Rate Lock Advisory

Tuesday, January 13th

Tuesday’s bond market has opened in positive territory following somewhat favorable inflation news. Stocks are showing early losses with the Dow down 340 points and the Nasdaq down 49 points. The bond market is currently up 2/32 (4.18%), but selling late yesterday is going to push this morning’s mortgage rates higher by approximately .250 of a discount point. If you saw an intraday increase yesterday, you may not see a change this morning.

2/32

Bonds

30 yr - 4.18%

340

Dow

49,250

49

NASDAQ

23,681

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 mostly uneventful. The 1:00 PM ET results announcement indicated an average or slightly stronger demand from investors compared to other recent sales. We saw bonds improve modestly after the announcement, but within an hour they had reversed course and yields continued to move higher throughout late afternoon trading. This led to some lenders issuing an intraday increase in rates before closing. Since yesterday’s auction drew a respectable interest from investors, we are optimistic that today’s 30-year Bond auction will go fairly well also. A strong sale would mean investors still have an appetite for long-term debt, which is what mortgage rates are based on. However, if the 1:00 PM ET results release points to a lackluster or weak demand, we could see afternoon pressure in bonds that causes an intraday increase in mortgage pricing during afternoon trading.

High

Positive

Consumer Price Index (CPI)

This morning’s major economic news was the release of December’s Consumer Price Index (CPI) at 8:30 AM ET. The report showed inflation at the consumer level of the economy rose 0.3% last month, matching expectations. Core data, that excludes more volatile food and energy costs, rose 0.2% when forecasts had it up 0.3%. Year-over-year readings came in similarly with overall inflation at a 2.7% annual pace and the more important core reading holding at November’s 2.6% rate instead of rising to 2.7% as expected. The lower than predicted core readings allow us to label the report as good news for bonds and mortgage rates because weaker inflation makes bonds more attractive to investors and allows the Fed to be more aggressive in lowering key rates. However, there is no doubt that inflation persistently remains above the Fed’s preferred rate of 2.0%, clouding what the Fed may do in the future.

Low

Neutral

New Home Sales

Today’s second economic release was significantly less influential than the earlier inflation data. New Home Sales figures for September and October were posted at 10:00 AM ET. They revealed sales of newly constructed homes rose 3.8% in September, adding on to August’s 20.8% jump. October’s sales slipped 0.1%, pretty much holding onto September’s gains. We would normally label this report unfavorable because it shows strength in the new home portion of the housing market. However, because this report covers such a small percentage of all home sales and the data is fairly ancient in terms of economic relevancy, it has had no impact on this morning’s bond trading or mortgage pricing.

High

Unknown

Producer Price Index (PPI)

Tomorrow has four more economic releases that we will be watching, including two that are considered highly important. One of those two is the sister release of today’s CPI. October and November’s combined Producer Price Index (PPI) will be posted at 8:30 AM ET tomorrow, telling us what inflationary pressures at the wholesale level of the economy looked like last month. The monthly PPI increases are expected to be similar to the CPI, but the annual readings differ. As with any inflation data, good news for rates would be softer than expected price pressures, making long-term debt, such as mortgage bonds, more attractive to investors.

High

Unknown

Retail Sales

The second highly important release of the day will be November’s Retail Sales data, also at 8:30 AM ET. It measures consumer spending, which is watched closely because this category makes up over two-thirds of the U.S. economy. Current forecasts show a 0.4% rise in overall sales, indicating economic strength. Analysts are expecting to see a 0.3% rise in sales if more volatile and costly auto transactions are excluded. Stronger than expected sales would be considered bad news for bonds and likely lead to an increase in mortgage pricing. Favorable news for rates would be weaker numbers since slowing consumer spending should limit economic growth.

Medium

Unknown

Existing Home Sales from National Assoc of Realtors

The National Association of Realtors will give us the most relevant housing sector report at 10:00 AM ET tomorrow. Their December Existing Home Sales report offers insight into the housing sector via home resale statistics. Market participants are expecting to see a small increase in sales last month, indicating modest strength in the sector due to lower mortgage rates. Because housing gains can fuel strength in the broader economy, mortgage rates should move slightly lower if sales are weaker than predicted- assuming the earlier sales data doesn’t show a significant surprise.

Medium

Unknown

Fed Beige Book

Tomorrow’s final release is an afternoon event that will be posted at 2:00 PM ET. The Federal Reserve's Beige Book is named simply after the color of its cover and details economic conditions throughout the U.S. by Fed region through the eyes of their business contacts. Since the Fed relies heavily on this info during their FOMC meetings, its results can have an impact on the financial markets and mortgage rates if it reveals any surprises. Of particular interest is information regarding inflation and employment strength. If there is a reaction to the report, it will come during mid-afternoon trading.

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.