Mortgage Rates Hold Near 2010 Highs After Jobs Data

By: Victor Burek •

Mortgage rates rose anywhere from 0.125 to 0.375% last week as the end of the Federal Reserve's MBS purchase program followed by a positive jobs report were too much for the bond market to handle at once. It could have been worse though. While the Federal Reserve's withdrawal from the secondary mortgage market has played a role in rising consumer borrowing costs, it has yet to have a big effect on mortgage rates. For the most part, higher benchmark Treasury yields have been the biggest force behind increases in mortgage rates. The damage has been done, the best thing we can do now is to forget about the week that was and look forward.

The week ahead is fairly light on economic data with the highest impacting events coming starting on Tuesday with the release of the minutes of the most recent FOMC meeting.   These meeting notes will be scoured by market participants for any insight into future monetary policy and their outlook on the economy. The bond market will be searching for signs of a slow economic recovery while stock traders will be checking for optimism in the macroeconomic outlook.

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Today we received two economic reports.  First out was the ISM's Non-Manufacturing Index.   The Institute for Supply Management(ISM) surveys 400 firms including mining, construction, retail, etc… on the strength of business conditions.  Readings above 50 indicate improving conditions while readings below 50 imply contraction or worsening conditions.   Last month’s report came in much higher than expected, registering a print of 53.0. The data released today indicated the non-manufacturing sector continues to recover with a better than expected read of 55.4. This is the fourth consecutive monthly increase for non-manufacturing business conditions.

Released at the same time was the Pending Home Sales report from The National Association of Realtors. This data shows the monthly change in the amount of existing homes, not new construction, in which a contract has been signed, but has not closed.  This is a leading indicator of housing activity and economic momentum as consumers would have to feel pretty confident about their own finances to purchase a home.   Additionally, when a home is purchased, there are many other items needed to furnish the home, this adds to consumer spending which benefits the overall economy.   The data in this report has a two month lag time, so today’s data is for the month of February.  Economists surveyed prior to the release expected Pending Home Sales to post a -1% month over month decline following January’s huge -7.6% decline.

The NAR reported Pending Home Sales for February rose 8.2% from the prior month beating economists’ expectations.  It appears home buyers braved the wintery weather of February to shop and place a contract on a home.  This isn’t too surprising as the Home Buyer Tax Credit is set to expire at the end of this month.

After the better than expected economic data was released, stocks rallied, benchmark Treasury yields moved higher, and mortgage-backed security prices fell.

Here are the highlights for the rest of the week:

Tuesday

  • Department of Treasury will auction $40 billion 3 year notes (medium impact)
  • FOMC Minutes will be released at 2pm (potential high impact)

Wednesday

  • Mortgage Bankers Association’s Weekly Applications Index(low impact)
  • $21 billion 10 year Treasury notes will be auctioned.  Since the average life of a mortgage loan is much closer to 10 years than 3 years, this auction will be of higher importance to mortgage rates.(medium to high impact)

Thursday

  • Weekly Jobless Claims(medium impact)
  • $13 billion 30 year bonds will be auctioned.(medium impact)

Friday

  • Wholesale Trade(low impact)

For more on the week ahead, READ THIS POST.

Reports from fellow mortgage professionals indicate lender rate sheets to be similar to Friday’s.  The par 30 year conventional rate mortgage remains in the 5.00% to 5.375% 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 a 15 year term, you should expect a par rate in the 4.375% to 4.625% range with similar costs but lower FICO score requirements.

I continue to favor floating for now.  Benchmark Treasurie have lost a lot of ground lately and seem ripe to rally as market participants go back to work today (many traders still out today). This would lead MBS prices from the lows of 2010  and allow lenders to offer better mortgage rates.