Thursday 12/18…Jobless Claims are In

This morning we will get the final economic reports of the week.   Already out are the jobless numbers, economists where expecting 560k claims, but the actual number came in at 554k which is 19k less then last week. Continuing claims remains at levels not seen since Dec. 1982 at 4.38million.   In about an hour, we will get Leading Indicators and Philadelphia Fed Index.   Unless these reports come in much better then expected they will probably have little to no effect. 

Yesterday, mortgage backed securities rallied but then gave back all gains to close about where they opened.  So far this morning we are basically flat on the day.  At the current price level of the 4.5% FNMA coupon, we should be seeing lower rates then what rate sheets reflect.  Lenders do not want to pass along the improvements for several reasons.  First of all, lenders have been beaten up this year with huge losses, so they want to make some of that up.  Next, lenders are being swamped with business and with cut backs in staff, they can’t handle it all.  So they do not give as good as pricing as they should in a way to slow down the volume of submissions.  Lastly, we are not in normal times.  So what should be is not what is happening.  We do feel that lenders will start to pass along better rates, but we might have to wait until January.  Currently, 30 year mortgages can be locked under 5%, so how can any of us complain? 

To lock or float?  You always take risk when floating as nobody can predict the future with 100% certainty.  If you like the rate you are quoted and the savings are enough to offset the costs go ahead and lock.  We do feel that rates will be lower in the months to come.  If your loan is scheduled to close in January or after, then floating is probably the way to go.  This opinion is based on a couple things.  First of all, the government wants rates to be low.  Low rates will spark the housing market, which will spark the overall economy.  The government does not and cannot set mortgage rates but they do have tools to use to encourage low rates, one of which is the fed fund rate that they just lowered.  The biggest of those tools is what I mentioned yesterday about buying up to $600 billion dollars of mbs.  This is going to act like a backstop to prevent rates from going higher.  If mbs start to sell off, which lead to higher rates, the government will step in to buy which will keep mortgage rates low.  This is the biggest reason for the float bias.  One other reason is inflation.  Mortgage rates will always follow inflation and right now, inflation is not a worry.   As I am typing this update, oil is trading under $39 a barrel, and I am sure we are all happy to see that.  Please keep in mind that you need to weigh your risk tolerance if you elect to float.  It is always better to lock a rate when you should have floated, then it is to float a rate when you should have locked. 

I’ll get back to you if things change after the final economic reports are released.  Stay tuned and I hope this blog is helping many of you to secure the best rates we have ever seen for mortgages.