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Mortgage Rates (6/16/2010)

June 16th, 2010 9:46 AM by Lehel S.

Wednesday's bond market has opened in positive territory despite the release of generally unfavorable economic data. The stock markets are helping somewhat with the Dow down 40 points and the Nasdaq down 10 points. The bond market is currently up 9/32, but we should still see a small increase in this morning's mortgage rates due to weakness in bonds late yesterday. Yesterday's stock rally helped push bond prices lower during afternoon trading yesterday.

This morning brought us the release of three relevant economic reports. The results were mixed amongst them, but the more important ones showed stronger than expected results. The first was the least important and gave us favorable news. This was May's Housing starts that revealed a 10% decline in starts of new homes last month. That was a much larger drop than expected and the pushed starts to their lowest level in five months, indicating that the housing sector may be weakening once the tax credits exp ire. This is basically godo news for the bond market because a weak housing sector makes a broader economic recovery more difficult.

The second was May's Producer Price Index (PPI) that measures inflationary pressures at the producer level of the economy. Today's release showed a 0.3% decline in the overall index and a 0.2% increase in the more important core reading. These readings hint that inflationary pressures were a little stronger than many had thought, which is negative for bonds and mortgage rates. This is because inflation at the producer level of the economy will likely carry into the consumer level, making long-term securities such as mortgage-related bonds less attractive to investors. The result is binds prices falling and mortgage rates rising. 

The third report was May's Industrial Production. It showed a 1.2% rise in output at U.S. factories, mines and utilities when forecasts were calling for a 0.8% increase. This means that manufa cturing activity was stronger than thought and is another negative for bonds. 

There are two reports scheduled for release tomorrow, but one of them is the week's most important and arguably the single most important report we see each month. That is May's Consumer Price Index (CPI). It is very similar to today's PPI, but measures inflationary pressures at the more important consumer level of the economy. It is expected to show a 0.1% drop in the overall reading and a 0.1% increase in the core data. A larger than expected increase in the core reading would most likely lead to a noticeable upward change to mortgage rates tomorrow.

May's Leading Economic Indicators (LEI) will be posted late tomorrow morning. The Conference Board, who is a New York-based business research group, will post this data. It attempts to predict economic activity over the next three to six months. Good news for mortgage rates would a decline in this index, but the CPI is much mor e important to the markets than this index. Therefore, if the CPI reveals any surprises, this data will likely have little impact on Thursday's mortgage rates. It is expected to show a 0.5% increase.

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. 
Posted in:General
Posted by Lehel S. on June 16th, 2010 9:46 AM

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