Rate Lock Advisory

Thursday, March 12th

Thursday’s bond market has opened down slightly despite an increase in oil prices and large losses in stocks. The major stock indexes are responding to the activity in the Strait of Hormuz and a jump in oil prices that came as a result. The Dow is down 679 points and the Nasdaq is down 390 points. The bond market is currently down 1/32 (4.23%), but weakness late yesterday should leave this morning’s mortgage rates higher than Wednesday’s early pricing by somewhere between .250 and .500 of a discount point.

1/32

Bonds

30 yr - 4.23%

679

Dow

46,737

390

NASDAQ

22,325

Mortgage Rate Trend

Trailing 90 Days - National Average

  • 30 Year Fixed
  • 15 Year Fixed
  • 5/1 ARM

Indexes Affecting Rate Lock

Medium

Unknown

Treasury Auctions (5,7,10,20,30 year)

Yesterday’s 10-year Treasury Note auction was poorly received with the benchmarks indicating a pretty weak demand from investors. This didn’t come as a big surprise considering all of the inflation concerns in the markets right now. Bonds had already extended their morning losses well before the results were announced at 1:00 PM ET. However, it was around that time that we started to see lender intraday rate increases pick up momentum. It appears that some lenders may have been waiting to see if any help would come from the auction before posting a revision and when it wasn’t there, then issued the increase. In other words, the auction isn’t the cause of the upward revision in rates, but did contribute to it. The overnight oil news and results of yesterday’s sale leave us pessimistic about today’s 30-year Bond auction also. Results of it will be made available at 1:00 PM ET, again making it an early afternoon event for rates.

Low

Negative

Weekly Unemployment Claims (every Thursday)

The first of this morning’s two 8:30 AM ET economic releases was last week’s unemployment update. They revealed 213,000 new claims for benefits were made, down slightly from the previous week’s revised 214,000 initial filings. Analysts were expecting to see a number of 217,000, meaning the employment sector was a tad better than thought. While a number below forecasts is considered bad news for bonds and mortgage rates, the variance was minimal and came from a weekly update instead of monthly or quarterly. Accordingly, we haven’t seen the bond market or mortgage pricing react to the data.

Low

Neutral

Housing Starts (New Home Construction)

January's Housing Starts report was today’s second release. It showed home groundbreakings rose in January when analysts were expecting to see a decline. This is a sign of strength in the new home portion of the housing sector. But a secondary reading that tracks newly issued permits, which are an indication of future starts, declined much more than predicted. Since this report doesn’t carry a high level of importance and the readings gave us conflicting results, we are labeling it neutral for rates. We have not seen bonds react to the report.

Medium

Unknown

Personal Income and Outlays

Tomorrow brings us four relevant economic reports with one being another key inflation reading. January's Personal Income and Outlays report will be released at 8:30 AM ET tomorrow, giving us an indication of consumer ability to spend and current spending habits. Current forecasts call for a rise in income of 0.5% while spending is expected to have risen 0.3%. Rising income means consumers have more money to spend. And stronger levels of consumer spending help fuel overall economic growth, making long-term securities such as mortgage-related bonds less attractive to investors.

High

Unknown

Inflation News

However, it is not the income and spending readings that will draw most of the attention in this report. Investors will be much more interested in the Personal Consumption Expenditures (PCE) Indexes that are also in the data. They are considered to be key inflation readings because they are the Fed’s preferred gauges and used in deciding monetary policy during their FOMC meetings. The overall PCE is expected to have risen 0.3% in January while the more important core reading rose 0.4%. On annual basis, forecasts have the overall unchanged from December’s 2.9% pace and the core data up 0.1% to 3.1%. Good news for rates will be weaker than expected readings. However, the recent oil/inflation concerns are widely expected to heavily affect costs that are in the PCE readings, making January’s data almost irrelevant at this point.

Medium

Unknown

GDP Rev 1 (month after initial)

Also set for release early tomorrow morning is the first revision to the 4th Quarter Gross Domestic Product (GDP) reading. The GDP is considered to be the benchmark indicator of economic growth since it is the total of all goods and services produced in the U.S. This is the second version of last quarter and is now expected to come unchanged from the preliminary estimate of a 1.4% annual rate of growth. Because bonds are more attractive to investors during times of economic weakness, the bond market and mortgage rates would like to see a noticeable downward revision. That said, market traders are more interested in the current quarter’s activity than data from back in October through December. Therefore, it will take a noticeable revision and the PCE indexes matching forecasts for this report to cause a change in rates.

Medium

Unknown

Durable Goods Orders

January's Durable Goods Orders report is tomorrow’s third early morning release, tracking orders at U.S. factories for items expected to last three or more years. Products such as electronics, refrigerators, airplanes and autos are examples of these big-ticket items. Analysts are expecting to see a 1.2% increase in new orders, signaling strength in the manufacturing sector after December showed a decline. It is worth noting that this data is known to be quite volatile from month to month, so large swings are common and won't affect rates nearly as much as it would in many other reports. Favorable news for mortgage pricing would be a large decline in orders.

Medium

Unknown

Univ of Mich Consumer Sentiment (Prelim)

The final release of the week is the preliminary University of Michigan's Index of Consumer Sentiment for March at 10:00 AM ET tomorrow. This index gives us a measurement of consumer willingness to spend. If consumers are more confident in their own financial and employment situations, then they are more apt to make large purchases in the near future. A big drop in confidence will be bad news for stocks and good news bonds. Forecasts have it coming in at 56.0, down from February’s 56.6. The lower the number, the better the news for mortgage pricing.

Float / Lock Recommendation

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... 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.