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James Brooks

Mortgage Rates Improve 11-7-2013

Thursday, November 7, 2013 - Article by: James Brooks - Polaris Home Funding Corp - Message

By James Brooks

The stock markets are in negative ground with the Dow down 10 points and the Nasdaq down 37 points. The bond market is currently up 5/32, which should improve this morning's mortgage rates by approximately .125 of a discount point.

This morning had two pieces of economic data for the markets to digest. The more important of the two was the preliminary reading of the 3rd Quarter Gross Domestic Product (GDP). It showed that the economy grew at an annual rate of 2.8% last quarter, exceeding forecasts of 1.9% by a pretty wide margin. More importantly, this was an increase from the 2nd quarter's 2.5%, indicating the economy was a little stronger this summer than it was in the spring. However, parts of the report pointed towards much weaker consumer spending that is a cause of concern. The headline reading makes the data negative for the bond market and mortgage rates, however, the details of the report have prevented a bigger reaction to the news.

The Labor Department announced last week's unemployment figures early this morning also. They reported that 336,000 new claims for unemployment benefits were made last week, nearly matching forecasts. This was a decline from the previous week's revised total of 345,000 initial claims, indicating the employment sector strengthened slightly over the week. Therefore, we should consider the data slightly negative for mortgage rates although, as expected, the market has had little reaction to the data.

There are three pieces of relevant economic data scheduled for release tomorrow, one of which is arguably the single most important report we get each month. That will come from the Labor Department at 8:30 AM ET when they post October's Employment data. This report has many statistics and readings on the employment sector, including the unemployment rate, the number of new jobs added or lost during the month and average hourly earnings. Current forecasts call for the unemployment rate to move higher by 0.1% to 7.3%, an increase in payrolls of approximately 100,000 and a 0.2% increase in average earnings. Weaker than expected readings should renew concerns about the labor market and rally bonds enough to improve mortgage rates, especially if the stock markets react poorly to the news. On the other hand, if the report indicates employment sector strength, especially after the government shutdown, we could see mortgage rates spike noticeably higher tomorrow morning.

September's Personal Income and Outlays report will also be posted early tomorrow morning. This data gives us an indication of consumer ability to spend and current spending habits. It is important to the markets because consumer spending makes up over two-thirds of the U.S. economy. Rising income generally indicates that consumers have more money to spend, making economic growth more of a possibility. This is bad news for the bond market and mortgage rates because it raises inflation concerns, making long-term securities such as mortgage related bonds less attractive to investors. Analysts are expecting to see a 0.2% increase in income and a 0.2% rise in spending. Smaller than expected increases in both readings would be good news for the bond market and mortgage pricing, but the Employment report will take center stage Friday morning.

The third report of the day and the week's final report comes late tomorrow morning. Just before 10:00 AM ET tomorrow, the University of Michigan will post their Index of Consumer Sentiment for November. This index measures consumer confidence, which gives us an indication of consumer willingness to spend. It is expected to show a reading of 75.3, up from October's final reading of 73.2. That would be considered negative news for bonds because rising sentiment means consumers are more optimistic about their own financial situations and are more likely to make large purchases in the near future. Since consumer spending makes up over two-thirds of the U.S. economy, any related data is watched closely. The lower the reading, the better the news it is for mortgage shoppers. However, the Employment report will be the biggest force behind tomorrow's rate movement.

If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Lock if my closing was taking place between 8 and 20 days... Lock if my closing was taking place between 21 and 60 days... Lock if my closing was taking place over 60 days from now.

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