Thursday, November 21, 2013 - Article by: James Brooks - Polaris Home Funding Corp -
By James Brooks
The stock markets are helping pressure bonds with early gains of 66 points in the Dow and 27 points in the Nasdaq. The bond market is currently down 9/32, which should push this morning's mortgage rates higher by approximately .500 - .625 of a discount point if comparing to Wednesday's morning pricing. Just how much of an increase made this morning depends on how much of an upward revision your lender made yesterday afternoon.
Yesterday's afternoon selling was fueled mostly by the release of the minutes from last month's FOMC meeting. Those minutes indicated a possible shift in when the Fed may start tapering or slowing their current monthly bond purchases. There has been plenty of talk and predictions on that subject since early summer, but until yesterday it seemed the Fed was content with the $85 billion a month in purchases until the employment sector gained much more momentum (particularly a national unemployment rate of 6.5%). The minutes revealed some discussion about scenarios in which a reduction in purchases was made before their previously stated economic thresholds were met. That caused concern in the bond market because the Fed is buying long-term government and mortgage-backed securities. The result was an intra-day upward revision to mortgage rates from most lenders during afternoon trading.
There were two pieces of economic data released this morning that carry the potential to influence mortgage rates. The more important of the two was October's Producer Price Index (PPI) at 8:30 AM ET. It revealed a decline of 0.2% in the overall reading and a 0.2% increase in the core data. Analysts were expecting to see the decline in the overall reading, but the core reading was forecasted at 0.1%. The data hints that inflationary pressures remain subdued at the manufacturing sector of the economy. However, since the core data excludes more volatile food and energy prices, it draws more attention than the overall reading. And because rising inflation makes bonds less appealing to investors, we should consider the data slightly negative for the bond market and mortgage rates.
The Labor Department also gave us last week's unemployment figures early this morning, announcing that 323,000 new claims for unemployment benefits were filed last week. This was lower than expected and a fairly sizable decline from the previous week's revised total of 344,000 initial claims. In other words, the employment sector appears to have strengthened a little more last week than many analysts had thought, making the data negative for the bond and mortgage markets.
Tomorrow doesn't have any relevant economic data or other events scheduled that are likely to affect mortgage pricing. We still could see more movement in rates though, especially if stocks make a noticeable move higher. As mentioned several times recently, since the yield on the benchmark 10-year Treasury Note was unable to stay below 2.70%, I believed we were much more likely to see it move higher in the immediate future. That happened yesterday and unfortunately, until it gets close to 2.92% that risk will likely remain (currently 2.82%). Because mortgage rates tend to follow bond yields, it would be prudent to seriously consider locking a rate if still floating and closing in the very near future.
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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