Mortgage Rates Nearing Best Levels of 2010 Again. Locking in Some Loans

Mortgage rates started this week much of the same way they ended the previous one: recovering

No specific economic release or headline news event can be given credit for the recent rates recovery rally. Some say the bond market is preparing for a weaker than expected corporate earnings season followed by a stock market sell off,  others believe supportive interest rate policy rhetoric and anti-inflation comments from Federal Reserve officials have been the source of strength. Of course there is the explanation that interest rates sold off too far, too fast...and are now only correcting. I am sure a case can be made for every argument, either way we’ll take the rally.

We have two economic releases to discuss today. 

First up is International Balance of Trade data. Trade balance data reports the difference between the monetary value of a country's exports and imports. A positive balance, or trade surplus, means exports exceed imports and illustrates that a country's economy is globally competitive. A negative balance of trade is known as a trade deficit or trade gap. The US currently runs a trade deficit.

A globally competitive economy creates more jobs for Americans because US companies must work to satisfy several sources of demand, from domestic and foreign consumers. Greater production translates into faster growth of local economies and a stronger consumer balance sheet, ultimately leading to increased corporate profits and higher stock prices. However, an over dependence on foreign demand for US goods and services implies the domestic economy is vulnerable to foreign economic disruptions.

Today's release covered the February Trade Balance. The report indicated the trade deficit widened from $38.5 billion to $39.7 billion. This was worse than consensus economist forecasts. Better demand from US consumers helped imports rise 1.7% to $182.9 billion. Exports only rose by 0.2% to $143.2 billion. While we would like to see an increase in foreign demand for US made goods, which would help improve the US labor market,  it is still encouraging that domestic consumers are spending money in the global economy. 

Embedded in this report is a read on inflation: Import/Export prices.  Trade balance data is generally dependent on two factors: US economic growth rates relative to other countries, and the value of the dollar (changes in the value of currency can alter the relative price of goods).

A strong dollar is a negative for the trade balance because it lowers the price of imports for American consumers. This domestic demand buys foreign goods because of relatively cheaper costs. At the same time, a strong dollar is bad for US companies as it raises the price of US goods for foreign buyers. This encourages foreign demand to search for a lower price in another country.

A weak US dollar makes imports more expensive, forcing Americans to buy goods and services from domestic suppliers. The weaker dollar also gives foreign demand the opportunity to purchase American made goods at a lower price, thus increasing demand for US goods and services.

Today’s report showed prices of items we export and import both rose 0.7% last month, less than the 1.00% increase economists had expected.  The main cause of the higher import prices was a 4.00% increase in the price of imported oil, which accounted for about 80% of the month over month increase. So even though the value of the US dollar improved in February, the cost of oil did not, which pushed prices higher. This report is however not as important as the Consumer Price Index,  which is released tomorrow morning at 8:30am. 

Lender rate sheets improved initially but lost a portion of positive progress late in the morning. The end result is mortgage rates are about the same as yesterday.   The par 30 year conventional rate mortgage is still in the 4.875% to 5.125% 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.   You may elect to pay less in closing costs, but you will have to accept a higher interest rate.  If you are seeking a 15 year term, you should expect par in the 4.25% to 4.50% range with similar costs but lower FICO score requirements.

If you have been floating you should have seen your interest rate drop by 0.25% to 0.375% over the past week. We always say "Float at the Price Lows and Lock at the Price Highs". Mortgage rates are once again nearing their best levels of 2010. With that in mind I think anyone who is within 30 days of closing should be getting close to locking in their mortgage rate. There is room to float further but you are now risking losing more than you can gain.