6/2/08 ..... Off To A Good Start
(the following was accidentally posted in the wrong section yesterday. This was posted 6/2 and a new post should follow shortly for today)
In A Word:
Despite some stronger than expected scheduled
economic reports (which are normally bad for mortgage) , MBS (mortgage
backed securities), the bonds that directly dictate mortgage pricing
are doing well today, which had led to improved mortgage rates over
Friday. There is no other economic data scheduled for release today,
but an action packed week is coming up with the incredibly important
employment report on Friday.
To Lock or Float?
Indicators
are mixed. Normally, we would want to lock as rates worsened
appreciably last week.. Indeed, if you have a
price-sensitive transaction, locking still makes sense, but we are
seeing some signs to float as well. The Dow is down, and treasuries
are performing well in addition to the MBS). As long as the Dow stays
in that negative
territory and we dodge any further negative headlines, floating can
still make sense if you believe the rest of the week's data will be
weak. Although, historically we are still in great territory, and
anything that causes stocks to rise can cause mortgage rates to rise as
well. By the time you see stocks rising, it may be too late. So
proceed with caution.
The Numbers:
30 year fixed rates should be available today, for the best qualified scenarios in the high 5 to low 6 range.
The News:
- Manufacturing data
- This came in slightly better than expected, but was still showing "contraction" overall. The data did not help stocks which are down on the day, nor did it phase mortgage rates in their march lower
2. Construction Spending
- This report also, came in better than expectations but still negative overall. The residential housing component of this report is acting as the biggest drag.
3. Shake Up at Wachovia
- Wachovia's CEO was fired. Their stock has plummeted to its lowest level in over 10 years. In general, because of Wachovia's size, bad news for them creates fear for others. full story
On Tap For The Rest Of The Week:
TUESDAY
- Factory Orders, another measure of how manufacturers may be gearing up for future productivity
WEDNESDAY
- ADP EMPLOYMENT REPORT, this measures job growth or loss in the
private sector and is not given nearly as much credence as Friday's
report
- PRODUCTIVITY AND COSTS Report. This report
speaks to inflation conditions. The higher the labor costs are, the
higher the indication of inflation, which is bad for mortgage rates.
- Non-Manufacturing Index, which measures business expansion or
contraction in non-manufacturing industries. Worse than expected can
be good for mortgage rates.
- Oil Inventories. This does
not directly affect mortgage rates, but if oil is significantly more or
less plentiful than expected, it will effect crude oil prices which
seem to have a much greater than normal effect on markets these days.
If this report causes stocks to rally, it could hurt mortgage rates.
THURSDAY
- JOBLESS CLAIMS, which is a weekly report of how many new applicants
have come forward for unemployment benefits. The more jobs lost, the
better for mortgage rates.
FRIDAY
- EMPLOYMENT SITUATION. This is a hugely important monthly report that tracks "non-farm" payrolls which is the most closely watched indicator of the labor market. The lower the number, the better for rates.
Conclusion
We
are right in the "middle ground" between the recent historical highs
and lows of mortgage rate trading ranges. This is dangerous because we
were near the highs (highs in price that is, which means low rates)
last week which can cause the risk that we will have to regress to the
lows to be higher. Still, we are basically looking for weak economic
data. If there is little enough economic activity and weak enough
employment numbers, it can lead to improving mortgage rates this week.
But it could go either way. The safe bet is always to lock if you can
live with today's rate. If you are convinced the data will be weak,
floating is a gamble that may pay off.