May 20th, 2009 2:10 PM by Lehel Szucs
The bond market has improved noticeably during afternoon trading after traders were able to digest the minutes from the last FOMC meeting. Those minutes revealed that the Fed has revised their economic outlook lower from previous estimates. They indicated that the U.S. unemployment rate is likely reach somewhere between 9.2% and 9.6% this year. They had previously predicted an 8.5% to 8.8% range, meaning the labor market is worse off than previously thought.
They also said that the Gross Domestic Product (GDP), which is the total of all goods and services produced on the U.S. and the best measurement of economic activity, will likely fall 1.3% - 2.0% this year. They had said previously that a drop between 0.5% and 1.3% was likely. This means that overall economic activity will likely be lower this year than their previous forecasts had called for.
Both of these revisions are good news for bonds. A weak la bor market usually coincides with a weak economy. During a soft economic environment, bonds and mortgage related securities become more appealing to investors. This usually drives bond prices higher and mortgage rates lower.
The impact this news had on today's markets was favorable to mortgage borrowers. The stock markets fell with the Dow closing down almost 53 points and the Nasdaq down almost 7 points, while the bond market rallied to close up 16/32. The result should be an improvement in this afternoon's mortgage rates of approximately .125 - .250 of a discount point. Some lenders may opt to wait until tomorrow morning to reflect those improvements, but many will likely revise lower today.
The Labor Department will post weekly unemployment figures early tomorrow morning. They are expected to say that 640,000 new claims for benefits were filed. This data is not considered to be important, so unless it varies greatly from analysts' forecasts, i t likely will not influence mortgage rates.
The last data of the week comes late tomorrow morning with the release of April's Leading Economic Indicators (LEI) at 10:00 AM ET. This Conference Board report attempts to measure economic activity over the next three to six months. It is expected to show a fairly large increase of 0.6% from March's reading, meaning that economic activity is likely to gain momentum during the next few months. A decline would be good news for the bond market and mortgage rates, while a larger increase could cause mortgage rates to inch higher tomorrow.
If I were considering financing/refinancing a home, I would.... Float 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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