Mortgage Rates Stuck in Neutral?, October 20, 2011

Mortgage rates have been, for all practical purposes, stuck in neutral this week.  Even though they have fluctuated a bit in either direction, the net movement has been nil.  Today may very well continue that exciting trend.  While there is plenty of economic data available today regarding the state of the US economy and news from Europe on its debt and banking crisis, there is really nothing that provides clarity for the future.  Nevertheless, for consumers needing a loan for a purchase or refinance, current mortgage rates remain very attractive.

The key economic report today, like most Thursday’s is the weekly jobless claims report.  This report has hung so close to 400,000 new applicants for unemployment benefits for so long that it is almost creepy.  How can this measure remain so constant in a country of 300 million?  The truth is that I have no idea, but today’s figures once again came in at 402,000. Weird.

In other US economic news today, reports on Existing Home Sales, the Philadelphia Fed Index (a measure of manufacturing activity in the Philadelphia Federal Reserve Bank region) and the leading economic indicators report are all due at 10 AM.  No big changes are expected, but I am wary of the home sales figures and the Philly Fed Index.  Anecdotal reports suggest that would-be homebuyers may be waiting until the economy appears more stable.  With the Philly report, we are coming off one of the biggest drops ever for this report and it is certainly possible that conditions have not improved for manufacturers.  The sharp increase in producer prices reported on Monday may foreshadow trouble for manufacturing.

In Europe most of the news this week has been positive, or at least was interpreted positively.  Unfortunately, what we have learned time and time again is that you simply can’t trust statements made by “officials” in Europe.  At the beginning of the week markets reacted favorably to news that France and Germany had reached agreement on the best use of the European Financial Stability Fund.  Today we learn that, in fact, these two key nations have not agreed on how to utilize this tool to support troubled sovereign nations.  Needless to say, this does not sit well with market traders.

Today will likely be volatile and mortgage-backed securities markets may move significantly.  I think, however, that lenders will be wary of changing their pricing without a clear, sustainable direction.  While clarity may develop today—I expect it will not and mortgage rates will remain close to current levels.