in sales of existing homes, exceeding forecasts by a slight margin. This indicates housing sector strength, which is considered negative for bonds because a broader economic recovery is less likely when the housing sector is weak. 

Tomorrow has four monthly reports scheduled over a shortened trading day. The first is November’s Personal Income and Outlays data. It will give us an important measurement of consumer ability to spend and current spending habits. Since consumer spending makes up two-thirds of the U.S. economy, any related data usually has a noticeable impact on the financial markets and mortgage rates. Current forecasts are calling for a 0.2% increase in income and a 0 .5% increase in spending. If this report reveals weaker than expected readings, we should see the bond market improve and mortgage rates drop slightly tomorrow morning. 

November’s Durable Goods Orders will be the second report posted early tomorrow morning. This data gives us an important measurement of manufacturing sector strength by tracking orders for big-ticket items or products that are expected to last at least three years. Analysts are expecting the report to show a 1.1% decline in new orders. A larger decline in orders would indicate that the manufacturing sector was weaker than many had thought. This would be good news for the bond market and should drive mortgage rates lower. However, an increase in orders could lead to mortgage rates moving higher early tomorrow. This data is known to be quite volatile from month-to-month, so it is not unusual to see large headline numbers on this report.





The third report of the da y comes late morning when the revised University of Michigan Index of Consumer Sentiment for December is posted. Current forecasts are calling for an upward revision from the preliminary reading of 74.2. This is fairly important because rising consumer confidence indicates that consumers may be more apt to make large purchases in the near future. A reading above the 74.8 that is forecasted would be negative for bonds and mortgage rates. 

The last report of the day is November’s New Home Sales. It is this week’s least important report and is unlikely to influence mortgage rates unless it reveals a significant surprise. It covers the 15% of home sales that today’s report tracked, so it usually take a large difference between forecasts and actual readings for this report to heavily influence mortgage rates. It is expected to show an increase in sales of newly constructed homes.





Also worth noting is the fact that the stock and bond markets will close early tomorrow ahead of the holiday weekend and will remain closed until Monday morning. Early closing days sometimes lead to a little more volatility as investors look to protect themselves over the long weekend. This isn’t necessarily bad news, but we should take a cautious approach if closing a loan next week and still floating an interest rate.

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 22nd, 2010 1:59 PM

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