You Might Want to Start Thinking About Locking In On Mortgage Rates 2-15-2018

By James Brooks

The bond market is up 1/32 (2.90%), but weakness late yesterday should still cause Raleigh Area mortgage rates to go higher by approximately .125 of a discount point.

January?s Producer Price Index (PPI) was released at 8:30 AM ET this morning, revealing a 0.4% increase in both the overall and core readings. As with yesterday?s consumer level version of this data, these exceeded expectations. Analysts were expecting to see a 0.3% rise in the overall and a 0.2% increase in the core data that excludes more volatile food and energy prices. The results point towards rising inflation, which is the number one nemesis of the bond market. Inflation erodes the value of a bond?s future fixed interest payments, causing them to be sold at a discount now to offset that decline. Rising inflation also allows the Fed to be more aggressive with increases to key short-term interest rates. Therefore, this was today?s bad news.

Also posted early this morning was last week?s unemployment update. It indicated that 230,000 new claims for unemployment benefits were filed last week, up from the previous week?s revised 233,000 initial filings. Forecasts were calling for 227,000 initial claims, but the higher the number, the better the news it is for this report. That is because rising unemployment claims are a sign of employment sector weakness. However, because this is only a weekly snapshot of the sector, it takes a wide variance from forecasts for the data to directly affect mortgage rates. In other words, while today?s release was technically favorable for bonds and mortgage pricing, it actually has had little impact on this morning?s rates.

The other monthly report of the morning was January's Industrial Production data at 9:15 AM ET. It showed a 0.1% decline in output at U.S. factories, mines and utilities when a 0.2% rise was expected. The weaker reading is a sign of manufacturing sector weakness, so we can consider it good news for bonds and mortgage rates.

Tomorrow closes the week with two pieces of data for the markets to digest, but neither are considered to be highly important. The first is January's Housing Starts at 8:30 AM ET. This report gives us an indication of housing sector strength and mortgage credit demand by tracking new home construction starts. It usually does not affect rates unless the results vary greatly from forecasts. Current forecasts are calling for an increase in construction starts of new housing. A weak housing sector makes broader economic growth less likely in the near future, which makes bonds more attractive to investors. Therefore, the smaller the number of starts, the better the news it is for mortgage rates.

February's preliminary reading to the University of Michigan's Index of Consumer Sentiment will be the final release, coming at 10:00 AM ET tomorrow. This index measures consumer willingness to spend and usually has a moderate impact on the financial markets because consumer spending makes up over two-thirds of the U.S. economy. If it shows an increase in consumer confidence, the stock markets may move higher and bond prices could fall. It is currently expected to show a 95.5 reading, down slightly from January's final reading of 95.7. That would indicate consumers were nearly as optimistic about their own financial situations than last month. Ideally, we would prefer to see a large decline in this reading.

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.

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