Florida Mortgage Rates – Morning Report

by Florida's #1 Mortgage Planner on May 18, 2010

Locking Stance: CAUTIOUSLY FLOATING    Mortgage Bonds: +12bp

First off, my apologies about not getting this week’s report up at Lenderama and for not getting off a daily report yesterday.  I am not going to use any excuses here as it really doesn’t matter and we need to get down to real business.

Mortgage backed securities are still not showing any clear signs of where they truly want to go.  While the charts have definitely improved, at least in the short-term outlook, they are not solidly showing strength and that means one thing, DON’T FLOAT IF YOU CANNOT STOMACH RISK.  Now, I have not changed my stance despite yesterday’s major pullback which triggered numerous “lock alerts” from the rate alert services.  Honestly, I have not decided if they were premature or not as there is still signs that MBS prices will rise from here, though the weakness displayed is a concern.  The bottom line is I need more time to be able to forecast accurately where rates are headed.

Now, as a recap of yesterday’s data plays, we saw the Empire State Manufacturing Survey, which reported at 19.1, well below the consensus of 30.0, though still showing growth.  The Treasury International Capital report showed Foreign Demand for Long-Term US Securities at net $140.5B, a monthly record.  The underlying significance of this report is that this rush to buy Treasuries raises concerns of Chinese disinvestment and since they hold the largest share again, a selloff could send mortgage rates higher as an after effect.  The Housing Market Index was also reported, this time at 22 and is now at its best level in 2 1/2 years.  Personally, I think this move will just be temporary. 

OK, now for today’s data plays.  I am going to skip the minor stuff and get right into the two we need to focus on, Housing Starts and the Producer Price Index (PPI).  First, Housing Starts were higher than expected, coming in at 672K versus 650K.  The other part of the report, Building Permits, came in at 606K.  This spike may be due to the recent spike in home sales, so again, this may end up being temporary.  As for the Producer Price Index, or PPI, we have a mixed bag of news.  Overall PPI came in at –0.1%, which was below estimates of 0.1% and the year/year is now 5.4%.  However, the Core PPI (excludes food and energy) came in at 0.2%, just above estimates of 0.1%, though the year/year is at just 1.0%.  Traders won’t likely act much on this report and will wait for tomorrow’s CPI for a better read on inflation.

What does this mean for Mortgage Rates?  Mortgage rates are about where they were on Friday, though yesterday saw a slight improvement.  The short-term outlook still favors mortgage rates edging lower, though its forecast is in question, as is the long-term outlook.  The next day or two will be key in shaping the direction mortgage rates move.

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