Thursday 3/19…Continuing Claims Makes a New Record

Yesterday, mortgage backed securities had quite a day improving by over 100 basis points.  Most lenders repriced for the better but held back some of the improvements.  We should see par 30 year fixed rate mortgages anywhere from 4.5% to 4.75% this morning, assuming lenders pass along the gains.  So far this morning, mbs are unchanged from where they closed yesterday.  The reason for the rally was the FOMC statement that was released at 2:15 est.  In the statement, the Fed announced that they will continue to buy mbs beyond the originally $500b to the tune of an additional $750b, so a total of $1.25 trillion dollars!!   This was pretty much expected to happen but it was a little surprising that they announced this yesterday since they still have about $300b of the first allocation still available.  The more surprising announcement was the word that the Fed will now start to buy US treasuries to the tune of $300b.  On this news, treasuries rallied big time going from yield of 2.92 down to the current yield of 2.46.  Remember, price and yield have an inverse relationship.  When price goes up due to big demand, the yield goes down.  This is also true for mbs, when the price goes up, the yield or mortgage rates go down.  As for our biggest enemy inflation, the Fed basically said at the current time inflation is of no worry.

Today, we are getting some economic data.  First, we got the release of the unemployment claims.  Economists were expecting 652,000 first time claims last week; however, the number came in slightly better at 646,000.  The continuing claims, which are people who continue to file for claims because they cannot find a job, hit a new record high of 5.473 million Americans still looking for a job.  Even though less people filed for unemployment last week, the continuing claims still show our labor market to be quite troubled.  Next, we get the release of the Leading Indicators.  This report is a composite index of ten economic indicators that should lead to overall economic activity.   A stronger economy generally leads to higher inflation so the mbs market prefers a more moderate growth.   Economists are expecting this report to come in at a -0.6% reading after last months surprising 0.4% reading.  This report is not a major market mover.  Lastly, we are getting the Philadelphia Fed Survey which gives investors insight into the strength of manufacturing and other economic conditions around the Philadelphia region. Economists are expecting a -38.0 after last months -41.3 which was the lowest reading since October 1990.  Generally speaking, a lower reading is positive for mbs, but I suspect that this report as well as the leading indicators will have no affect on the market today.

I would like to address consumer expectations for mortgage rates.  Today, we should see about the best rates in history.  To repeat, today we should see about the best rates in history!  If you are going to sit on the sidelines wanting 4% rates, feel free to sit.  Yes, it is possible for rates to go lower but my opinion is do not wait.  If you can lock today at or under 4.75%, lock and move on with your life.  The last time rates hit this level a couple months ago, they where there for only a day.  Lenders got swamped with locks and new loans but they couldn’t handle the volume.  So, to slow down the volume lenders simply increased their rates in a way to say, we have too much business right now but we will take more but we expect to make a larger profit.  I am hearing from other mortgage professionals that they are getting calls from clients wanting 4% because they heard that number on the news or around the water cooler at work.  There is a saying, pigs get fat, and hogs get slaughtered.  I use black jack analogies quite often as that is about the only gambling game I know.  The rates we see today would be quite similar to hitting black jack 3 hands in a row and you let it ride the whole time.  You have to know when to pull your chips off the table and cash in and today could very likely be that day.  I do guarantee you that many people will lock today at these rates which could lead us to the same results as last time when lenders increased rates to control volume.  I read many comments from my blog from consumers saying that they wish they would have locked a couple months ago, but they floated hoping for a lower rate.  Do not make this same mistake again.  Now, I am not trying to scare anyone.  Rates might increase in the days to come for the reason outlined above, but they are not going over 5% any time soon in my opinion. 

I will get back to you later today and update you as to lenders pricing and possible repricing.  Early reports from fellow mortgage professional shows at least 1 lender offer 4.5% par today and I suspect we should see that from many lenders.  Some lenders with incentives for credit scores over 800 and loan to values under 60% will probably be at 4.375% today.