The Bottom Line

This week brings us the release of seven relevant economic reports for the bond market to digest. We are also heading into corporate earnings season, which could lead to fluctuations in the stock markets. If earnings come in lighter than estimates, the stock markets may fall, leading to an influx of funds into bonds. But, if earnings and forecasts are strong, the major stock indexes may rally, pulling funds from bonds and leading to higher mortgage rates.

There is no relevant economic news scheduled for release tomorrow. The first report of the week comes Tuesday morning but it is the least important one. February's Goods and Service Trade Balance will be posted early Tuesday morning. This data gives us the size of the U.S. trade deficit, but unless it varies greatly from forecasts, it likely will not cause much movement in mortgage rates. Current forecasts show a $39.0 billion trade deficit.

The first important report will be posted early Wednes day morning when the Commerce Department will release March's Retail Sales data. This piece of data gives us a measurement of consumer spending, which is very important because consumer spending makes up two-thirds of the U.S. economy. Forecasts are calling for a 1.1% increase in sales last month. If we see a larger increase in spending, the bond market will probably fall and mortgage rates will rise. However, a weaker than expected reading could push bond prices higher and mortgage rates lower Wednesday.





Also scheduled for release Wednesday is March's Consumer Price Index (CPI). This index is one of the most important pieces of data we see each month. It measures inflationary pressures at the consumer level of the economy. If inflation is rapidly rising, bonds become less appealing to investors because it erodes the value of their future fixed interest payments. This leads to bond selling and higher mortgage rates. There are two readings i n the index that traders watch. The first is the overall reading while the second is the more important core data reading that excludes more volatile food and energy prices. Analysts are expecting to see a 0.1% increase in both readings. If we see larger increases, we could get higher mortgage rates Wednesday.

The Federal Reserve will post its Fed Beige Book report at 2:00 PM ET Wednesday for the third event of the day. This report is named simply after the color of its cover and details economic conditions throughout the U.S. by region. Since the Fed relies heavily on the contents of this report during their FOMC meetings, its results can have a fairly big impact on the financial markets and mortgage rates if it reveals any significant surprises. Generally speaking, signs of strong economic growth or inflation rising would be considered negative for bonds and mortgage rates. Slowing economic conditions with little sign of inflationary pressures would be consi dered favorable for bonds and mortgage pricing.

Thursday's relevant data is March's Industrial Production report at 9:15 AM ET. It gives us a measurement of output at U.S. factories, mines and utilities, translating into an indication of manufacturing sector strength. Current forecasts are calling for an increase in production of 0.7%. This data is considered to be only moderately important to rates, so it will take a more than just a slight variance to influence bond trading and mortgage pricing.

This leaves two reports for Friday. March's Housing Starts is first, but it will likely be a non-factor in the market. It gives us a measurement of housing sector strength and mortgage credit demand, however, usually doesn't cause much movement in mortgage pricing unless it varies greatly from forecasts. It is expected to show an increase in construction starts of new homes.

The final release of the week is the University of Michigan's Index of Consumer Sentiment at 9:45 AM ET Friday. Their consumer sentiment index will give us an indication of consumer confidence, which hints at consumers' willingness to spend. If confidence is rising, consumers are more apt to make large purchases. But, if they are growing more concerned of their personal financial situations, they probably will delay making that large purchase. This influences future consumer spending data and can have a moderate impact on the financial markets. Good news would be a decline from March's 73.6 reading. Current forecasts are calling for a reading of approximately 75.0.

Overall, look for the most movement in rates the middle part of the week. The Retail Sales and CPI reports are the biggest names on the agenda. Either of them can cause significant movement in the markets and mortgage rates, so the fact that they are being posted on the same day makes Wednesday the most important of the week. Look for the stock markets to influence bond trading and mortgage rates the first part of the week, but we can expect to see the most movement in rates the latter part. I am expecting it to be an active week for the mortgage market, so please maintain contact with your mortgage professional if still floating an interest rate.

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... Float if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.

                              ©Mortgage Commentary 2010

RISMEDIA, March 18, 2010—The pace of single-family home production remained virtually unchanged in February 2010, with a 0.6% decline to a seasonally adjusted annual rate of 499,000 units, according to figures recently released by the U.S. Commerce Department. Meanwhile, a large decline on the more volatile multifamily side brought the overall number of housing starts down 5.9% to a seasonally adjusted annual rate of 575,000 units.

“This latest data indicates that the single-family sector is gradually finding more stable ground, particularly in light of the poor weather conditions that hampered new building activity in two out of four regions last month and the continued difficulties that builders faced in accessing financing for new projects,” said NAHB Chief Economist David Crowe. “With the deadline for purchasers to take advantage of home buyer tax credits fast approaching at the end of April, improvement in single-family building activity was expected and may have continued into early March. Moreover, the very thin inventory of new homes now on the market, the pent-up demand from three-plus years of low household formations and good affordability conditions will provide the platform for a 25% gain in new-home construction in 2010 over 2009.”

While the combined pace of single- and multifamily housing starts fell 5.9% to 575,000 units in February, that decline was mostly due to a 30.3% dip in multifamily starts to a 76,000-unit pace following a double-digit increase on that side in the previous month. Meanwhile, single-family starts held virtually even, with a 0.6% decline to a 499,000-unit pace.

On a regional basis, combined starts activity declined 9.6% in the Northeast and 15.5% in the South, where unusually poor weather conditions were a factor in February. Meanwhile, starts activity posted gains of 14.3% in the Midwest and 7.9% in the West.

Permit issuance, which can be an indicator of future building activity, declined 1.6% overall to a seasonally adjusted annual rate of 612,000 units in February. This reflected a statistically insignificant 0.2% decline to 503,000 units on the single-family side and a 7.6% decline to 109,000 units on the multifamily side.

Regionally, permit issuance was mixed in February, with the Northeast posting no change, the Midwest posting an 11.7% gain, the South registering a 5.8% decline and the West recording a 2.1% decline.

The Federal Open Market Committee (FOMC) met for a one day meeting this week. The FOMC released their statement on monetary policy, which was  very similar to the FOMC statement released after the January meeting. They reiterated the need for low rates for an "extended time" and that inflation is not a concern today.  There were two changes made that relate to housing. First, the verbiage referring to the MBS Purchase Program, which is scheduled to run out of funding at the end of March, added what may be a door to extend the program in some capacity.  Additionally, the Fed inserted a few words that imply they are concerned about the health of housing, stating: "Housing starts have been flat at depressed levels". This adds some hope that the Fed may need to add funds to the MBS Purchase Program if mortgage rates move higher following their withdrawal at the end of March.

HOW DID MORTGAGE RATES REACT TO THE FOMC STATEMENT???

Rates moved a few basis points lower!

Leading up to and following the release of the statement, both benchmark Treasury yields and MBS prices improved, with much of the gains after the FOMC statement was released. This led to most lenders repricing for the better.  Reports from fellow mortgage professionals indicate lender rate sheets to be better than yesterday.  While the par 30 year conventional mortgage rate does remain in the 4.75% to 5.00% range for well qualified consumers, more lenders are now offering these rates.  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. 

Today’s Fed Statement has helped lower consumer borrowing costs a few basis points.  While there is room for benchmark Treasury yields to improve further, the same story cannot be told for mortgage rates. Lenders seem to be unwilling to drop mortgage rates below 4.75%. If being quoted these best rates, it may be in your best interest to lock in, especially if you are within 20 days of closing.  If a projected closing date is further down the road, you may want to float to see if the recent rally in rates can extend.

Source: Mortgage News Daily