April 23rd, 2010 9:54 AM by Lehel S.
Friday's bond market has opened well in negative territory as yesterday's late selling continues into this morning. The stock markets are relatively flat with the Dow up 2 points and the Nasdaq down 3 points. The bond market is currently down 10/32, which with yesterday's afternoon weakness should push this morning's mortgage rates higher by approximately .375 of a discount point.
This morning's economic data certain has done little to make bonds appealing to investors. The Commerce Department reported that March's Durable Goods Orders fell 1.3% last month. This was significantly weaker than the slight increase that had been forecasted. However, if volatile transportation related orders were excluded, new orders rose a whopping 2.8%. This is nearly quadruple the increase that analysts were expecting in that reading, meaning that there is some strength in more stable channels of the manufacturing sector.
Today's second report was March's New Home Sales, but was the week's least important release. It showed a surprising 27% jump in sales of newly constructed homes that was the largest monthly increase in approximately 47 years. These results indicate that the housing sector is showing some signs of strength, which is considered negative for bonds. However, just how many of those sales are a direct result of temporary stimulus such as tax credits remains to be seen. The bigger question is if the housing sector can stand on its own without those incentives. This report usually has little impact on the bond market or mortgage rates because it covers only 15% of all home sales in the country, but this morning's results have contributed to the bond selling and part of the increase in today's mortgage pricing because of the large variance from forecasts.
Also worth noting are opinions forming about when the Fed may start selling its mortgage holdings that were purchased to help calm the financial crisis and make funds available in the market for new mortgage loans to be made. There has been plenty of recent discussion about the Fed ending its buying program of mortgage-related securities. As I mentioned previously, in my opinion the issue is more of when the Fed decides to sell holdings than it is about the fact they will stop buying them. The conclusion of the buying program was no secret and should have been expected in the markets. The unknown was when they would begin to sell the holdings. For them to be able to sell, there has to be buyers willing to buy.
In short, the supply the Fed would bring to the market would likely lead to higher mortgage rates because there is not an unlimited pool of buyers. The more supply available, the less appealing they become, which leads to bond prices falling and mortgage rates rising. Unfortunately, I foresee rates moving higher quickly if the Fed begins to sell its holdings sometime this year. The longer the Fed holds on to their portfolio, the better chance of mortgage rates remaining near current levels.
Next week brings us the release of a few important economic reports for the markets to digest in addition to an FOMC meeting and a couple of Treasury auctions. There is nothing of relevance scheduled for Monday, so I am guessing that the bond market will remain in cautious mode until we get to the important stuff. Look for more details on next week's events in Sunday's weekly preview.
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.