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Mortgage Rates (2/16/2011)

February 16th, 2011 7:37 AM by Lehel S.

Wednesday’s bond market has opened relatively flat despite economic news that was highly unfavorable for bonds and mortgage pricing. The stock markets are showing gains with the Dow up 49 points and the Nasdaq up 13 points. The bond market is currently down 3/32, but I don’t believe we will see to much of a change in this morning’s mortgage rates.

January's Housing Starts was the first of this morning’s three pieces of economic data. It revealed a sizable jump in starts of new home construction, indicating future housing sector strength is possible. The 14.6% increase in housing starts greatly exceeded forecasts, but fortunately this data doesn’t usually have a significant influence on the markets and mortgage rates or we would have seen a noticeable increase in this morning’s pricing.

The second and most important of the three was January’s Producer Price Index that measures inflationary pressures at the producer, or wholesale level of the economy. The Labor Department reported that the overall PPI reading rose 0.8% last month and that the more important core data rose 0.5%. The overall reading was slightly higher than analysts’ expectations, but the core data that excludes more volatile food and energy prices was much higher than the 0.2% that was forecasted. This was the 7th consecutive month of increases in the overall reading and the largest monthly increase in the core data since October 2008. However, market traders seem to be okay with the news, probably due to particularly large spikes in pharmaceutical and plastic costs that skewed the readings.

In a bit of good news for the bond market, January's Industrial Production report showed a 0.1% decline in output at U.S. factories, mines and utilities. This was good news for the bond market because it points towards a weakening manufacturing sector that eases economic growth concerns. It helped off set the housing and inflation news that was negative for bonds and rate.

Later today, the minutes from last FOMC meeting will be posted. Market participants will dissect them, looking for any indication of the Fed's next move regarding monetary policy. They will be released at 2:00 PM ET, therefore, any reaction will come during afternoon trading. This release may lead to afternoon volatility, or it may be a non-factor. But they do need to be watched as they have the potential to influence mortgage rates.

The sister report to today’s PPI will be posted early tomorrow morning. This would be January's Consumer Price Index (CPI). The difference between the two is that the CPI measures inflationary pressures at the more important consumer level of the economy. With exception to maybe the Employment report, the CPI is the single most important report that we see each month. Its results can have a huge impact on the financial marke ts, especially on long-term securities such as mortgage-related bonds. It is expected to show a 0.3% increase in the overall index and a 0.1% rise in the more important core data. If we see weaker than expected readings, bond prices should rise and mortgage rates would likely fall. I am sure traders are on a little edgy after this morning’s surprising wholesale inflation numbers.

Also tomorrow morning will be the release of the Leading Economic Indicators (LEI) for January at 10:00 AM ET. This Conference Board report attempts to predict economic activity over the next three to six months. It is expected to show a 0.3% increase, meaning that economic activity may rise in the near future. A smaller than expected rise would be good news for the bond market and mortgage rates, but the CPI draws much more attention than the LEI. Therefore, for this report to influence mortgage pricing, it will have to show a sizable variance from forecasts and the CPI will have t o match estimates.

Fed Chairman Bernanke will speak before the Senate Banking committee late tomorrow morning, but I am not expecting his testimony to affect mortgage rates. I would be completely surprised if he said something new that will cause enough volatility in the markets to move rates.

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 February 16th, 2011 7:37 AM



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