Mortgage Rate Forecast – April 29, 2011

Locking Stance:  CAUTIOUSLY FLOATING*     Mortgage Bonds:  +6bp

Mortgage backed securities had a bit of a scare yesterday after the weak 7-year T-Note Auction, causing many rate alert providers to issue alerts to lock.  That proved to be a mistake, as I suspected (hence no new update), and MBS prices rebounded.  Today, they are showing some weakness as they are unable to break through resistance at current levels, but the outlook may not be all bad.  More on that later.

Today started off with the Core PCE report, the Fed’s favorite gauge on inflation.  Headline PCE came in at 0.4%, continuing to be “hot”, but Core PCE came in at 0.1%, inline with expectations and the year/year remained at 0.9%.  That means that core inflation is still tame in the Fed’s eyes (like we didn’t know that would happen).  Other components of the broader Personal Income and Outlays report were Consumer Spending and Personal Income.  Personal Income was up 0.5%, slightly more than the expected 0.4% and that brings its year/year to 5.3% (+0.2%).  Consumer Spending was up 0.6%, also slightly better than expectations of 0.5% and that brings its year/year to 4.6% (+0.5%).  The Employment Cost Index came in at 0.6%, up from 0.4%, but the year/year held at 2.0%.  Chicago PMI, another major player in the markets, came in just below expectations, at 67.6 versus 68.0, and that is down from 70.6, indicating economic growth is slowing.  Consumer Sentiment edged ever so slightly higher to 69.8 from 69.6 (expected to stay the same).   And Ben Bernanke is talking today, already blaming the slow economic recover on housing.  Well, if it is housing’s fault, we are likely going to see the economy tank more before it finally gets better.

What does this mean for Mortgage Rates? Mortgage rates are holding steady, though may tick higher short-term.  The long-term outlook is looking pretty good at the moment, but things could change still.  Lock if you are near closing, otherwise floating may prove beneficial.

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