Rate Lock Advisory

Thursday, July 31th

Thursday’s bond market has opened in positive territory despite mostly unfavorable economic data. Stocks are showing early gains of 133 points in the Dow and 283 points in the Nasdaq. The bond market is currently up 7/32 (4.34%), which may allow some lenders to improve mortgage pricing by approximately .125 of a discount if there was no intraday improvement late yesterday.

7/32

Bonds

30 yr - 4.34%

133

Dow

44,594

283

NASDAQ

21,413

Mortgage Rate Trend

Trailing 90 Days - National Average

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

Indexes Affecting Rate Lock

Medium

Neutral

Personal Income and Outlays

There were three 8:30 AM ET reports posted this morning, giving us mixed economic news. The most important of today’s releases was June’s Personal Income and Outlays report. It showed a 0.3% rise in both the income and spending readings. Income was 0.1% higher than expected, but spending fell short of predictions by the same margin. Rising income means consumers have more money to spend, but it appears they didn’t spend as much as analysts had thought. Accordingly, this portion of the report is neutral for bonds and mortgage rates.

High

Negative

Inflation News

Within the first report is also the Personal Consumption Expenditures (PCE) indexes that the Fed heavily relies on to gauge inflation. Both the overall and the more important core data that excludes food and energy costs rose 0.3% for the month to match predictions. The problematic news came in the annual PCE readings since the overall rose at a 2.6% pace while the core PCE moved up to 2.8%. These stronger than expected year-over-year inflation readings are partly a result of upward revisions to May and April’s previously announced figures. Still, the fact inflation is moving away from the Fed’s 2.0% goal means they are less likely to cut key short-term interest rates at September’s FOMC meeting.

Medium

Negative

Employment Cost Index (Quarterly)

The 2nd Quarter Employment Cost Index (ECI) revealed a 0.9% rise, pointing to higher employer costs for wages and benefits. Forecasts had the index rising 0.8%. The increase means businesses may need to charge more for their products and services, likely contributing to further increases in inflation. Any data that points to rising inflation is usually bad news for bonds and mortgage pricing.

Medium

Unknown

Weekly Unemployment Claims (every Thursday)

Today’s third release was last week’s unemployment figures that showed 218,000 new claims for jobless benefits were filed. This was a slight increase from the previous week’s 217,000 initial filings, but softer than the 224,000 that was expected. Because rising claims signal weakness in the employment sector and last week fell short of forecasts, we have to also label this report as bad news for bonds and mortgage shoppers. Fortunately, it is just a weekly snapshot that hasn’t had much of an impact on this morning’s trading.

High

Unknown

Employment Situation

This week’s busy calendar comes to an end tomorrow, but only after three more economic reports are released, including two top-tier in terms of importance to the markets. The first is the almighty monthly Employment report that will be posted at 8:30 AM ET. This report gives us the U.S. unemployment rate, number of jobs added or lost during the month and average hourly earnings for July. Forecasts show around 100,000 new payrolls last month, while the unemployment rate rose 0.1% from June to 4.2% this month. Earnings are predicted to have risen 0.3%. Good news for rates would be a smaller payroll number, higher unemployment rate and flat earnings. This is one of the most influential monthly reports the financial markets see.

High

Unknown

ISM Index (Institute for Supply Management)

The highly important Institute for Supply Management’s (ISM) manufacturing index will be posted at 10:00 AM ET. It will give us an indication of manufacturing sector strength by tracking executive opinions about business conditions during the month. A reading below 50.0 means that more surveyed executives felt that business worsened last month than those who said it had improved. Analysts are expecting to see a 49.5 reading, up from June's 49.0. Favorable news for bonds and mortgage rates would be a noticeably weaker reading because waning manufacturing activity is a sign of a slowing economy that makes bonds more attractive to investors.

Medium

Unknown

Univ of Mich Consumer Sentiment (Rev)

July's revised University of Michigan Index of Consumer Sentiment at 10:00 AM will close this week's activities. This is a consumer optimism reading about their own personal financial situations. It is considered relevant because rising consumer confidence usually translates into higher levels of spending, adding fuel to economic growth. Tomorrow’s release is an update to the preliminary reading we saw two weeks ago, so unless we see a drastic revision to the preliminary estimate of 61.8, the markets will probably have little reaction to this data. Tomorrow’s other two releases both carry much more importance in the markets than this report does.

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.

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