Mortgage Rates and Locking vs. Floating in the Week Ahead

By: Victor Burek •

After two days of abrupt selling and a spike in consumer borrowing costs, a modest recovery was made on Friday afternoon which allowed lenders to republish rate sheets for the better. If you followed our advice to float on Friday, you will be rewarded today with better rates. 

We did have one piece of economic data to hit the news wires this morning…Personal Income and Outlays. 

This report gives us three readings on the health of consumers.  A stronger consumer benefits the stock market while a weaker consumer benefits the bond market.  The first is personal income which shows the monthly change in income that households receive from all sources.  Next is consumer spending, which shows the monthly change in the amount of money consumers are spending on durable and non-durable goods and services.   The final reading is the Personal Consumption Expenditure, a preferred read on inflation.

The U.S. Department of Commerce reported Personal Income was unchanged last month, falling short of the 0.1% increase that was expected.  The prior month’s reading was revised higher from a first reported increase of 0.1% to a better gain of 0.3%.   Year over year, income is up 2.0%.  Personal spending came in right on expectations with a month over month increase of 0.3% with the prior month’s report revised lower from a increase of 0.5% to 0.4%.   This marks the fifth straight month of increasing consumer spending indicating the economic recovery is taking hold.   Year over year, spending is up 3.4%.   Both the headline and core PCE came in unchanged on the month and once again indicating inflation to be of no concern today.   Year over year, core PCE is up only 1.3%, well within the Fed’s comfort zone for acceptable price increases.  The savings rate fell from last month’s 3.4% to only 3.1% due to the continued increase in consumer spending while incomes held steady... people spent more while making the same thus less for savings.  For more on this report, check out AQ’s morning post on the MBS Commentary blog. 

 See Rates from Lenders in Your Area

We have a busy week of data ahead with the highest impacting report coming on Friday morning when the Department of Labor releases the Employment Situation Report. Here are highlights for the week ahead:

Tuesday

  • S&P Case Shiller Home Price Index (medium impact)
  • Consumer Confidence (medium impact)

Wednesday

  • MBA Applications Index (low impact)
  • ADP Employment Report.. not as important as Friday’s Employment Situation report but gaining momentum as an early predictor of non farm payrolls. (medium to high impact)
  • Chicago PMI (low impact)
  • Factory Orders(medium impact)

Thursday

  • Weekly Jobless Claims (low to medium impact)
  • Treasury Announcement of size of next week’s auction of 3 year notes, 10 year notes and 30 year bonds.  The additional supply of debt on the market will pressure treasury and MBS prices lower which increases yields and rates. (medium impact)
  • ISM Manufacturing Index (medium to high impact)
  • Construction Spending (low impact)

Good Friday

  • Employment Situation, this is the single most important report we get on a monthly basis.  Early predictions call for a gain of anywhere from 100,000 to 200,000 jobs and the unemployment rate holding steady at 9.7%.  The positive job growth will be attributed to massive government hiring of temporary census jobs.(HIGH IMPACT)
  • The stock market will be closed while the bond market will unplug at noon.

For more on the week ahead, READ MND's The Week Ahead

Reports from fellow mortgage professionals indicate lender rate sheets to be improved from Friday.   While the par 30 year conventional rate mortgage is still in the 4.875% to 5.125% range for well qualified consumers, it should cost a few less basis points today.   There are a few lenders offering 4.75 at par, but not many.  To secure a par interest on a conventional  loan 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.  

To lock or float…

If you can lock at 4.75%, there is no question, you should be locking.    If you have been floating, last week likely made you feel ill.  You probably even kicked yourself for floating when rates were at their best levels of 2010. With Friday’s rally and continued improvement this morning, I am not quite ready to throw the towel in on a rebound rally just yet. If we do recovery lost loan pricing in the next two days, I would strongly consider locking. After Wednesday the mortgage market could get a bit more volatile as the Fed will be completing their MBS Purchase Program this week.

Let's cautiously float for the time being and see if the Treasury market can regain lost positive progress. If benchmark Treasury yields do move lower, it will give mortgage rates a bump in the right direction. Stay close though, this is a speculative decision and you should be ready to lock your loan at a moments notice. The last thing we want to happen is for you to lose the progress that has been made over the past two days. If that sounds to risky for you, you should be locking in now.