Mortgage Rates at Crossroads. Calling for Feedback from the Community

Mortgage rates ticked higher following a weak 10yr note auction yesterday, and then again this morning ahead of the 30 year bond auction. 

The Department of Labor released the weekly jobless claims numbers this morning.  This data totals the number of Americans that filed for first time unemployment benefits in the prior week.   Recent reports have shown a steady decline in the number of filers after peaking over 650,000 earlier this year.  Higher jobless claims indicate consumers will have less money to spend into the economy.   Less money being spent is not good for corporate profits and stocks; thus the fixed income sector usually benefits from a higher than expected reading. 

Today’s report showed that 474,000 Americans filed for first time jobless insurance benefits, worse than the 460,000 economists had forecast.  This is an increase of 17,000 from the prior week and ends a streak of five consecutive weeks of improvement.   Continuing claims, which totals the number of Americans who continue to file jobless claims, came in at 5.16 million, a decline of over 300,000 from the prior week and better than anticipated.   Offsetting the steep decline in continuing claims was the number of Americans receiving extended benefits, which rose by over 130,000 to 4.59 million.   This brings the total number of Americans filing for unemployed benefits to over 10 million. 

Released at the same time was a report from the Commerce Department on our nation’s trade gap.   The trade deficit unexpectedly narrowed by 7.6% to -$32.9billion in October, beating economist forecasts of -$36.8billion.    This means we import, in dollar terms,  $32.9 billion more goods than we export to other nations.  Leading the way was an increase in exports,  which are benefiting from a weaker dollar and stronger demand abroad.  A weak dollar makes our exported goods cheaper to buy.   This is positive news for economic growth here and implies growing demand abroad.

With the economic reports basically being a wash, all eyes were left to focus on the final Treasury auction for the week.  The Department of Treasury auctioned $13billion 30 year bonds this afternoon. 

The 3 year Treasury note auction on Tuesday was average at best, yesterday's 10 year note auction saw weak demand, which pushed mortgage rates higher as benchmark Treasury yields rose and MBS prices fell. Unfortunately, today's 30 year bond auction saw similar demand to yesterday's 10yr issuance, however, MBS prices did not reacted the same way they did yesterday, instead they moved marginally higher. While a mortgage sell off seems to have been averted for the moment, MBS price appreciations have not been large enough to warrant a reprice for the better, thus the increases seen in mortgage rates this morning...are holding steady.

Reports from fellow mortgage professionals indicate the par 30 year conventional rate mortgage has intothe 4.75% to 5.00% range for well qualified consumers.  To secure a par interest rate you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs including an estimated one point loan origination/discount/broker fee.  If you are seeking to access equity from your home, you should expect either a higher interest rate or additional fees.

While the $13 billion 30 year bond auction did not go well, the streak of rising mortgage rates appears to have stalled for the time being...to lock or float, that is the question.

In previous months, Treasury yields and mortgage rates have risen prior to bond auctions, however following the completion of each auction cycle, mortgage rates moved lower as MBS prices rebounded. This has been largely a function of a reliable rates range, which has held true since summer. While we are already seeing signs of this dynamic occurring again, other technical factors associated with year end strategies on Wall Street may stall a correction back to the middle of the range, which would allow lenders to offer lower mortgage rates.

With that in mind, here are my thoughts: If you are a conservative consumer, I would advise you to lock in today purely because I have not been this uncertain of the direction rates were heading since late spring.  If you are a risk taker and can afford to be wrong, floating may pay off if the range's reliability remains intact.   

I think the best strategy is to ask all the mortgage professionals who contribute to Mortgage News Daily what they think. Originators, what say you? Are you locking or floating? Do you think rates are going higher or lower?