Mortgage Rates Under Pressure

Last week was not a fluke, the retrenchment of MBS prices from our highs on July 6th is just the beginning.  Do not expect MBS to make a rebound and reclaim the lost -57BPS from last week anytime soon.  That pricing is gone.  Our domestic data can have no influence on pricing this week and it really will be driven by overseas events.  I expect MBS to be under pressure and to test our same floor of support that held Friday - so your downside is limited but I see no upside at all today.

Late Friday afternoon reports surfaced of a coup in Turkey, and over the weekend thousands were arrested. The coup is said to have been orchestrated by a cleric that is now in the US and Turkish officials are pressing to have him extradited to Turkey but there is some resistance to do it. He has been in the US since 1999. The bond and mortgage markets improved prior to the close Friday, and this morning rate markets starting slightly lower (price) and the 10yr yield has not shown much changed since it opened.  Currently at 10:30AM, the 10yr is at 1.59% and MBSs down 14BPS.

This week the economic calendar is thin with housing data the main focus. June housing starts and permits and June existing home sales. Fed officials have duct tape over their mouths this week with the FOMC next week.

The Republican convention begins tonight. This week over 90 of the biggest companies will report Q2 earnings. Thomson Reuters forecasting earnings will be down 4.7% in the quarter after being down 5.0% in Q1. If that actually occurs it would be the further quarter in a row that earnings have dropped. It does not appear to bother investors though, the indexes have been rallying for over two weeks now after the brief selling on the UK vote last month.  We have seen the DJIA and S&P at new all-time highs.

Later this week the ECB will hold its meeting (Thursday); the ECB is expected to leave interest rates unchanged. Wednesday EU consumer confidence will be reported; the first look at how consumers have reacted to the UK vote.

The July NAHB housing market index did come out this morning and did not make its mark. Builders cannot find land and the time it takes to develop it is excessive given overall uncertainty about the economic outlook and builders pointing to declining consumer confidence. Buyer traffic was down in June.

At the end of this week, we will have a very good idea of how our housing market is doing but it will have very little impact on pricing.  My suggestion is to lock your application now if you are within 30 days of closing as I do not see much improvement in the near future – even though I still feel that it will come, but not in the next 30 days.